The Power Purchase Agreement Scheme Regulations 2014

EXPLANATORY NOTE

(This note is not part of the Regulations)

These Regulations apply to Great Britain and make provision for or in connection with a scheme to promote the availability to electricity generators of power purchase agreements (“power purchase agreement scheme”). Other provisions in connection with the power purchase agreement scheme are contained in modifications to the standard conditions of electricity supply licences (“relevant supply licence conditions”). These modifications are made under section 50 of the Energy Act 2013 (c. 32) (“the Act”) and are available from the Department of Energy and Climate Change, 3 Whitehall Place, London, SW1A 2AW.

Part 2 (regulations 3 to 17) confers functions on the Gas and Electricity Markets Authority (“the Authority”) and the Secretary of State in relation to the operation of the power purchase agreement scheme and sets out the process for determining which persons who hold an electricity supply licence under section 6 of the Electricity Act 1989 (“licensed suppliers”) are to offer to enter into agreements with electricity generators under the scheme. Agreements entered into under the scheme are referred to in the Regulations as BPPAs (“backstop power purchase agreements”).

Regulation 3 provides that any BPPA entered into by an electricity generator must contain standard terms issued by the Secretary of State which are applicable on the date on which the generator enters into a “relevant contract” (defined as a contract for difference under Chapter 2 of Part 2 of the Act or an investment contract within the meaning of Schedule 2 to the Act). The standard terms must include provision about the matters which relevant supply licence conditions require to be included in a BPPA. Regulation 4 makes provision as to the number of BPPAs which are to be subject to any auction held in respect of the generator.

Regulation 5 makes provision about expressions of interest submitted to the Authority by electricity generators seeking to enter into a BPPA. Unless specified circumstances apply, the Authority is required to send a copy of any expression of interest it receives to all licensed suppliers within 2 working days of receiving it. Regulation 6 requires the Authority to determine whether the eligibility requirements for an electricity generator to enter into a BPPA are met. If those requirements are met, the Authority must issue a notice (“an OLR notice”) under regulation 7 and send a copy to all licensed suppliers informing them that a BPPA auction is to be held in respect of the eligible generator. A copy of any BPPA which is to be subject to an auction must be enclosed with the OLR notice. Regulation 8 specifies the period within which the Authority must comply with regulations 6 and 7. The Authority is required by regulations 9 and 10 to inform the generator and licensed suppliers that no BPPA is to be entered into (and to terminate any auction that has already started) in any case where the Authority determines that the eligibility requirements are not met in respect of the generator and in certain other circumstances.

Regulation 11 and the Schedule make provision about the conduct of auctions which relevant supply licence conditions require in order to determine which licensed suppliers are to offer to enter into BPPAs with electricity generators. The Schedule sets out when an auction closes and how the Authority is to determine successful bids. Regulation 12 contains provision about licensed suppliers which are required to participate in auctions which are held in any 12 month period starting on 1 April (“an OLR year”).

Regulation 13 makes provision for the suspension in exceptional circumstances of the deadlines within which the Authority is required to discharge specified functions. The Authority must inform licensed suppliers and electricity generators of any delay in discharging the function and specify a new deadline.

Regulation 14 requires the person or persons designated as CFD counterparty for contracts for difference in accordance with section 7 of the Act to provide the Authority with information about relevant contracts entered into by electricity generators. Under regulation 15, licensed suppliers may be required to provide the Authority with information in connection with the power purchase agreement scheme. The Authority has a duty under regulation 16 to maintain records in connection with the operation of the scheme, including records of certain previous conduct in connection with the power purchase agreement scheme which results in a generator being ineligible to enter into future BPPAs in respect of an electricity generating station. The Authority has to report to the Secretary of State on the operation of the power purchase agreement scheme under regulation 17.

Part 3 (regulations 18 to 28) makes provision for a levelisation process which includes mutualisation of certain unpaid amounts. Licensed suppliers are required to make payments to or receive payments from the Authority for the purpose of ensuring that the costs of participating in the power purchase agreement scheme are proportionate to the market shares which the licensed suppliers have in the electricity supply market in Great Britain.

Regulation 18 provides for the Authority to keep an account (“the OLR levelisation account”) into which, and from which, are made levelisation payments which are calculated annually and periodically. Regulation 19 requires the Authority to determine certain values and costs for the purposes of calculating annual levelisation payments. These annual levelisation payments are calculated in accordance with regulation 20 and this regulation sets out when such annual payments are to be made into, and paid from, the OLR levelisation account. Under regulation 21, periods for calculating periodic levelisation payments have to be determined by the Authority and the Authority is required to make and receive these periodic levelisation payments on account of annual levelisation payments. Regulation 22 makes provision for the Authority to give notices relating to the making of levelisation payments and regulation 23 deals with the making of such payments by the Authority. There is a correction mechanism under regulation 24 if a calculation made under regulation 20 or 21 is later found to have been incorrect.

Mutualisation is a process by which costs arising from the non-payment of periodic levelisation payments are allocated among all licensed suppliers. If the total of unpaid amounts is equal to or greater than a limit determined by the Secretary of State under regulation 25, the Authority is required by regulation 26 to apportion the unpaid amounts among the licensees and to distribute a mutualisation payment.

Regulation 27 provides what happens in respect of levelisation and mutualisation if, in the course of an OLR year, a licensed supplier has its licence terminated. Regulation 28 provides for the treatment of late mutualisation payments or of late levelisation payments which do not trigger a mutualisation.

Part 4 (regulations 29 to 32) contains miscellaneous provisions. Regulation 29 makes provision for the enforcement of obligations imposed on licensed suppliers by the Regulations. Regulation 30 provides for the Authority to publish guidance in connection with the power purchase agreement scheme. Regulation 31 provides for the Secretary of State to conduct reviews in connection with the scheme. Regulation 32 makes provision about the giving of notices under the Regulations.