CFD Generator Workshop

19 November 2014

Ruth Herbert

Low Carbon Contracts Company

2

AGENDA – CFD GENERATOR WORKSHOP

19 November

Timing Session Delivery partner

09.30 Welcome and Introduction Low Carbon Contracts Company

09.40 Sealed Bids National Grid

10.55 Tea, Coffee Served

11.10 Contract Allocation & Next Steps Low Carbon Contracts Company

11.35 EMR Settlement Services: Generators EMR Settlement Ltd

11.55 Forecasting & Transparency Tool Demonstration Low Carbon Contracts Company

12.30 CLOSE

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CFD Generator Workshop 19 November 2014

3

The Role of the Low Carbon Contracts Company

Working in partnership with DECC and industry to oversee the delivery of the end-to-end CFD scheme, facilitating:

- Delivery Partner Cooperation and

- Industry Readiness

Low Carbon Contracts Company is the independent counterparty to the private law

contracts known as “CFDs”

CFD Generator Workshop 19 November 2014

The Government’s Electricity Market Reform programme is aimed at

attracting up to £110bn investment needed to transform the sector

Implementation Business As Usual

4

Our Obligations under CFDs

CFD Generator Workshop 19 November 2014

We have been established as an

independent counterparty to

increase investor confidence in

CFDs

Forecasting CFD payments, and setting

Supplier Obligation interim rate and

reserve

Signing and managing the life-cycle of a CFD

and investment contracts

Managing settlement process including

collecting payments from Suppliers passing on to

Generators and vice-versa when required.

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Key messages

We are here to provide…

• Operational independence key to maintaining

investor confidence in the CFD scheme

• Proactive contract management approach focussed on

generation outcomes

• Transparent forecasting of supplier obligation and

operational costs

• Partnership working on implementation

6

CFD Implementation Plan update

Ruth Herbert

Low Carbon Contracts Company

7

CFD Timeline

Contracts for Difference

John Perkins Contracts for Difference Manager

Allocation Round Progress Update

Applicants Apply

Assess

Eligibility

Request

Review

Review

Request

Appeal

Appeal

Round Variation / Budget Revision Notices

Qualified

Applicants

RO Check

5.

Appeal 6. Valuation

7. Sealed Bids

8. Allocation &

Independent Audit

9. Allocation Notification

1. Pre-Application Activities

2. Application 3.

Qualification 4. Review

CfD Qualification – Reviews

Review Requirements

Concise statement identifying dispute

No new documentary evidence but can

clarify original evidence

Schedule listing the documents submitted

Succinct presentation of

arguments

Summary of grounds for dispute

Non-Qualification Review Form

Non-Qualification Review Form

Please provide a statement identifying the relevant part of the non-qualification

determination in dispute and set out the facts on which you (Applicant) rely on.

Please provide a summary of the grounds for disputing the non-qualification

determination.

Please provide a succinct presentation of the arguments supporting each of

the grounds for dispute.

Please provide a schedule listing the documents submitted with the review

notice

Review Submission via Egress

Secure email of

determination

Automatic

delivery receipt

Delivery Body

Receipt

Delivery Body Applicant Applicant

Switch

Upload

relevant form

Switch

Secure email Switch

1 2

3

4

Applicants

Round Variation / Budget Revision Notices

Submit Sealed

bids if requested

Value

qualified

applicants

Allocation &

Independent

Audit

Request

sealed bids

if required

5.

Appeal 6. Valuation

7. Sealed Bids

8. Allocation &

Independent Audit

9. Allocation Notification

1. Pre-Application Activities

2. Application 3.

Qualification 4. Review

Applicants

Allocation

Reports Review

Ro

un

d C

loses

CfD

Notification

Issue

Contract

s

Contract

Signature

5.

Appeal 6. Valuation

7. Sealed Bids

8. Allocation &

Independent Audit

9. Allocation Notification

1. Pre-Application Activities

2. Application 3.

Qualification 4. Review

Scenarios of Key Dates

Step No reviews Reviews and Appeals

Review Requests Request Window Closes 5pm on 20th November

Review N/A 21st Nov – 5th December

Appeal Requests N/A 8th -12th December

Appeals N/A 6th February 2015

(assumed)

Notify SoS of Budget

Impacts

21st November 9th February 2015

Auction Notice 2nd December 17th February 2015

Sealed Bids 3rd – 9th December 18th -24th February 2015

Allocation Notice to SoS 29th December 12th March 2015

CfD Notifications 6th January 18th March 2015

Contracts for Difference

Yasharn Smith EMR Delivery Manager

Allocation Rules

When is an Auction Required Illustration only

AUCTION

REQUIRED

NO AUCTION

REQUIRED

CfD Allocation – General Principles

Budget Rule

• Pot /Budget (Cannot Be Exceeded Except for Pending Projects)

Constraint • Only competitive where binding constraint (E.g. MIN capacity/Pot Budget)

Across Years

• All projects in same Pot will compete on strike price basis, regardless of delivery year.

