Electricity Market Reform (General) Regulations 2014 and 8 related instruments; Police and Crime Commissioner Elections (Amendment) (No.2) Order 2014 - Secondary Legislation Scrutiny Committee Contents


Contracts for Difference (CFDs)
Primary legislation

Energy Act 2013

Contains powers enabling the Secretary of State to implement the Contracts for Difference regime through a combination of regulations and a private law contract between generators and the CFD Counterparty.
Secondary legislation - 6 statutory instruments (including forthcoming OLR Regulations)
The Contracts for Difference (Allocation) Regulations 2014

The Regulations set out, in Parts 2 to 9:

a)  how applicants must apply for a Contract for Difference (CFD);

b)  how the delivery body must assess an application;

c)  how the Secretary of State establishes an allocation round;

d)  how an allocation framework (which contains the rules for the competitive process applied to applications for CFDs) is applied to an allocation round;

e)  what an allocation framework must and may contain;

f)  how a budget is set for allocation rounds;

g)  how the delivery body must decide whether a competitive process is required for the allocation of CFDs;

h)  when a CFD notification must be given and the process the delivery body needs to follow in respect of giving a CFD notification.

The Regulations also include a 3-tiered appeals procedure.

Part 10 of the Regulations allows the Secretary of State to direct the CFD Counterparty to offer a CFD to an eligible generator. This power might be used to offer CFDs to projects that are not currently suitable for the generic CFD allocation process, for example, CCS, nuclear and large tidal.

Allocation Framework

The Allocation Framework sets out the allocation process, including the auction rules and the valuation formula that will be used.

The Allocation Framework is not a statutory instrument and must only contain provision which is permitted by the Contracts for Difference (Allocation) Regulations 2014.

The Allocation Framework also contains supplementary provision relating to:

  • Information that applicants must provide at the point of application
  • Documents that National Grid must check to determine whether an applicant is a qualifying applicant
  • Additional qualification requirements
  • Any adjustments to timing of steps in the allocation round
  • Publication of information during and after the allocation round

An Allocation Framework must be published at least 10 days before an allocation round opens.

A copy of the latest draft of the Allocation Framework has been placed in the House Library.

The Contracts for Difference (Definition of Eligible Generator) Regulations 2014

These Regulations set out which persons are eligible generators for the purposes of applying for a CFD (under Chapter 2 of Part 2 of the Energy Act 2013 ("the Act")).
The Contracts for Difference (Standard Terms) Regulations 2014

These Regulations control three aspects of the way in which a 'generic' CFD - one which is offered following a CFD notification from the Delivery Body - may be drawn up, offered and publicised. The Regulations:

1)  set out the provision to be included in standard terms issued or revised by the Secretary of State;

2)  govern the way in which an applicant may request a change to the generic CFD terms; and

3)  control the process through which a CFD is completed and offered.

These Regulations also require that certain information be published concerning those applicants who successfully enter into a CFD.

The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014

These Regulations establish the 'supplier obligation' mechanism, which enables the CFD Counterparty to raise a levy from all licensed electricity suppliers in Great Britain to pay low carbon generators entitled to payment under the Contracts for Difference scheme. The Regulations also:

·  allow the CFD Counterparty to return money to suppliers where appropriate.

·  set out arrangements for the CFD Counterparty to hold sums in reserve and to cover its losses in the situation of default by an electricity supplier.

·  set out the arrangements for collection of a levy from all licensed electricity suppliers to pay for the CFD Counterparty's operating costs.

The Electricity Market Reform (General) Regulations 2014

These Regulations set out a number of general provisions relating to the Contract for Difference (CFD) policy, including:

·  a requirement on the Delivery Body to provide information in relation to the CFD strike prices;

·  provisions determining how and when a Supply Chain statement application should be made; and

·  provision to shield National Grid Electricity Transmission plc (NGET) against liability in damages to third parties for anything done or omitted to be done in performing its EMR Delivery Body functions relating to the CFD.

The Contracts for Difference (Counterparty Designation) Order 2014

This Order designates the Low Carbon Contracts Company Ltd as a CFD Counterparty. By designating the Low Carbon Contracts Company Ltd as a CFD Counterparty, the company will be required to carry out the functions of a CFD Counterparty as set out in the Energy Act 2013 and related secondary legislation.

The making of this Order was not subject to Parliamentary procedure.

The Offtaker of Last Resort Regulations 2014 (Forthcoming - expected to be laid in Parliament in the autumn)

The Offtaker of Last Resort mechanism will help independent generators access the market by ensuring that eligible renewable generators have access to a 'backstop' PPA on specified terms with a credit worthy offtaker throughout the duration of their CFD.

