Proposed reforms to GB’s contracts for difference scheme

The Department for Energy Security and Net Zero (DESNZ) has launched a consultation on proposed reforms to the existing Contracts for Difference scheme (CfD) in GB. Established in 2014, this scheme acts as the UK government’s key mechanism for incentivising investment in renewable energy projects whilst minimising costs to consumers. There have been six previous allocation rounds under the CfD, with the most recent delivering a combined capacity of 9.6GW.

Following the Clean Power 2030 Action Plan published at the end of last year, a number of potential changes to the CfD have been proposed to support the UK’s ambitions of becoming a ‘clean energy superpower’ by 2030. The consultation aims to engage with industry and key stakeholders on these proposals ahead of the anticipated launch of Allocation Round 7 later this year. 

Key proposals

1. Fixed-bottom offshore wind projects

Under the current scheme, planning consent is required before applying to the CfD and documentary evidence of this consent must be provided to the National Energy System Operator (NESO) before the application deadline has passed. Combined with longer lead in times, this has led to fewer bids for fixed-bottom offshore wind projects under the scheme. 

A proposed relaxation of the eligibility criteria will allow for unconsented projects of this nature to apply for CfD before obtaining full planning consent from the relevant authority. To mitigate any associated risks, it is proposed that the projects have reached an intermediate point in the planning consent process before the application deadline. It is also proposed that successful unconsented projects would be required to return a signed contract with the Low Carbon Contracts Company (LCCC) within ten working days or else be excluded from participating in the next two eligible allocation rounds to discourage speculative bidding. 

Aim

This proposal aims to attract more bidders and improve competition by incentivising developers to bid at their minimum viable price. It may also allow for quicker delivery of projects by removing the waiting period between securing planning consent and a CfD application.

2. Budget publication process

Following Allocation Round 6, it was noted that there was unspent budget for fixed-bottom offshore wind as projects may have offered a competitive bid price but failed to secure capacity if more than the overall budget. Currently, the Contract Budget Notice is required to be published a minimum of ten working days before an allocation round is opened to act as a helpful indicator of ambition for the allocation round.   

To address overspend risk and maximise the volume of capacity that can be secured from each round, it is proposed that the Contract Budget Notice is published after the allocation round has run. Instead, the Government will publish a capacity ambition for the allocation round and schedule for future rounds. The final budget would be set using actual bid price information once received.

Aim

It is hoped that these changes will encourage projects to continue to bid at their minimum viable price and secure good value projects under the scheme

3. Contract term

The current 15-year term was set following the Electricity Market Reform in 2013, however, due to recent global cost pressures, a reassessment is required on whether this term is fit for purpose in maintaining bill affordability and investor confidence. The longer operating lifetime of modern renewable technologies has also factored into these considerations.

A new proposed term has not yet been specified; however, the consultation aims to assess what this should look like and consider whether a longer term should apply to certain technologies only.

Aim

Such changes may reduce the exposure of renewable assets to market price volatility, facilitate cheaper financing arrangements and reduce overall project risk.

4. Solar PV target commissioning window

The UK Government have recognised the importance of solar technology in reaching the 2030 clean energy goals. However, representatives of the solar industry have expressed concern over the Target Commissioning Window (TCW) for solar which is currently three months compared to the 12-month TCW for other technologies. Projects which do not reach commission by the end of this three-month period will receive less subsidy as the 15-year payment term starts regardless. With increasingly larger solar projects coming forward, the TCW is acting as a potential barrier to the deployment of solar at scale under the CfD as they will likely face ‘contract erosion’ and use higher strike price bids to counteract this risk.

Aim

Although industry would like to see an extension of the TCW to twelve months, the Government has proposed an increase to six months from Allocation Round 7. This aims to build developer confidence whilst also maximising the likelihood of such projects going live by 2030.

5. Contract allocation framework and CfD contract terms

Additional proposals in the consultation aim to implement the policy decisions made by the Government at the end of 2024. These relate to onshore wind repowering projects in Allocation Round 7, phased CfDs for floating offshore wind and the implementation of NESO as an electricity system operator in the contract terms.

Aim

Implementation of previous policy decisions applicable to the scheme

Next steps

The consultation closes on 21 March 2025 and a government response is anticipated before the summer in advance of the Allocation Round 7. The proposals set out above aim to improve the overall design of the CfD scheme to ensure it is fit for purpose in our ever-changing market landscape.

Position in Northern Ireland

Closer to home, we remain waiting in anticipation for the imminent launch of the Northern Ireland Renewable Energy Price Guarantee following the publication of a high-level design by the Department for the Economy last year. The proposed scheme follows the CfD approach to incentivising renewable development in Northern Ireland and a final design is expected in the coming months.

Considerations from the CfD consultation above may be factored into this process and we look forward to the publication of a final scheme in due course.

For further information in relation to this topic, please contact any member of the ALG Belfast Energy & Natural Resources Team.  

Date published: 10 March 2025