Contracts for Difference Implementation Update 21 st January

Contracts for Difference Implementation Update 21 st January 2015

Welcome, Agenda and Safety 2

Agenda Cf. D Round 1 Progress and Timeline Cf. D Allocation Overview Sealed Bids Rules & Form Demo Applicant Processes (Submit & Withdrawals) Cf. D Contract Signing Process Cf. D Contract Management LCCC Key Contacts Q&A & Close 121 discussions

Contracts for Difference Round 1 Progress and Timeline John Perkins Cf. D Manager

1. Pre. Application Activities 2. Application Applicants 3. Qualification 4. Review 5. Appeal 6. Valuation Request Review Apply 7. Sealed Bids 8. Allocation & Independent Audit 9. Allocation Notification Request Appeal Round Variation / Budget Revision Notices Assess Eligibility RO Check Review Qualified Applicants Appeal 5

1. Pre. Application Activities 2. Application 3. Qualification 4. Review 5. Appeal Applicants 6. Valuation 7. Sealed Bids 8. Allocation & Independent Audit 9. Allocation Notification Submit Sealed bids if requested Round Variation / Budget Revision Notices Value qualified applicants Request sealed bids if required Allocation & Independent Audit 6

Applicant Options in a Bid Window Submit Sealed Bids • Defaults to single bid as per original application if none submitted • Note: Potential NDD policy impacts Withdraw Sealed Bids • Ability to submit new sealed bids • Default as above Withdraw Application • Note: Impact on Eligibility for Renewables Obligation 7

1. Pre. Application Activities 2. Application 3. Qualification 4. Review 5. Appeal 6. Valuation 7. Sealed Bids 8. Allocation & Independent Audit 9. Allocation Notification Contract Signature Applicants Allocation Reports Review Cf. D Notification Appeals Register Issue Contract s Cf. D Register 8

Expected Key Dates Process Step Date DB Notice to SOS Budget Review Auction Notice Sealed Bid Submission 20 -Jan 21 -27 Jan 28 -Jan 29 Jan - 4 Feb Allocation SOS review CFD Notification LCCC prepare Contracts 5 -20 Feb 23 & 24 Feb 26 Feb 27 Feb - 12 Mar Contract Signature 13 -27 Mar

National Grid Contact Details ' Phone: 01926 655300 (calls recorded on this number) * Email: emr@nationalgrid. com website: www. emrdeliverybody. com 10

Contracts for Difference Allocation Rules Yasharn Smith EMR Delivery Manager

Cf. D – Competitive Allocation Principles Used to identify Successful applicants and Strike Prices Years can close independently Allocation in ascending price order (across years) Minimum allocated first Sealed bid process (includes bidder flexibility) Each delivery year has a separate clearing price Triggered by breach of Budget 12

When is an Auction Required Illustration only AUCTION REQUIRED NO AUCTION REQUIRED 13

Budget Notice £m 11/12 prices 15/16 16/17 17/18 18/19 19/20 20/21 Pot 1 (established) 50 65 65 65 Pot 2 (less established) 0 155 235 235 Pot 3 (biomass) 0 0 0 Total 50 220 300 300 Maximum amounts consumers would be expected to fund in each year Conversion factor to translate budget to 2012 prices : 1. 0195

Cf. D Allocation – General Principles Budget Rule Constraint Across Years Bids/ Prices Pay as Cleared • Pot /Budget (Cannot Be Exceeded Except for Pending Projects) • Only competitive where binding constraint (E. g. MIN capacity/Pot Budget) • All projects in same Pot will compete on strike price basis, regardless of delivery year. • Years can close independently • Projects will be awarded in order of lowest to highest strike price • Sealed bid process (includes bidder flexibility) • Clearing Price set by most expensive successful project in each year (subject to cap at the Technology Admin Strike price).

