The amendment moved by the noble Lord, Lord Berkeley, seeks to ensure that renewable technologies in receipt of a CFD have a contract life of at least 25 years. As the noble Lord is no doubt aware, we have recently published more detail on the contract terms, building on the operational framework of November 2012. This reconfirms our position that the appropriate contract length for payments to renewable technologies receiving a generic CFD remains 15 years.
In determining the length of the CFD, we considered a number of factors. The 15-year length is based on a trade-off between value for money for consumers, affordability within the levy control framework and bankability for investors. For the purpose of setting the contract lifetime, we have assumed that investors will require debt to be repaid within the CFD life. Therefore, having too short a contract length could
impact on the cost of debt finance, given the increased exposure to wholesale price risk. Our analysis also indicates that investors discount very heavily the last few years of revenue from a project, particularly when compared to the social discount rate. Taking all these factors into account, extending the length beyond 15 years would not necessarily be significantly valued by the investor, but would come at a cost to consumers.
In addition, the noble Lord may be aware that guidance from the European Commission states that support must be less than the accounting life of the asset. Extending the lifetime duration as the noble Lord proposes would extend a CFD beyond the asset life of a number of renewables technologies, which are generally less than 25 years. All these factors suggest to us that a contract life of 15 years is still appropriate.
I should also make clear that just because there is a generic contract does not prevent the Secretary of State directing the counterparty to issue a contract which differs on certain terms where that is considered appropriate. We have retained the ability to do this and would look to treat such occurrences on a case by case basis.
The noble Baroness, Lady Liddell, asked about the uncertainties of risk, mitigating them and ensuring appropriate rates of return. The strike price provides certainty on levels of support for the length of the contract. There will also be some change in legal protections. More details on the CFD terms will be published in early August, as the noble Baroness, Lady Worthington, said.
The noble Baroness, Lady Worthington, asked about nuclear and CCS. As she knows, we are currently in negotiations on a nuclear project, so I am not able to comment further on that point. On CCS, it may be better if I write to her. I hope that the noble Lord, Lord Berkeley, will withdraw his amendment.