Supply Chain Standard

140. Government has decided to make the provision of an adequate supply chain plan a pre-condition for the CfD allocation process for larger projects. We propose that projects that are applying to develop capacity of 300MW or above will need to provide the EMR delivery body with a letter from Government certifying that they have an approved supply chain plan when making an application for a CfD. Supply Chain plans will set out how the project will support the long term economic growth and viability of the global low carbon supply chain and how they will foster innovation and competition and support the development of skills in that chain. The Government considers that encouraging open and competitive supply chains and promoting innovation and skills in them will drive down the cost of low carbon

generation over the long term and result in lower energy costs to consumers⁶⁷.

141. The supply chain plans will be assessed by Government on the basis of whether the plan demonstrates enough action is being taken, or has been taken, by the generator to deliver the Government’s objectives, as well as sufficient evidence to prove these actions will be/have been undertaken.

142. We are minded to implement the supply chain plan requirement through a combination of regulations and guidance. The provisions for the supply chain plan requirement will be included in the final version of regulations to be laid in 2014, and are not currently included in the draft statutory instrument.

143. Government will issue a consultation on our detailed proposals in November;

we expect that this consultation will close on the same date as the present consultation. This consultation will set out the information that a supply chain plan will need to include, as well as the criteria that they will be assessed against, and how each plan will be assessed. The outcome of this consultation will be a combination of regulations and detailed guidance for applicants. Government will work with industry during the consultation period, including through the CfD Expert Group and other relevant groups such as the Offshore Wind Industry Council. The Department may also draw from the criteria provided in the FID enabling for Renewables process.

144. The areas that we currently expect to be addressed in the supply chain plan are:

a. Whether a workforce with the necessary skills to undertake the project is in place and, if not, whether the generator is confident the workforce can be secured. This will allow for consideration of the deliverability of the project and whether it is likely to lead to low carbon generation.

b. How the workforce skills will be maintained for the life of the project, or, as the case may be, developed and maintained. This will allow for consideration of how the project will contribute to the development of skills in low carbon generation and development.

c. Whether the proposed project is using a competitive procurement process so that technically competent and cost-efficient suppliers,

67 External reports supporting this case http://www.carbontrust.com/media/42162/ctc743-offshore-wind-power.pdf and

http://www.thecrownestate.co.uk/media/305094/Offshore%20wind%20cost%20reduction%20pathway s%20study.pdf

regardless of their location, are able to compete for such contracts.

This will allow us to assess whether the proposed project is likely to lead to a reduction in the cost of generating electricity from the chosen generation type. Numerous studies have demonstrated how increased competition in the low carbon supply chain could drive down the future cost of low carbon technologies; therefore Government is keen to improve the contestability of the low carbon supply chain. Actions of this type can help to ensure that the project is delivered in a sustainable and cost-efficient manner.

d. Whether approaches have been taken or will be taken to implement a project in an innovative manner, including through research and development and technological development. Actions of this type may enable project costs to be reduced and support reductions in future projects’ Strike Prices.

145. We intend to develop criteria which can account for the fact that applicants may be at different stages of their project and procurement design. We are mindful of the need to take account of the maturity of projects so that projects which may have made large financial investments in their supply chain or made contractual commitments before entering the CfD allocation system will not be disadvantaged. Applicants will also have the opportunity to provide supporting information such as third party verification by annexing this to the supply chain plan submitted. The Secretary of State’s decision on whether or not to approve a supply chain plan will depend on whether the plan meets the criteria set out in the regulations and demonstrates sufficient actions have been or will be undertaken. The Government may also publish all submitted plans or any other supporting information that might help spread good practice, subject to addressing issues associated with commercial confidentiality. Any regulations made by the Government concerning supply chain plans will be underpinned by supporting guidance for applicants to consider when seeking the Government’s approval of a plan.

146. Once this guidance has been finalised (following the consultation planned for this November), Government will only make changes to the guidance, following an adequate period of consultation with the affected parties, and will provide sufficient notice to allow generators who may be planning to apply for a CfD in future to enable them to take these changes into account before submitting their plans. Should the Government wish to change the criteria set out in the regulations, revised regulations will be required which will be subject to consultation.

147. Our working proposal is that Government will have a maximum of 90 days to approve or reject a plan, although it is unlikely that the full time will be required. We would aim to process all applications within 30 days assuming all information is received up front. If applications were incomplete and further

information was requested then this could further extend the timetable. Once a plan has been approved, we anticipate that this approval would be valid for 12 months.

148. After the project has been built, Government may request a post-build report and may publish the report, removing any material deemed commercially sensitive. The intention of the post build report is to provide the Government with information about how and to what extent the supply chain plan has been implemented - noting that the generator may have altered the approach to that set out in the supply chain for good reason during the build, and this may be clearly explained in the post build report. If generators do not submit a post build report when requested, consideration will have to be given to making this a legal requirement.