¾ Project SP Bid Del Yr MW A 2 115 16/17 43 K 1 113 18/19 700 G 3 112 18/19 5 C 2 108 17/18 28 A 1 105 15/16 47 C 1 105 17/18 38 D 6 97 16/17 42 D 1 94 16/17 80 H 4 93 17/18 35 B 2 92 16/17 50 F 2 90 17/18 80 E 1 88 16/17 63 B 7 85 15/16 50 Close Year A 2 K 1 Close Year Tiebreak with A 1 & C 1 G 3 C 2 Strike Price Bids Flexible Bids- Increasing Price Cf. D Allocation – Flexible Bids are assessed in order of strike price bid (cheapest first). If they fit the budget profile after clearing consideration, they are accepted. A 1 Next cheapest bid is for same project Budget would be exceeded in 16/17 ¾ Same Commissioning Year Flexibility B 7 ¾ If a bid is successful, remove from stack all other bids relating to same project 15/16 C 1 Reject all other bids for 16/17 Close Year D 6 D 1 A 1 uses budget best in final year H 4 B 2 E 1 16/17 F 2 17/18 18/19

Cf. D Allocations – Tiebreaker Rules ¾ Tie-breaker rules applies where 2 or more projects with the same strike price bid, both cannot be awarded a Cf. D without exceeding budget limits Confirm projects with same S. P would exceed budget Assess all combination of tied projects which exceeds budget Consider other flex bids for unsuccessful projects Remove other flex bids for successful projects Choose combination of projects which best uses budget For further ties – Random number generator is to be used

Contracts for Difference Sealed Bids Giampaolo Panizio EMR Cf. D - Commercial Analyst

Sealed Bids – Relevant Material Sealed Bid Submission User Guide is available on the Delivery Body Portal https: //www. emrdeliverybody. com/Pages/Announcement. Des cription. aspx? CID=98

Sealed Bids Submission Rules General ¾ Bids must be in 2012 prices (£/MWh) ¾ Withdraw & resubmit bids during submission window ¾ No bids accepted after window closes ¾ Relevant ASP is used if no bids are submitted Detail q Submit combination of different bid price, capacity, TCW, & TCD q No bids above the ASP q Max 10 Bids per project q No more than 3 bids for the same Delivery Year (DY) q No two bids can have the same price q Must be same DY or later than original application q Must be same capacity or less than original application q TCD must fall within the TCW q Lowest price in each DY expressed to nearest whole pence (e. g. £ 100. 01) q All other bids (except for lowest in each DY) expressed to nearest 0. 1 pence (i. e. £ 100. 011) q Only 1 Sealed Bid can have the same first DY and capacity as original application q For AD, Hydro, Onshore, Solar projects the bid capacity must be > 5 MW

Phased Projects’ Specific Rules Detail q Must include a single Strike Price to apply to all phases q The total capacity of all phases must be no greater than 1500 MW q The first phase must represent at least 25% of the total capacity of the CFD Unit after all phases are completed q The first phase is targeted to complete by a date no later than 31 st March 2019 q The target commissioning date of the last phase is no later than 2 years after the date referred above

Sealed Bids Form Demo Original Applications’ Information: • • • Single Phased Project Technology: Onshore Wind Applicant name: Panizio Ltd Application ID: CFD-PNZO-01 -01 Name of CFD Unit: Eolo Farm TCD: 15 July 2016 DY: 2016/2017 TCW start Date: 1 January 2016 TCW end Date: 31 December 2016 Capacity: 80. 00 MW ASP: £ 95 per MWh

Sealed Bids Submission Guidance Notes q Excel Macros must be enabled q Do NOT manually hide or unhide rows q Do NOT copy and paste data into cells q Do NOT copy and paste the form in another excel file q Do NOT rename the sealed bids form q Validate Sealed Bids and save the form

Contracts for Difference Applicant Processes Yasharn Smith EMR Delivery Manager

Sealed Bids Submission process Auction Notice Published Pre-populated Sealed Bid Forms (Sent on - 16/12/14) Send form to DB Applicants Fill in Sealed Bid Forms Applicants Validate Form Withdraw Application/ Sealed Bids & Resubmit DB Uses Bids to Run Auction

Auction Notice of Auction will be sent from the DB to: q Inform qualified applicants that the value/capacity (min) of a pot(s) has been exceeded and therefore a competitive allocation is required for that pot; q Inform applicants of the dates for opening and closing sealed bids submission window q Provide links to: to guidance on how to submit and fill a sealed bids form Sealed Bids withdrawal form Application withdrawal form

Application/ Sealed Bids Withdrawal Applicants participating in an auction may q Withdraw applications during the submission window; q Withdraw and re-submit sealed bids during the submission window. q The Cf. D sealed bids withdrawal form and the Cf. D application withdrawal form will be made available on the EMR DB Portal when an auction commences q The DB has contingency processes in place to manage these processes and will communicate to applicants if required

Submission through Egress q Applicants must send filled in (validated) sealed bids form/withdrawal forms to the Delivery Body through Egress Switch: https: //secureform. egress. com/emr/ Applicant contact details required here DB will not accept Sealed Bid forms from unregistered person

