As part of the government’s continued moves to abide by EU emission regulations a new levy is to be placed upon business electricity customers.
What is Contracts for Differences?
The levy, known as Contracts for Difference (CfDs) is designed to replace the Renewables Obligation (RO). For now though it will be an additional cost on electricity bills. Indeed Renewables Obligation will continue to be levied until 2037 as the 20 year lifespan of that scheme phases out, whilst CFD’s from 2017 are designed to replace the Renewables Obligation for any new plant.
The overall intention is by 2050 to have reduced CO2 emissions by 80% on 1990 levels and to encourage the sourcing of 15% of energy to be from renewable sources by 2020.
The aim of CfDs is to provide clear, predictable and long-term prices for electricity generated from renewables in order to encourage more investment in new, clean generation.
CfD’s do exactly what they say; they are a contract that guarantees a payment for any ‘difference’ experienced.
This ‘difference’ is measured against a ‘Floor’ Price below which the market price of electricity cannot fall without a compensatory payment being made. In other words if the price of electricity is too low to support more costly generation through renewable sources a payment will be made to the CfD recipients, in this case the eligible renewable generators, to compensate them for the low(er) electricity price.
These CfD costs will be charged to all Suppliers under the Levy Control Framework and are planned to apply from April 2015. As a result these costs will be recovered from customers directly through their electricity invoice.
The projected costs are estimated at being any level between £0.79/MWh – £1.90/MWh. However some suppliers are forecasting just a 0.1p/kWh charge in the initial period, whilst other suppliers are awaiting until early 2015 before they make any assumption on the likely cost.
Not all suppliers have established how they will charge this cost to customers however as they do we will provide the relevant information below and ensure that when comparing energy contracts you are able to do so on a like for like basis.
- CfD is included in the price and it is intended that it will be treated in the same way as British Gas Business currently handles RO and FIT by including it in the rate and fixing it for the duration of the contract
- Policy undecided
- Corona do not include CfD in their unit rates for their Half Hourly or Non Half Hourly Electricity prices. As a result their quoted prices might appear cheaper than those competitors that do currently include these costs in their pricing.
- Policy undecided
- Policy undecided
- From August 2014 E.ON will factor CfD costs into their prices for SME customers in the same way as they do now for other third party charges like FiT (Feed in Tariff) and RO (Renewables Obligation). For existing customers no recovery of CfD costs will be being made.
- This means in SME E.ON will continue to offer their “fixed means fixed” assurance to customers.
- For I&C customers E.ON’s policy differs. Whilst all new quotes for I&C customers after 1st August will include an estimate of CfD costs, E.ON always reserve the right to vary the cost of their I&C contracts for changes to third party charges, as a result existing and future customers may see CfD charges ‘passed through’. E.ON will be contacting customers individually to inform them of this and any impact on the price they pay.
- EDF Energy have committed to insulate their Fixed + Peace of Mind customers from CfD and other additional cost elements brought about by the Electricity Market Reform from July 2014 for contracts up to 3 years. This policy is effective until 31st October 2014 however EDF Energy have reserved the right to withdraw this offer at any time.
- In addition under their Fixed + Protect product EDF Energy will insulate their customers from CfD unless the costs rise 40% or more above initial forecast.
- For Fixed + Reflective customers CfD will be a fully pass through charge from April 2015
- Policy undecided
- Gazprom Energy’s products include an allowance for CfD.
GDF Suez
- GDF Suez do not currently include any provision for CfD in their fixed price products. GDF Suez’s long term position on CfD has not been finalised and it may be levied as a pass through charge.
- Haven Power’s fixed priced products do not currently include CfD. As a result it is unclear as to the cost recovery that Haven Power may need to pursue in advance of a CFD inclusive product being launched. As a result Haven Power’s fixed price products will appear cheaper than other suppliers who include and disclose this cost. Haven Power’s flexible contracts allow for pass through of CFD.
- Policy undecided
- Policy undecided
- Opus Energy include an estimate of CfD charges in all post April 2015 prices however Opus reserve the right to pass through any differences to their estimate to the customer.
- Policy undecided
- Policy undecided
Smartest Energy
- Do not intend to include a recovery of CfD costs for the foreseeable future.
- For contracts commencing after 1st April 2015 a forecast of the cost of CfDs will be fully inclusive within the unit rate
- SSE will also offer an option to customers to pass through the CfD charges at cost
- Inclusive
More Information
For help in understanding CfDs or to find out your options come contract end simply give us a call on 0800 051 5770, we’d love to hear from you to discuss how your business can benefit.