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October 2024 update

The statistics in this briefing paper have been updated to reflect the outcome of the sixth CfD auction round. The policy content and commentary has not been revised since September 2023 and will be updated in due course.

The Government’s primary mechanism for supporting new low carbon power infrastructure is the Contracts for Difference (CfD) scheme.

CfDs work by guaranteeing a set price for electricity – known as a strike price – that generators receive per unit of power output. As the wholesale price of electricity fluctuates, the generator is either paid a subsidy up to the set price, or pays back any surplus above the set price to the scheme, so that they have the certainty of always receiving the value of the strike price. The cost, or benefit, is passed on to consumers through their bills.

The fifth CfD auction round, which took place in 2023, delivered a record number of solar, onshore wind, tidal, and geothermal projects. However, although offshore wind was the dominant technology in previous CfD auction rounds, the fifth auction round did not attract any bids from offshore wind developers. This result was widely criticised by representatives from the offshore wind industry.

Chart titled "CfD successful applicants by auction round" showing the installed capacity by technology in each of the six auction rounds to date, plus the pre auction capacity. Total capacity peaked in round four at 10.8GW, it fell by more than half in round five before increasing to 9.6GW in round 6.

Chart titled "CfD generation by technology" showing the annual total generation from 2016 to 2023. This peaked in 2020 at 22TWh, before falling to around 20.5TWh in 2022 and 2023. The recent drop in generation has been due to lower output from biomass.

Chart titled "Impact of CfD costs on domestic electricity bills" showing the CfD allowance under the direct debit price cap for typical annual consumption of 2,700 kWh.  Data covers 2019/20 to 2024/25. This increased to just over £30 in early 2021/22, before falling (due to higher wholesale prices). It went negative in late 2022/23 and early 2023/24, before increasing to around £30 in 2024/25.

Changes are being considered to the CfD scheme under the government’s Review of Electricity Market Arrangements and additional consultations. These include proposals to partially expose CfD generators to wholesale prices, introduce a revenue ‘cap and floor’, or to base the revenue received by a generator on a prediction of how much it would generate in particular location, instead of its actual output.  

This briefing provides an overview of the CfD scheme, the projects it has delivered and its value to generators and costs to consumers. It also covers stakeholder commentary on the most recent CfD auction and the changes under consideration.


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