CONTRACTS FOR DIFFERENCE

Summary of responses to the Call for Evidence
Summary of responses to the Call for
Evidence
70. This section summarises the responses received to the call for evidence on future
options for changes to the CFD contract for later allocation rounds. These changes
will not be made for the second allocation round and any significant changes will
be subject to further consultation.
71. We asked for your views and evidence on issues that have been raised in
discussion with stakeholders and delivery bodies about the CFD contract since the
implementation of Electricity Market Reform, and invited input from anyone with
relevant knowledge, expertise or experience.
Mitigating risk of overspend on the LCF arising from load factor
uncertainty
Original proposal
72. We invited views on how the risk of underestimating load factors and
overspending on the LCF could be reduced and on how the introduction of
measures to reduce the risk might impact on the strike prices offered by bidders or
the investability of the CFD.
Summary of responses
73. The majority of respondents stated that projected LCF overspend risk due to an
underestimation of load factors was no longer there given substantially improved
load factor assumptions. Focus should instead be on further improving the
department’s assumptions, including increased use of existing information which
should be fed back into the auction valuation process.
74. Five respondents suggested that mitigation controls would likely stifle innovation
and performance improvements. Some respondents commented that HMG would
need to understand the impact on plant behaviour as generation may be
diminished. One respondent commented that if there was to be a support cap,
then HMG should also introduce a mechanism to allow for limited improvement.
75. Three respondents commented that mitigation measures would increase risk
premia and thus auction bidding prices, which would directly translate into higher
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