The Low Carbon Contracts Company (LCCC) has requested an annual budget increase of almost £3.4 million, nearly half of which would be set aside as contingencies for falling electricity demand and legal disputes.
According to a consultation on the proposed budget published by the Department for Business, Energy and Industrial Strategy (BEIS), the extra money is also needed to deal with a growing number of contractual events and to prepare for the fourth Contracts for Difference allocation round due to take place next year.
The department said the LCCC’s budget has not increased significantly since 2018/19, rising by 3 per cent in each of the following two years. It has proposed a figure of around £20.8 million for 2021/22 – a 19 per cent jump over this year’s budget of £17.5 million.
“The larger increase in budget for 2021/22 reflects a number of factors, including LCCC’s growing role in helping to meet our legally binding net zero target, increased uncertainty in energy demand arising out of the Covid-19 pandemic and other cost increases beyond LCCC’s control, such as insurance premiums and new premises costs,” the consultation stated.
As the company’s costs are recovered through a per-megawatt-hour levy on electricity bills, the actual amount of funding it receives varies with the amount of electricity supplied. The budget for 2020/21 therefore included a £0.75 million contingency to prevent underfunding in the event that electricity demand drops.
The consultation said the Covid-19 pandemic has resulted in just such a reduction, which is expected to continue into the next financial year: “To mitigate the risk of having to rely on BEIS for cash flow, a contingency of £1.5 million has been included in the budget for 2021/22”.
LCCC also requested an increase in the contingency set aside for legal disputes from £2.1 million to £3 million on the grounds that they will become more likely to occur as it signs more contracts and projects with agreements are built out. It has asked for a further £0.2 million of contingency funding to support government if it proceeds with plans to develop CfDs for power stations fitted with carbon capture and storage.
The company is additionally facing a rise in monthly rent from £36,000 to £43,750 as it relocates across London. It is currently based at Fleetbank House in Blackfriars but will need to vacate the building in June 2021 ahead of its demolition. It will move to 10 South Colonnade in Canary Wharf, which also houses Ofgem and HM Revenue & Customs and, whilst more modern, is also more expensive.
Despite taking action to cut costs, including reducing its coverage, the company likewise expects to pay higher insurance premiums in 2021, partly as a result of the coronavirus pandemic.
The LCCC acts as the counterparty for Contracts for Difference. The Electricity Settlements Company, which fulfils the same role for Capacity Market contracts, has proposed a minute decrease in its budget for 2021/21 to just below £7.5 million.