Many developers are in the midst of signing and negotiating Contracts for Difference (CfDs) the UK government support for renewable electricity but also (and we should not forget) green hydrogen projects that have been shortlisted under the Government’s Hydrogen Business Model. Successful projects are now considering the terms and the rigorous obligations they will be signing up to in these contracts and addressing immediate issues such as fulfilling initial conditions precedent within tight timescales (for example, there is a requirement for a formal legal opinion). For green hydrogen developers they are considering what aspects of the contract they might need to change, whether it works for their project because this is the first roll out of the contract in this sphere and assessing whether DESNZ is going to be open to changes.
There has been a lot of discussion about the CfD Allocation Round 5 particularly around offshore and floating wind but we must remember that the auction was a big success for onshore wind, solar and particularly tidal stream with its ringfenced pot. However, from a legal and contracting perspective that means that there are a large number of developers who are facing the prospect of signing up to the CfD for the first time with, in some cases, early stage technologies. So after the champagne corks have popped, the reality of the contracts can be quite a daunting prospect. The same can be said for the shortlisted green hydrogen developers. They are in effect, the guinea pigs for the model going forward.
Some comfort in my experience, can be gleaned from the fact that DESNZ/Government don’t want projects to fail or CfDs to fall away. Having awarded them they want them to succeed. Here are some of the questions we at Burges Salmon are being asked by our clients as we guide them through these contracts;
- What termination rights do I have under the CfD?
- If the project does not get built in time or the milestones are missed through no fault of mine, what happens?
- Can I sell my electricity via a private wire later on?
- How should I define the scope of my Project (“Facility”) and what might be the implications of that?
- What key terms can I back off to my suppliers and in the case of hydrogen my offtakers?
- What is the impact/interaction of corporate PPAs and CfDs?
- If I need to adapt the project how does that work with LCCC and consents needed under the CfD?
If you would like to talk through any of these get in touch. Ross.email@example.com.