• Years can close independently

Bids/ Prices

• Projects will be awarded in order of lowest to highest strike price

• Sealed bid process (includes bidder flexibility)

Pay as Cleared

• Clearing Price set by most expensive successful project in each year (subject to cap at the Technology Admin Strike price).

CfD Allocation – Flexible Bids

Project SP Bid Del Yr MW

A2 115 16/17 43

K1 113 18/19 700

G3 112 18/19 5

C2 108 17/18 28

A1 105 15/16 47

C1 105 17/18 38

D6 97 16/17 42

D1 94 16/17 80

H4 93 17/18 35

B2 92 16/17 50

F2 90 17/18 80

E1 88 16/17 63

B7 85 15/16 50

Fle

xib

le B

ids

- In

cre

as

ing

Pri

ce

15/16 16/17 17/18 18/19

B7

Str

ike

Pri

ce

Bid

s

B2

D1

D6

A1

A2

Bids are assessed in order of strike price bid

(cheapest first) . If they fit the budget profile after

clearing consideration, they are accepted.

Same Commissioning Year Flexibility

If a bid is successful, remove from stack all other

bids relating to same project

E1

G3

Close Year

Reject all

other bids

for 16/17

Budget

would be

exceeded

in 16/17

Next

cheapest

bid is for

same

project

F2

H4

Close Year

C1

C 2

K1

Close Year

Tiebreak with

A1 & C1

A1 uses budget

best in final year

CfD Allocations – Tiebreaker Rules

Tie-breaker rules applies where 2 or more projects with the same strike

price bid, both cannot be awarded a CfD without exceeding budget limits

Assess all

combination of tied

projects which

exceeds budget

Choose combination

of projects which

best uses budget

For further ties –

Random number

generator is to be

used

Confirm projects

with same S.P would

exceed budget

Consider other flex

bids for

unsuccessful

projects

Remove other flex

bids for successful

projects

Contracts for Difference

Yasharn Smith EMR Delivery Manager

Sealed Bids

Sealed Bids

Submission Rules

General

No bids above the

ASP

Bids must be in

2012 prices

Withdraw & re-

submit bids during

submission

window

No bids accepted

after window

closes

Relevant ASP is

used if no bids are

submitted

Detail

Submit combination of different bid price, capacity, TCW,&

TCD

Max 10 Bids per project

No more than 3 bids for the same Delivery Year (DY)

No two bids can have the same price

Must be same DY or later than original application

Must be same capacity or less than original application

Lowest price in each DY expressed to nearest whole

pence (e.g. £100.01)

All bids other bids (except for lowest in each DY)

expressed to nearest 0.1 pence (i.e. £100.011)

Only 1 Sealed Bid can have the same first DY and

capacity as original application

Sealed Bids Submission process

Auction Notice Published

Pre-populated Sealed Bid Forms

Applicants Fill in Sealed Bid Forms

Applicants Validates Form

Send form to DB

Withdraw Application/

Sealed Bids + Resubmit

DB Uses Bids to Run Auction

Auction Notice

Notice of Auction will be sent from the DB to:

Inform qualified & pending applicants that the value/capacity (min) of

a pot(s) has been exceeded and therefore a competitive allocation is

required for that pot;

Inform Applicants of the dates for opening and closing sealed bids

submission window

Provide link to guidance on how to submit and fill a sealed bids form

Provide applicants with pre-populated sealed bids submission form

for each one of their qualifying/pending applications;

Sealed Bids Form

Sealed Bid Forms User Guide will be available

alongside the Auction Notice and release of

pre-populated Sealed Bid forms

Sealed Bids Form Demo

Sealed Bids Form

The DB will make copies of blank Sealed Bids

form available to all applicants for

familiarisation only

To be published on DB EMR Portal from w/c 21 November

Application/ Sealed Bids Withdrawal

Applicants participating in an auction may

Withdraw applications during the submission window;

Withdraw and re-submit sealed bids during the submission

window.

The CfD sealed bids withdrawal form and the CfD application

withdrawal form will be made available on the EMR DB Portal

when an auction commences

Submission through Egress

Applicants must send filled in (validated) sealed bids

form/withdrawal forms to the Delivery Body through Egress Switch:

https://secureform.egress.com/emr/

Applicant contact

details required

here

DB will not accept

Sealed Bid forms

from unregistered

person

Submission through Egress

Upload file to be

sent here

1. Select CFD Sealed

Bids on the [Type of

Submission] drop

down box;

2. Click on the Add Files

button;

3. A file dialog box will

appear which enables

4. Users to select their

files, upload Validated

Sealed B

Applicants must not change the file name of the pre-populated

Sealed Bid form sent from the DB

Enter an alternative

email address if

required for copies of

submission to be shared

National Grid Contact Details

' Phone: 01926 655300 (calls recorded on this number)

* Email: emr@nationalgrid.com

website: www.emrdeliverybody.com

BREAK

19 November 2014

Next steps following CFD contract allocation

Puk Lykke-Moller

Contract Management

35

Disclaimer

• Parties should rely upon the drafting of the relevant

CFD Agreement and FiT CFD Standard Terms and

Conditions in relation to the contract they enter into, not

these slides

• Parties are recommended to obtain their own Legal

advice.

