Department for Energy Security and Net Zero, Contracts for Difference

This Department for Energy Security and Net Zero, Contracts for Difference subsidy relates to the Contracts for Difference scheme which is at the seventh allocation round (having existed since 2014). It proposes to encourage low carbon electricity generation by ensuring electricity is sold at a variable market price.

Our key takeaways from the Subsidy Advice Unit (SAU) report are:

• Assessments should provide evidence to support statements, including from the previous allocations and evidence that its auctions were effective in delivering competitive outcomes.
• Full discussions of alternative policy options and contemporary analysis as to why the earlier analysis remails relevant should be provided.
• Information on the absolute and relative size of the Scheme and subsidies under it should be included in the Assessment, comparing them to the total estimated level of investment needed to meet policy objectives and the size of impacted markets.
• Assessments should provide a complete evaluation of market characteristics, such as:
  • market size;
  • market participants; and
  • market concentration.
• Additionally, they should identify impacted product and geographic markets, and include a detailed consideration of effects of the subsidies given under the Scheme on competition or investment, such as impacts on:
  • market structure;
  • market concentration; and
  • other low-carbon generators.
• An in-depth assessment should be provided of the overall scale of the potential negative impact on competition and investment and the potential impact on trade and investment.
• The capacity constraints and resulting funding gap for low carbon projects should be described clearly in the Assessment, and clearly linked to the definition of a market failure in the Statutory Guidance.
• The trajectory of low carbon electricity with and without the Scheme should be discussed.
• A fully modelled counterfactual should be provided, and it should quantify any development of renewables capacity that would proceed absent support.

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