These Regulations will be laid in Parliament and are expected to be in force before the first CFD allocation round opens in the autumn. The Regulations will be subject to the negative procedure.

Capacity Market
Primary legislation

Energy Act 2013

Contains powers enabling the Secretary of State to implement the Capacity Market regime through a combination of the Regulations and the Rules.
Secondary legislation - 2 statutory instruments & Capacity Market Rules
The Electricity Capacity Regulations 2014

The Regulations establish a Capacity Market which is designed to ensure that sufficient electrical capacity is available to ensure security of electricity supply.

The Regulations contain provisions about:

i.  the Secretary of State's role, such as how and when the Secretary of State will determine whether to run a capacity auction, as well as providing for the Capacity Market to be implemented and administered by a combination of the Secretary of State, the Gas and Electricity Markets Authority, a Delivery Body (National Grid Electricity Transmission plc) and a Settlement Body (to which position the Secretary of State intends to appoint the Electricity Settlements Company Ltd).

ii.  the process for determining whether a capacity auction is to be held and the auction parameters for a capacity auction.

iii.  determining eligibility and holding capacity auctions, issuing capacity agreements, establishing and maintaining a register of capacity agreements and terminating a capacity agreement (with further detailed provision about each of these matters to be contained in the Capacity Market Rules 2014 referred to below).

iv.  payment and settlement provisions.

v.  dispute resolution and appeals.

The Electricity Capacity (Supplier Payment) Regulations 2014 (Forthcoming - to be laid in Parliament shortly)

The Electricity Capacity Regulations include provision for a levy on suppliers to fund the Settlement Body's costs to 31 March 2015. However, to align the Capacity Market and Contract for Difference Regulations, it was decided that a dedicated separate set of regulations ("the Supplier Payment Regulations") will be provided.

These are expected to be laid in Parliament just after summer recess and are expected to come into force in November 2014. The Supplier Payment Regulations will make provision for payment post 31 March 2015:

·  by electricity suppliers, of charges to fund the making of capacity payments and the Settlement Body's costs of performing its functions;

·  to electricity suppliers, of a share of the amount of capacity provider penalty charges collected by the Settlement Body, after deducting the cost of making over-delivery payments to capacity providers under the Electricity Capacity Regulations; and

·  adjustment of payments ("reconciliation") where further data becomes available to the Settlement Body after payment calculations have been made.

The Capacity Market Rules 2014

The Capacity Market Rules 2014 ("the Rules") sit alongside the Electricity Capacity Regulations 2014 ("the Regulations").

The Rules provide the detail for implementing the operating framework set out in the Regulations. This means that the Rules focus on the technical and administrative rules and procedures for how the Capacity Market will operate and includes matters such as procedures relating to the day-to-day running of the Capacity Market, the process by which capacity providers pre-qualify, rules for running capacity auctions and issuing capacity agreements to successful bidders.

The Rules were laid in draft before Parliament on 19 June and are subject to a procedure equivalent to the negative procedure.

Licence Modification documents - applicable to CFDs and the Capacity Market
Modifications to the Special Conditions Of National Grid Electricity Transmission Plc's Transmission Licence (EMR No. 1 of 2014)

These Modifications to the Special Conditions of National Grid Electricity Transmission plc's Transmission Licence insert a new Special Condition 2N into the Transmission Licence of the National System Operator and Electricity Market Reform (EMR) Delivery Body, National Grid Electricity Transmission plc (NGET).

Special Condition 2N sets out a number of provisions which require NGET to implement certain business separation measures intended to manage conflicts of interest arising with other parts of its business while undertaking functions conferred on it as the EMR Delivery Body.

These separation measures include;

·  the legal and functional separation of NGET from other relevant competitive businesses in the National Grid plc group;

·  the establishment of EMR data handling and EMR administrative teams which are physically separate from other parts of NGET;

·  restrictions on the use of confidential EMR information within NGET;

·  restrictions on the disclosure of confidential EMR information;

·  a compliance statement to be put in place;

·  a compliance officer to be appointed; and

·  a system of compliance reporting to be put in place.

The Licence Modifications were laid in Parliament on 19 June and are subject to a procedure equivalent to the negative procedure.

Modifications to Transmission Licences and Documents Maintained Under Licences (EMR No.2 of 2014)

Existing electricity transmission licences, industry codes and related agreements and documents require consequential amendments to meet the needs of reform being made the electricity market under powers contained in the Energy Act 2013 (c.32).

These modifications contain those amendments. These modifications are consequential on the suite of secondary legislation created for the reforms.

The Licence Modifications were laid in Parliament on 19 June and are subject to a procedure equivalent to the negative procedure.

previous page contents next page

© Parliamentary copyright 2014