The Contracts for Difference (Sustainable Industry Rewards) Regulations 2024

Explanatory Note

(This note is not part of the Regulations)

These Regulations amend the Contracts for Difference (Allocation) Regulations 2014 (S.I. 2014/2011) (“Allocation Regulations”), the Electricity Market Reform (General) Regulations 2014 (S.I. 2014/2013) (“EMR Regulations”), the Contracts for Difference (Definition of Eligible Generator) Regulations 2014 (S.I. 2014/2010) (“Eligible Generator Regulations”) and the Contracts for Difference (Standard Terms) Regulations 2014 (S.I. 2014/2012) (“Standard Terms Regulations”). Those Regulations form part of the legislative framework underpinning the Contracts for Difference (“CFD”) scheme under section 6 of the Energy Act 2013 (c. 32). The CFD scheme is designed to encourage low carbon electricity generation by awarding subsidies accessed through a private law contract, which is secured in a competitive allocation round.

Part 2 amends the Allocation Regulations to introduce a new requirement for the allocation of CFDs which relate to offshore wind CFD units (that is, electricity generating stations which use wind and which are located in offshore waters, whether they are fixed or floating). The new requirement will apply to the seventh, eighth and ninth CFD allocation rounds where the Secretary of State issues the allocation framework for the round in two stages, with the first stage providing for sustainable industry rewards. An electricity generator applying to establish or alter an offshore wind CFD unit will have to provide a sustainable industry reward (“SIR”) statement with their CFD application (regulation 27 which inserts new regulation 27B). For offshore wind CFD units above a certain generating capacity and all floating offshore wind CFD units, this will be in place of the existing requirement to provide a supply chain statement under regulation 26 of the Allocation Regulations for the relevant allocation rounds. As the SIR application process will take place ahead of the main CFD allocation round, amendments are made to separate the commencement of an allocation round from the CFD application opening date (regulations 4 and 5) and to provide for an SIR allocation framework, process and budget, and for applications for SIR statements. The existing provisions which concern the second, main stage of the CFD allocation process are amended so that they are referred to as the “contract” allocation framework, process and budget.

Part 3 amends the EMR Regulations to insert provisions relating to SIR implementation statements, which are to be provided by the Secretary of State where satisfied that obligations relating to SIRs are being met. This Part also amends the similar existing provision concerning supply chain statements which are already required for certain CFD units (regulation 55, amending regulation 9 of the EMR Regulations). This adds an additional matter (increasing the sustainability of supply chains) to the list of matters to be considered by the Secretary of State when deciding whether to provide a supply chain statement.

Part 4 amends the Eligible Generator Regulations consequentially on the structural amendments made to the EMR Regulations.

Part 5 amends the Standard Terms Regulations to insert an additional matter which must be included in the standard terms of CFDs, which are issued by the Secretary of State under section 11 of the Energy Act 2013. This will require CFDs to set out the circumstances in which performance-related adjustments may be made to payments under CFDs, which will be a possibility in relation to SIRs. Amendments consequential on the separation of the commencement of an allocation round from the CFD application opening date are also made to these Regulations.

A full impact assessment of the effect that the policy implemented by these Regulations will have on the costs of business, the voluntary sector and the public sector is available from the Department for Energy Security and Net Zero, 3 - 8 Whitehall Place, London SW1A 2HH, and is available alongside this instrument on www.legislation.gov.uk.