CFD Timeline

37

The Contracts for Difference (Standard Terms)

Regulations 2014

Offer to contract

10.—(1) An offer of a CFD is made by the CFD counterparty signing two copies of a CFD completed in accordance with

regulation 9(3) and sending both copies to the eligible generator.

(2) The CFD counterparty must make an offer of a CFD within 10 working days of receiving a CFD notification.

(3) The eligible generator, to whom the offer of a CFD is made, enters into a CFD where—

(a) the eligible generator signs both copies of a CFD and returns one copy to the CFD counterparty; and

(b) the CFD counterparty gives the eligible generator a notice stating that the CFD counterparty has received a

copy of the CFD from the eligible generator which has been signed by both contracting parties.

(4) The CFD counterparty must give the notice under paragraph (3)(b) as soon as reasonably practicable after the CFD

counterparty receives a signed copy of a CFD from an eligible generator.

(5) Where a CFD is entered into, the CFD counterparty must inform the delivery body as soon as reasonably practicable.

Failure to accept an offer

11.—(1) Where the CFD counterparty does not receive a signed copy of a CFD from an eligible generator within 10 working

days of the offer being made, the offer lapses.

(2) Where an offer lapses, the CFD counterparty must, as soon as is reasonably practicable, give the eligible generator and the

delivery body a notice which states that the offer has lapsed.

38

Timeline

Day 0

• Delivery Body sends notification of contract allocation to applicant/generator and LCCC (date subject to reviews and appeals)

• LCCC populates the CFD agreement with the information received from the Delivery Body • Sends two signed copies of the CFD agreement to the generator

+ 10 working

days

• Deadline for LCCC to make CFD offer to the generator

39

In practice – first 10 working days

• The LCCC have very limited time to check information

provided by the generator in application to delivery body

• We can only change information that was not used as part of

decision making process in allocation

• We will be able to change a postcode but not MW

• If we do not get a very rapid reply to any requests for

confirmation of data - LCCC will have no choice but to send

agreement with the information that we hold

• Please note allocation is not public knowledge at this

point!

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What you will receive

The CFD agreement,

• This CFD Agreement, together with the terms and conditions set

out in version 1 of the document entitled “FiT Contract for

Difference Standard Terms and

Conditions” as at 29 August 2014,

constitute an agreement entered

into on "standard terms"

(as defined in section 11(1) of

the EA 2013)

The Standard Terms and

Conditions,

• Front page for signatures

41

Timeline: following working days

• CFD offer is made to generator

• Generator must sign both copies and return one of them to LCCC

+ 10 working

days

• CFD offer lapses if LCCC has not received the countersigned CfD agreement before 17:00

Closed DECC consultation on Non-Delivery Disincentive Exemptions; proposal

to implement 13 months exclusion from CfD allocation if generator fails to sign

42

In practice – follow up

• The LCCC must notify generators of receipt of countersigned

agreement

• LCCC must inform the delivery body of CFDs entered into

• LCCC will notify both generator and delivery body of any lapsed offers

43

In practice

All CFD holders will get a dedicated Contract Manager:

Nic Rigby Arezou Farhadi James

Krzyszkowski

Puk Lykke-

Moller

Stephanie

Houston

44

Next steps

• Initial conditions precedent

• Legal opinion

• Know your customer

• Description of the facility

• Milestone Delivery Date

• ………

• How we work together

45

Further information

• Question and Answer document can be found at

www.lowcarboncontracts.uk

• Further queries can be emailed to:

Contractmanagement@lowcarboncontracts.uk

• Visit our site or contact the team for more information

CFD Implementation Event

Wednesday 19 November 2014

Hannah Pargeter

Generator

Public

Settlement System – Progress update & Testing

■ We’ll need to undertake testing in issuing Notices, Invoices, Backing

Data and Reports to CFD Generators, Capacity Providers and

Suppliers

■ February 2015 is scheduled for UAT testing

■ Early March 2015 is scheduled for Data Transfer Network (DTN)

testing

■ We’ll confirm specific dates once available

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr

Design and Build

System Testing

EMR Interfaces – When will examples be available?

