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Topic Title: The Energy Bill and What is an Investment Contract
Topic Summary: The Energy Bill will reach 3rd Reading in the Commons on 4 June
Created On: 21 May 2013 05:54 PM
Status: Read Only
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 21 May 2013 06:52 PM
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jarathoon

Posts: 1040
Joined: 05 September 2004

The "Investment Contract" is the government controlled and regulated "contract" between the "Energy Generator" and the "CfD Counterparty"

Let assume that we can consider energy suppliers separately from energy generators even though most of them are vertically integrated companies covering both spheres of activity.

The "CfD Counterparty" is a government controlled puppet corporation.

In regard to the Energy Bill "System Operator" is also a government controlled puppet corporation .

Anyway money will generally flow from energy suppliers to energy generators. But these money flows may be different, because the "CfD Counterparty" can have surplus cash or have net debt and also the "CfD Counterparty" may require payments to it for other reasons not directly connected with the supply of energy, see for example section 9(2)

"9(2) Regulations may make provision for electricity suppliers to pay a CFD counterparty for the purpose of enabling the counterparty -
(a) to meet such other descriptions of its costs as the Secretary of State
considers appropriate;
(b) to hold sums in reserve;
(c) to cover losses in the case of insolvency or default of an electricity
supplier."

This clause is in itself open enough to allow the secretary of state to effectively raise new forms of taxation through clever manipulation of the CFD counterparty.

What is the maximum sum to be held in reserve?
What is the maximum sum the government will charge for insurance and other services to the CfD counterparty?
Can the sum's held in reserve be raided by the Treasury instead of the money returning to bill payers?

James Arathoon

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James Arathoon
 21 May 2013 07:30 PM
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jarathoon

Posts: 1040
Joined: 05 September 2004

This is what the explanatory notes say about "Investment Contracts". DECC wants us to believe is a contract that can be laid before parliament before the Energy Bill receives Royal Assent.

In practice there are lots of reasons why DECC will not be able to do this; DECC needs to first be clear what a "CFD counterparty" etc actually is, before prematurely trying to assign it consideable obligations, that it may not be later able to sustain.

"Chapter 4: Investment contracts

19.The provisions in this Chapter are aimed at addressing the risk of hiatus in investment in low carbon electricity generation before the CFD regime ("the enduring regime") is fully established under the regulation-making powers provided for in Chapter 2 of Part 2 of the Bill. Therefore, the provisions here are transitional in the sense in that they are intended to relate to arrangements entered into during a relatively short period. Investment contracts must have been entered into by the Secretary of State by 31st December 2015, or if earlier the date on which regulations made under clause 10(3) first define "eligible generator" (i.e. the type of electricity generator who may benefit from a CFD under the enduring regime) - see paragraph 1(1)(a) of Schedule 2.

20."Investment contracts" are contracts with an electricity generator entered into by the Secretary of State (see paragraph 1(1) of Schedule 2). Key characteristics include that a contract must contain an obligation for the parties to make payments to each other based on the difference between a strike price and a reference price in relation to electricity generated (see paragraph 1(1)(c)), that this obligation must be conditional upon Schedule 2 coming into force (where the contract is entered into before then) - see paragraph 1(2)) and that the contract has been laid before Parliament together with a statement about certain matters (see paragraph 1(1)(d), (4) and (5) and clause 5(2)). For example, the statement must set out that the Secretary of State is of the opinion that payments which would be made under the contract would encourage low carbon electricity generation (see paragraph 1(5)(a)).

21.The Bill (see Part 4 of Schedule 2) makes provision for investment contracts to be transferred to a CFD counterparty when one has been designated under clause 7(1), or alternatively to a person designated by the Secretary of State as an investment contract counterparty. As a matter of policy, it is intended that, once the CFD counterparty has been designated, investment contracts will be transferred to it under these provisions.

22.The provisions in Chapter 4 will provide a tool that may be used to avert any investment hiatus because they will enable the Secretary of State to give effect to investment contracts entered into before the establishment of the enduring regime (including contracts entered into before enactment of the Bill). They do this by providing various powers and authorisations, particularly relating to the financing of obligations under investment contracts (see paragraphs 7 and 20 of Schedule 2). In containing these particular provisions relating to investment contracts, the Bill can provide a timely and significant measure of confidence regarding the revenue stream that a project is to receive, to enable investors/developers to make positive final investment decisions in relation to low carbon electricity generation projects in advance of the enduring regime."

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James Arathoon
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