Submission through Egress q Applicants must not change the file name of the pre-populated Sealed Bid form sent from the DB Upload file to be sent here 1. 2. 3. 4. Select CFD Sealed Bids on the [Type of Submission] drop down box; Click on the Add Files button; A file dialog box will appear which enables Users to select their files, upload Validated Sealed B Enter an alternative email address if required for copies of submission to be shared

Preparing for Contract Signing and Next Steps Nic Rigby Low Carbon Contracts Company IC Event 21 January 2015

Agenda • Introduction • Notification to Contract Signing • Initial Conditions Precedent and Beyond 31 31

Disclaimer • Parties should rely upon the drafting of the relevant CFD Agreement and Fi. T CFD Standard Terms and Conditions in relation to the contract they enter into, not these slides • Parties are recommended to obtain their own Legal advice. • Once Allocation Results are announced Low Carbon Contracts Company will not be available for any discussions on contract interpretation. 32 32

Contract Management Tasks Pre-Application Considering requests for minor and necessary amendments to generic CFDs before the potential applicant decides to apply for a CFD From Allocation to Start Date Execution: 1. preparation of CFD and arranging execution 2. satisfaction of Initial Conditions Precedent Milestone Satisfaction: Substantial Financial Commitment by Milestone Delivery Date. Start Date: satisfaction of Further Conditions Precedent and certification of Start Date. Today’s Agenda Post Start Date (when payment flows commence) Payment and settlement Reference Price review and Strike Price indexation Audit of metering and reporting Fuel monitoring and sampling compliance 33 33

What Does Success Look Like 1) Win the offer of a Cf. D Contract in the auction 2) If you get past 1 then you must 3) Sign a Contract by 27 March 4) Meet Initial Conditions Precedent within 10 Business Days of signing the Cf. D Contract 34

Agenda • Introduction • Notification to Contract Signing • Initial Conditions Precedent and Beyond 35 35

The Contracts for Difference (Standard Terms) Regulations 2014 Offer to contract 10. —(1) An offer of a CFD is made by the CFD counterparty signing two copies of a CFD completed in accordance with regulation 9(3) and sending both copies to the eligible generator. (2) The CFD counterparty must make an offer of a CFD within 10 working days of receiving a CFD notification. (3) The eligible generator, to whom the offer of a CFD is made, enters into a CFD where— (a) the eligible generator signs both copies of a CFD and returns one copy to the CFD counterparty; and (b) the CFD counterparty gives the eligible generator a notice stating that the CFD counterparty has received a copy of the CFD from the eligible generator which has been signed by both contracting parties. (4) The CFD counterparty must give the notice under paragraph (3)(b) as soon as reasonably practicable after the CFD counterparty receives a signed copy of a CFD from an eligible generator. (5) Where a CFD is entered into, the CFD counterparty must inform the delivery body as soon as reasonably practicable. Failure to accept an offer 11. —(1) Where the CFD counterparty does not receive a signed copy of a CFD from an eligible generator within 10 working days of the offer being made, the offer lapses. (2) Where an offer lapses, the CFD counterparty must, as soon as is reasonably practicable, give the eligible generator and the delivery body a notice which states that the offer has lapsed. 36 36

End of Auction to Contract Signing Action by Process Timing N Grid Provide Low Carbon Contracts Company (LCCC) with list of successful Applicants 26 February LCCC (Your allocated Contract Manager) Send data ex N Grid and draft contract to Applicants for checking LCCC Send 2 copies of Signed Contract to Applicants Within 10 Working Days (Regs) LCCC/ Applicants Signing day(s) Week beginning 23 March Applicant Return 1 signed copy of Contract to LCCC Within 10 Working Days (Regs) Working Day (Regs) = Weekdays – Bank Holidays in any part of the UK 37 37

In practice – Getting your contract signed • • All parties allocated a CFD will get a dedicated Contract Manager Each Contract Manager covers all the projects that are operated by a Company or Group. Contract Managers already allocated to Investment Contract Generators. Contract mangers appointed as soon as we receive Auction results Nic Rigby 38 Arezou Farhadi James Krzyszkowski Puk Lykke. Moller Stephanie Houston 38

