Background
Since 2015, LCP have developed and maintained the modelling framework used by the Low Carbon Contracts Company (LCCC). The LCCC are responsible for administering the Contracts for Difference (CFD) regime, a form of low-carbon support that guarantees a set price for a generator’s electricity.
Our solution
The ‘Supplier Obligation Forecasting Model’ built by LCP is used to determine the levy rate charged to suppliers to fund CFD support payments and ensure enough reserve is held by the LCCC at any given time to cover a 1-in-20 worst case outcome.
Robust forecasting of demand, renewable generation and power prices are a key component of the model. SOFM incorporates stochastic modelling to simulate a wide range of intermittent generation and demand profiles and provide a probabilistic distribution of possible market out-turns. The model takes in live data inputs such as market price forwards in order to provide up-to-date projections of power prices in the near-term.
We also provide the LCCC with an online platform known as the “Transparency Tool”, which is used to communicate the results and underlying calculations to the various stakeholders in the CFD regime.
The results
SOFM is now used by the LCCC to calculate the interim levy rate and total reserve amount on a quarterly basis. We continue to work closely with the LCCC forecasting team to support this analysis.