Information Method

Notices • Email PDF encrypted file

Invoices – Billing Statement • Email PDF encrypted file

Backing Data • Data Transfer Network (DTN) • Email Attachment • Portal Downloadable file

■ We’ll present visual examples, with supporting information

– When? Early January 2015

– How? We’ll plan to hold a workshop

Payments to CFD Generator

■ Billing statement issued no

later than 7 working days from

billing period

■ Payment due 28 calendar

days from the billing period

CFD Payments

Payments to the LCCC

■ Billing statement issued no

later than 7 working days from

billing period

■ Payment due 10 working days

from issue of the billing

statement

Payments to CFD Generator

CFD Payments (2)

Payments to the LCCC

Billing Period

28 Apr 15

Billing Statement

April 2015

Payment Date

10 WDs ~7 WDs

1 Apr 15 14 Apr 15

28 calendar days 29 Apr 15 14 Apr 15 1 Apr 15

April 2015

~7 WDs

Billing Period Billing Statement Payment Date

What’s coming up?

December 2014

• CFD Metering Guidance

January 2015

• CFD Implementation Event - Examples of Billing Statement & Backing Data

• Billing Statement & Backing Data Guidance

• Working Practice - Settlement Required Information

February 2015

• Settlement System – User Testing

March 2015

• Settlement System – User Testing

• Confirmed CFD Generator – Authorised Contact and Company Information

• Settlement Calendar – Billing Statement and Payment Date

April 2015

• EMR Payments commence

EMR Settlement Website

■ EMR Settlement Website

– http://emrsettlement.co.uk/

■ Keep updated via the following

methods, News, EMR Circular,

Calendar and the ELEXON

Newscast

■ All queries - Settlement Service

Provider

–contact@emrsettlement.co.uk

■ Hannah Pargeter – EMR Customer

Support

– 020 7380 4025

– hannah.pargeter@elexon.co.uk

Forecasting & Transparency Tool

SOFM is a probabilistic model with

three main components Power Market Forecasting

Model (PMFM)

Uses a Dispatch Model to

calculate hourly power prices

for given probabilistic

demand/generation/gas

market price scenarios.

Typically 100-1000 scenario

runs

Cash Flow Forecasting

System (CFFS)

Uses CfD information to

calculate future cash flow in

each scenario. Average and

P95 (19 in 20) views used for

levy recommendations

Transparency Tool

Gives suppliers and others

visibility of the main inputs

and outputs

Expert Groups

• We have two Expert Groups to help us design the SOFM

and the accompanying Transparency Tool:

• Expert Group 1: SOFM Modelling EG

• 17th of July 2014.

• Includes representation from Large Suppliers, Small Suppliers and

Consultants.

• Expert Group 2 : Transparency Tool EG

• 30th September 2014.

• Includes representation from Large Suppliers, Small Suppliers,

CAB, Generators and Consultants.

• These groups were advertised via trade associations (EUK,

RUK etc.) and at our stakeholder events.

Transparency Tool (demo version)

Note that figures are illustrative, and the final public version will be LCCC branded

Development & testing

1) Monitored and

administered by the

Communications team

2) All input data or sources

published except where

confidentiality prohibits

3) Output data summary at a

useful summary level

4) Proposing to provide

projections beyond levy

period:

One year out with Reserve

Fund calculation

Five years out based on

scenarios around future

allocations

Release to Expert Group

for testing week

commencing 24 November

2014

Will be released publically

at time of levy setting

Timeline and Process

June

• Supplier awarded

July • Project kick-off, scoping and design period begins

• Stakeholder engagement on design, assumptions and inputs of Power Market Forecast Model begins

Aug. • Beta Phase Testing of Power Price Forecasting Model

Sept. • Power Market Forecast Model submitted for quality assurance

• Stakeholder engagement on transparency tool design begins

Oct. • Final Transparency Tool design submitted

Nov. • Power Market Forecast Model signed-off for forecasting Levy Period 1

• Transparency Tool made available for internal ‘beta’ testing

Dec.

• Design and build of cash flow forecast functionality to be updated by actual settlement data

• Transparency tool signed-off for external publication

• Supplier Obligation interim rate and reserve published and Transparency Tool go-live

Mar. • Daily update of cash flow forecast by actuals go-live

• Handover of Supplier Obligation Forecast Model to Counterparty completed

Forecasting & Transparency Tool

Demonstration by Lane Clark & Peacock

60

Plenary sessions:

Summary and close

Ruth Herbert

Low Carbon Contracts Company

61

Online support for CFDs

• Q&A for suppliers and generators

• Q&A from previous events on specific topics including legal, technical

and planning

• Site under development – Give us your feedback!!

• Feedback via online survey and cfdpreparations@lowcarboncontracts.uk

Generators Suppliers www.lowcarboncontracts.uk

62

Information for Generators

63

Plenary sessions:

Summary and close

Ruth Herbert

Low Carbon Contracts Company

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