Electricity Market Reform: Contracts for Difference
The Contract for Difference (CFD) for renewable energy is a key mechanism of Electricity Market Reform.
This page contains legacy information relating to Contracts for Difference policy development, and documentation relating to previous Allocation Rounds.
For the most up to date information go to Contracts for Difference.
A Contract for Difference (CFD) is a private law contract between a low carbon electricity generator and the Low Carbon Contracts Company (LCCC), a government-owned company. A generator party to a CFD is paid the difference between the ‘strike price’ – a price for electricity reflecting the cost of investing in a particular low carbon technology – and the ‘reference price’– a measure of the average market price for electricity in the GB market. It gives greater certainty and stability of revenues to electricity generators by reducing their exposure to volatile wholesale prices, whilst protecting consumers from paying for higher support costs when electricity prices are high.
On this page you can access documents published by DECC in the development of CFD policy and the CFD websites of our delivery partners the Low Carbon Contracts Company and National Grid and details of arrangements for the Offtaker of Last Resort.
External links
- CFD Implementation Plan. This document provides potential participants in the CFD scheme and electricity suppliers with details of the key implementation activities and milestones for the first CFD Allocation Round in 2014 and subsequent settlement
- Low Carbon Contracts Company. A private company, owned by the Department of Energy and Climate Change (DECC), Low Carbon Contracts will manage the new Contracts for Difference (CFD) introduced by Government as part of the ambitious EMR programme.
- EMR Delivery Body. National Grid has been appointed as the Delivery Body for Contracts for Difference, responsible for publishing CFD application/allocation guidelines and running the CFD allocation process.
Supply chain plans for projects over 300MW which secured contracts
Encouraging open and competitive supply chains in which innovation and skills are promoted will drive down the cost of low carbon electricity generation over the long term; and result in lower costs for consumers. To facilitate this DECC made the provision of an adequate supply chain plan a pre-condition for projects over 300MW to enter the Contracts for Difference (CFD) allocation process.
Versions of the supply chain plans of the projects over 300MW which were successful in the CFD allocation process have been published today.
CFD auction results
At 7 am on the 26 February DECC published the first CFD auction results and statistics. This ensured that the results of the auction were fully transparent and allowed the market to act accordingly. This page sets out a list of successful applicants, their technology and capacity, clearing price and delivery year as well as budgetary impacts. Those who have been successful in the auction will have until 27 March to sign the CFD.
The CFD contract
CFDs provide long-term price stabilisation to low carbon plant, allowing investment to come forward at a lower cost of capital and therefore at a lower cost to consumers.
CFDs require generators to sell energy into the market as usual but, to reduce exposure to fluctuating electricity prices and provide a variable top-up from the market price to a pre-agreed ‘strike price’. At times when the market price exceeds the strike price, the generator is required to pay back the difference, thus protecting consumers from over-payment.
These documents set out the various stages of development and the final standard terms and conditions of the CFD. An update to the contract was published in draft on 8 February 2017.
CFD budget and allocation
In January 2015 DECC announced an increase to the budget for pot 2 (less established technologies) of £25m, which means £260m will be made available for projects commissioning from 2017/18 onwards. It was also confirmed that technologies in both pots will be subject to competition.
The additional £25m funding is in response to the strong demand for Contracts for Difference. There remains significant additional funding available for risk management and future allocation – rising to over £1bn p/a in our central scenario by 20/21.
The budget for the technology pots in the round is as follows:
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Pot 1 (established technologies, such as onshore wind and solar): £50m for projects commissioning from 2015/16, and an additional £15m (i.e. £65m in total) for projects commissioning from 2016/17 onwards.
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Pot 2 (less established technologies, such as offshore wind and biomass CHP): £155m for projects commissioning from 2016/17 onwards, and an additional £105m (i.e. £260m in total) for projects commissioning from 2017/18 onwards. This demonstrates the Government’s commitment to helping these technologies become as competitive as the more established low carbon generation sources.
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Pot 3 (biomass conversion): No budget released in this allocation round but this does not preclude budget being allocated to this pot in future rounds.
These documents set out the final arrangements and stages of development of CFD budgets and the allocation process.
CFD policy development
A range of documents which have contributed to the development of CFD policy.
Updates to this page
Last updated 8 February 2017 + show all updates
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February 2017 update to CFD Standard Terms and Conditions added to page
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Contracts for Difference: Supply chain plans for projects over 300MW which secured contracts.
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First published.