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How Long Will Wholesale Prices be Subdued? Contracts for Difference (CfD)

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Contracts for Differences (CfD) are part of the Government Electricity Market Reform (EMR) which will impact your bills starting April 2015.

It is the government’s intention to further reduce CO2 emissions, with 15% of energy coming from renewables by 2020 leading to a reduction of 80% (from 1990 levels) across the economy by 2050. This cost will be passed to customers as part of the Electricity Market Reform and associated Energy Act.

CfD’s for renewables are planned to commence this year and, come 2017, will replace the Renewables Obligation. The aim is to provide clear, predictable, and long term sales prices for electricity generated from renewables and encourage cheaper capital expenditure lending options. This, in time, may lead to lower renewable costs from a bigger, competitive market.

New renewable projects which allocate a CfD will receive top-up payments when the market price of electricity is below the CfD “strike” price (pictured). The industry cost of the aggregate top-up payments will be spread across, and recovered from, electricity customers.

CfD costs will be charged to all suppliers and are planned to be applied from April 2015. In order for suppliers to recover this cost, customers with fixed price contracts will have CfD included within their energy rates. There will be an option for some customers to contract with pass through of CfD costs, which will be reconciled and the agreed contract terms will cover this.


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