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Business electricity: a guide to Contracts for Difference (CFD)


What are business electricity Contracts for Difference (CFD)?

There are two types of Contracts for Difference (CFD), one relevant to investments and one that is a new levy on UK business electricity customers, envisaged as a replacement for the current Renewables Obligation (RO).

In fact, the two are closely related: in business electricity, a Contract for Difference (CFD) is a contract between a low carbon electricity generator and the Low Carbon Contracts Company (LCCC), a Government-owned company.

How do business electricity Contracts for Difference (CFD) work?

As the Government explains, the business electricity generator in a CFD is paid the difference between the ‘strike price’ – a price for business electricity reflecting the cost of investing in a particular low carbon technology – and the ‘reference price’– a measure of the market average business electricity price.

What is the aim of Contracts for Difference (CFD) for business electricity?

Contracts for Difference (CFD) are designed, in the Government’s words, to promote “greener energy and reliable supplies that the country needs, at the lowest possible cost”. The aim is for low-carbon generation to be able to compete with conventional, fossil-fuel generation.

The CFD system offers business electricity suppliers more certainty by reducing their exposure to volatile wholesale prices. UK companies are somewhat protected from higher support costs when business electricity prices are high.

When do business electricity Contracts for Difference (CFD) come into force?

Business electricity Contracts for Difference (CFD) came into force in April 2015. But the Renewables Obligation (RO) will still be in place until 2037 as the scheme’s 20 year lifespan phases out. CFDs will to replace the RO for any new business electricity generation plant from 2017.

What do Contracts for Difference (CFD) mean for my business electricity bills?

Business electricity Contracts for Difference (CFD) will initially be administered as an additional cost on business electricity bills. But, with the phasing out of the Renewables Obligation (RO) offering an uncertain timetable, businesses may wish to take expert advice on how they can best comply with Contracts for Difference (CFD) rules.

Business electricity suppliers will have varying responses to the Contracts for Difference (CFD) rules and making the necessary business electricity comparison could be time consuming. We offer no-obligation comparisons in just 20 minutes and can take care of all the paperwork for your business electricity switch service if you like the sound of what we offer.

Thousands have already chosen SwitchMyBusiness.com – we are the highest rated business energy provider on independent ratings site TrustPilot – so give us a call on 0330 0100 251 (or request a call back using our form) now to start saving.

Our dedicated page has lots more information about business electricity.

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