Commentary on Sections Part 2: Electricity Market Reform Chapter 2: Contracts for difference Section 13: Allocation of CFDs
107.This section builds on the power in section 12 and specifies the process by which the Secretary of State may make provision setting out detailed rules about the CFD allocation process. The rules are likely to be applicable to those wishing to apply for a CFD and to National Grid who, as the System Operator, will be acting as the Delivery Body.
108.Subsection (1) confers a power enabling the Secretary of State to make provision setting out how CFDs are to be allocated to eligible generators. Subsection (2) confers a power for setting the rules of allocation in an “allocation framework” – a document which will sit outside of regulations but be constrained by provision made in regulations. An “allocation framework” will be produced and published for allocation rounds, and include information about when allocation rounds will be held. The “allocation framework” will act as a “rule book” for how allocation rounds will operate. Subsection (2)(e) confers a power enabling the Secretary of State to make provision about what must be included in an “allocation framework”.
109.For example, the Secretary of State may decide that it is important to investors to ensure that an “allocation framework” includes information about the budget available for a particular allocation round and may therefore require an “allocation framework” to contain this information when it is produced.
110.Subsection (3) confers a power enabling the Secretary of State to set out requirements on the Secretary of State. For example, the Secretary of State may stipulate in regulations for specified notice periods to be adhered to before the start of allocation rounds, and separately restrict the Secretary of State’s ability to amend the allocation framework for those participants already engaged in an open allocation round. These sorts of requirements on the Secretary of State will help to provide certainty to industry that the process will not change without due warning. This is necessary to allow them to engage with the allocation process.
111.The powers in subsections (4) to (6) enable the Secretary of State to set out further detail of those areas that an Allocation Framework may provide. These include conferring functions on the System Operator to allow them to carry out the allocation process, the setting of targets for types or location of generation, the mechanics of competitive allocation, and allowing for calculations and determinations to be made to support the allocation of CFDs. These are all functions which may need to change at short notice, allowing the Government to respond in a timely manner to external factors, to protect budgets and to protect consumers by preventing gaming. Examples of such changes that might be necessary are responding to a sudden change in the costs of a particular technology, or allowing change to the mechanism for competitive allocation in response to lessons learned during operation.
112.Subsection (7) allows any allocation framework made to be amended, and subsection (8) provides that subsections (4) to (7) are subject to any provision in regulations which could set limits on what can be contained in the allocation framework.