In practice – first 10 working days • Low Carbon Contracts Company will write and set out exactly what you must do and by when in a “Key Dates Letter” • Contract Managers appointed • The LCCC have very limited time to check information provided by the generator in application to delivery body • We can only change information that was not used as part of decision making process in allocation • We will be able to change a postcode but not MW • If we do not get a very rapid reply to any requests for confirmation of data - LCCC will have no choice but to send agreement with the information that we hold • Please note allocation is not public knowledge at this point! 39 39

How the process works in more detail 40 Working Days (Regs) Counter Typical date Time Obligation Action 0 Thur 26 Feb Before 5 pm Process initiated N Grid provide data to Low Carbon Contracts Company 10, and initiates new counter Thur 12 Mar Before 5 pm Last date for Low Carbon Contracts Company to send out 2 signed copies of contract LCCC will e mail scanned copies via Egress and post paper copies. 10 Fri 27 Mar 5 pm 1 copy of Contract must arrive at Fleetbank House Scanned via Egress e mail and/or deliver paper copies. 40

What you will receive The CFD agreement + The Conditions applicable to the CFD Agreement between the Parties are the terms and conditions set out in version 1 of the document published by the Department of Energy & Climate Change entitled “Fi. T Contract for Difference Standard Terms and Conditions” as at 29 August 2014 (as amended, modified, supplemented or replaced by the Cf. D Agreement and as may be amended, modified, supplemented or replaced from time to time in accordance with the Conditions). For the purposes of confirmation of this and identification, the Parties have signed this covering page to the Conditions. Signature required at - end of contract text, and - on this page to confirm 29 August version of Standard Terms and Conditions, 41 41

In practice – follow up • The LCCC must notify generators of receipt of countersigned agreement • LCCC must inform the delivery body of CFDs entered into • LCCC will notify both generator and delivery body of any lapsed offers • Parties that allow to lapse or terminate are subject to Non Delivery Disincentive • 42 For 13 Months no re-applications allowed 42

Agenda • Introduction • Notification to Contract Signing • Initial Conditions Precedent and Beyond 43 43

Initial Conditions Precedent • Meet Initial Conditions Precedent (Schedule 1) within 10 Business Days • Legal opinion that Duly formed & power to enter contract • Standard letter available on our web site • Identification “Know your customer” checks • Provide map of facility 44 44

Extreme Compass Co-ordinates Extreme co-ordinates – WGS 84 Northerly Easterly Southerly Westerly 45 Latitude 53. 385943 53. 359055 53. 350056 53. 385000 Longitude -3. 421383 -3. 414001 -3. 421000 -3. 431000

Map Requirements • To scale and scale provided • Four extreme compass co-ordinates must be shown in WGS 84 format • All boundaries must be shown • All mayor parts of the facility (eg sub station, turbine locations must be shown, fuel storage) 46

Contract Management Approach • Each Company who wins a Contract has a dedicated Contract Manager • Diverse experience of Contract Management and Industry experience • Once allocation round results are announced Low Carbon Contracts Company will not be available for any discussions on contract interpretation. • Trade Associations have lists of Legal Advisers • Post Initial Conditions Precedent Low Carbon Contracts will provide – Q & A (signposts) on Contract questions – But will not provide Contract explanation – Applicants need to access legal advice 47 47

Early preparation 1. Check Egress works for all key parties • Send e mail to contractmanagement@lowcarboncontracts. uk and we will reply via Egress. 2. If e mails re Cf. D Contract need to go to different or additional parties then • • please inform Low Carbon Contracts Company On Allocation Day when you receive “Key Dates Letter” including Invitation to Signing Ceremony. 3. Decide if you want to attend Signing Ceremony. 48

Fleetbank House 49 • E mail contractmanagement@lowcarbonc ontracts. uk to let us know when you intend to deliver or with any queries. Please use Egress for all confidential e mails re Contracts • Question and Answer document can be found at www. lowcarboncontracts. uk • Visit our web site or contact the team for more information 49

Closing Remarks 50 • Low Carbon Contracts focus will be on getting everyone from offer of Cf. D to post Initial Conditions Precedent. • Private law contract as offered on 29 August 2014 • All parties expect to be treated equally • Stretching the requirement can’t be done equitably • So no allowances can be made • Check your ability to meet Contract commitments, including Milestone Requirement. Be aware of impact of not signing, Non Delivery Disincentive. 50

Contracts for Difference Closing Remarks and Questions John Perkins Cf. D Manager

National Grid Contact Details ' Phone: 01926 655300 (calls recorded on this number) * Email: emr@nationalgrid. com website: www. emrdeliverybody. com 52