UK Corporate Virtual PPA Contracts, CfDs, and REGOs Guide

Key Takeaways

• The Contracts for Difference (CfD) scheme is the UK government's main support for low-carbon electricity generation.
• CfDs provide generators with a stable, indexed price for 15 years, protecting against market volatility.
• Renewable Energy Guarantees of Origin (REGOs) certify renewable electricity generation, primarily for Fuel Mix Disclosure.
• Generating electricity for supply generally requires a licence, but exemptions exist for small generators and on-site supply.

Understanding Contracts for Difference (CfDs) in Great Britain

The Contracts for Difference (CfD) scheme is the UK government’s primary mechanism for supporting low-carbon electricity generation. It incentivises investment in renewable energy projects by providing financial stability to developers. This stability protects developers from volatile wholesale electricity prices.

A CfD is a private law contract. It is established between a low carbon electricity generator and the Low Carbon Contracts Company (LCCC), a government-owned company. The scheme also protects consumers from paying increased support costs when electricity prices are high.

How CfD Payments and Strike Prices Work

Under a CfD, developers receive a flat indexed rate for the electricity they produce. This payment covers a 15-year period. The payment mechanism is based on the difference between a 'strike price' and a 'reference price'. The 'strike price' is a price for electricity that reflects the cost of investing in a particular low carbon technology. The 'reference price' measures the average market price for electricity in the Great Britain market.

If the reference price is below the strike price, the generator receives a top-up payment from the LCCC. If the reference price is above the strike price, the generator pays back the difference to the LCCC. This mechanism ensures a predictable revenue stream for generators, facilitating long-term investment in renewable capacity. By 2025, the CfD scheme has reached 10 GW of operational capacity, providing enough electricity to power approximately 15 million homes.

Renewable Energy Guarantees of Origin (REGOs)

Renewable Energy Guarantees of Origin (REGOs) are certificates that demonstrate electricity has been generated from renewable sources. Ofgem is the administrator of the REGO scheme for generation in Great Britain. One REGO certificate is issued per megawatt hour (MWh) of eligible renewable output to generators of renewable electricity.

The primary use of REGOs in Great Britain and Northern Ireland is for Fuel Mix Disclosure (FMD). FMD is a requirement for electricity suppliers in Great Britain to disclose to their customers the mix of fuels used to generate the electricity supplied annually. This helps consumers understand the environmental impact of their electricity supply.

It is important to note that as of 1 January 2021, the EU no longer recognises UK REGOs. Furthermore, from the disclosure period beginning 1 April 2023, EU Guarantees of Origin (GoOs) are no longer recognised for use in Great Britain FMD, Feed-in Tariff (FIT) annual levelisation, or CfD.

Electricity Generation and Supply Licensing

Generating electricity for the purpose of giving a supply to any premises generally requires a licence. A person who generates electricity for the purpose of giving a supply to any premises or enabling a supply to be so given shall be guilty of an offence unless they are authorised to do so by a licence. However, the Secretary of State may grant exemptions from this requirement.

Two key exemptions are relevant for smaller-scale or on-site generation:

• Small Generators Exemption (Class A): Persons who do not at any time provide more electrical power from any one generating station than 10 megawatts are exempt from generation licence requirements. This exemption also applies to stations providing up to 50 megawatts if their declared net capacity is less than 100 megawatts.
• On-site Supply Exemption (Class C): Persons who supply only electricity they generate themselves, or electricity they generate plus electricity supplied by a licensed supplier, to consumers on the same site or via private wires, are exempt from supply licence requirements under certain conditions.

Metering and Certification for Electricity Supply

Where a customer of an authorised supplier is to be charged for their supply wholly or partly by reference to the quantity of electricity supplied, the supply must be given through an appropriate meter. This meter must meet specific standards. No meter shall be used for ascertaining the quantity of electricity supplied by an authorised supplier to a customer unless the meter is of an approved pattern or construction and is installed in an approved manner. Additionally, the meter must be certified. The Director shall appoint competent and impartial persons as meter examiners for these purposes.

Requesting and Issuing Guarantees of Origin

Ofgem is designated as the issuer of guarantees of origin in Great Britain for electricity produced from renewable energy sources. The issue of guarantees of origin may be requested by the producer of the electricity. In some cases, it can be requested by the nominated person under a qualifying arrangement, unless the producer has notified Ofgem otherwise.

A request for guarantees of origin is not considered duly made until Ofgem has been provided with all the information and evidence specified in Schedule 1 of the relevant regulations. Ofgem may refuse to issue guarantees of origin if a person unreasonably fails or refuses to provide access to a plant or to provide all relevant information and assistance that Ofgem may reasonably require for its functions.

What the published sources do not tell you

The provided government and Ofgem sources focus on the regulatory frameworks for Contracts for Difference (CfDs) and Renewable Energy Guarantees of Origin (REGOs). They do not explicitly detail the structure, terms, or specific mechanisms of Corporate Virtual Power Purchase Agreements (VPPAs) as commercial contracts between private entities. Information on how "strike price settlement" operates within a corporate VPPA, beyond the general CfD framework, is not available. Similarly, the precise process for "REGO green certificate transfer" between corporate entities in the context of VPPAs is not outlined. The sources do not cover the legal enforceability, specific contractual clauses, financial implications, risk allocation, typical durations, or pricing trends unique to corporate VPPAs in the UK market.