General information

Consultation details

Issued: 21 February 2025
Respond by: 21 March 2025

Enquiries to: contractsfordifference@energysecurity.gov.uk

Consultation reference: Contracts for Difference for Low Carbon Electricity: consultation on further proposed reforms to the Contracts for Difference scheme for Allocation Round 7.

Audiences: The Government welcomes responses from anyone with an interest in the proposals. We envisage that the consultation will be of particular interest to those considering participating in Allocation Round 7 (AR7).

Territorial extent: The consultation applies to Great Britain only as the CfD scheme does not currently operate in Northern Ireland.

How to respond

Your response will be most helpful if it is framed in direct response to the questions we have asked, though further comments and evidence are also welcome.

Your response should be submitted online using the dedicated online portal:

Respond online at: energygovuk.citizenspace.com/energy-security/allocation-round-7-of-the-contracts-for-difference

Alternatively, please email your responses to the following address and including ‘CfD consultation on contract amendments’ in your email subject line.

Email to: contractsfordifference@energysecurity.gov.uk

Please do not send responses by post to the department, as we may not be able to access them.

When responding, please state whether you are responding as an individual or representing the views of an organisation.

Your response will be most useful if it is framed in direct response to the questions posed, though further comments and evidence are also welcome.

Confidentiality and data protection

Information you provide in response to this consultation, including personal information, may be disclosed in accordance with UK legislation (the Freedom of Information Act 2000, the Data Protection Act 2018 and the Environmental Information Regulations 2004).

If you want the information that you provide to be treated as confidential please tell us, but be aware that we cannot guarantee confidentiality in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not be regarded by us as a confidentiality request. We may share responses to this consultation with Crown bodies, other government departments and/or DESNZ partner organisations to assist our analysis and inform the Government’s policy decisions on the proposals in this consultation document.

We will process your personal data in accordance with all applicable data protection laws. See our privacy policy.

We will summarise all responses and publish this summary on GOV.UK. The summary will include a list of names or organisations that responded, but not people’s personal names, addresses or other contact details.

Quality assurance

This consultation has been carried out in accordance with the Government’s consultation principles.

If you have any complaints about the way this consultation has been conducted, please email: bru@energysecurity.gov.uk.

1. Introduction

1.1 Why we are consulting

Delivering clean power by 2030 is at the heart of our mission to transform the UK into a clean energy superpower. Reflecting the urgency of the challenge, the Government has taken early action to deliver this goal including ending the onshore wind ban, establishing GB Energy and running the most successful Contracts for Difference (CfD) auction in the country’s history. The CfD scheme is the Government’s flagship policy for incentivising new low carbon electricity generating projects in Great Britain. The CfD and its predecessor investment contracts have already delivered around 9 GW of renewable generation, with a further 26 GW contracted to become operational by 2030. The CfD is vital in securing the renewables deployment necessary to deliver clean power by 2030.

The Clean Power 2030 Action Plan ^{[footnote 1]}, published in December 2024, set out the deployment of renewables required to deliver our 2030 goals. The 2030 Action Plan noted that while all renewables deployment will be important in delivering our ambitions, deployment of offshore wind will be particularly critical. The offshore wind market also differs from that of other renewables technologies with a higher degree of market concentration and larger projects. Currently, there is around 31GW of constructed or contracted offshore wind capacity, which the 2030 Action Plan states will need to increase to 43-50GW in 2030. That means at least 12GW will need to be secured in the next two to three allocation rounds - AR7, AR8 and, depending on the speed at which projects deploy, AR9.

As well as setting out targets for renewables deployment, the 2030 Action Plan provided a roadmap outlining some of the changes to the CfD that could help to deliver our deployment targets. Those proposed reforms for AR7, which are the subject of this consultation, aim to build on the record-breaking success of AR6 to keep us on the path to delivering clean power by 2030. Although success will be measured in meeting the capacity ambitions stated above and providing greater certainty across the supply chain, equally important will be securing this capacity at a competitive price for consumers. The changes we are proposing therefore seek to balance significant renewables deployment to deliver the benefits of a low-cost clean power system, while minimising costs to consumers.

The changes to the CfD proposed in this consultation support the wider objective of moving towards energy independence and protecting households from volatile fossil fuel prices – the ultimate benefit from delivering clean power by 2030.

1.2 Scope of this consultation

The consultation seeks views on potential changes to the CfD to support delivery of the objectives above. A number of these changes were set out in the Clean Power 2030 Action Plan and cover:

• A relaxation of CfD eligibility criteria for fixed-bottom offshore wind projects to permit projects that have not yet obtained full planning consent to participate in near-term allocation rounds. This would award CfDs at an earlier stage in the offshore wind development cycle compared to the current model. Coupled with wider reforms, this could improve competition, bring delivery of projects forward and enable earlier supply chain engagement.
• Changes to what information the Secretary of State uses to inform the final budget, to cost effectively maximise the volume of capacity that could be contracted from each round. We propose to legislate for this change across all technologies but apply it to fixed bottom offshore wind only. This includes providing greater visibility over sealed bid information for the Secretary of State ahead of finalising the budget, so that there can be more certainty on how much capacity a given CfD budget will procure.
• The Government is also considering changes to CfD contract terms that would give longer market certainty once contracts are awarded, including consideration of the merits of increasing the current 15-year CfD term to reduce overall project costs. To move ahead with longer contracts for any technology, the Government would need evidence that this was in the interests of consumers. We are requesting evidence to support this as part of this consultation exercise.

In addition to the changes set out in the 2030 Action Plan, this Government consultation also invites views on:

• Increasing the length of the Target Commissioning Window for Solar PV from 3 to 6 months;
• Removing the ability to apply surrendered capacity from previous allocation rounds into AR7;
• Implementing policies previously consulted on covering repowering for onshore wind and extending phasing to floating offshore wind;
• Other minor and technical changes to the CfD contract terms, including an amendment to confirm that Clean Industry Bonus payments should not be withheld from a Private Network generator where the generator fails to comply with certain contractual conditions;
• Minor changes to CfD regulations to enable the costs of the Clean Industry Bonus to be included in OFGEM’s price cap methodology; and
• The potential impact on AR7 from wider risks around renewables, including the scale of change at domestic and international level.

We will separately be implementing changes to the CfD price base, publishing an auction schedule and reviewing our approach to reference prices. Further information on these areas will be published in due course.

Assessment of Impacts

Some of the proposals within this consultation include an Assessment of Impacts. This is for contract changes which are more developed in nature (i.e. increasing the Solar Target Commissioning Window and removing the ability to apply surrendered capacity from previous allocation rounds into AR7). An assessment has not been provided for the proposals set out in the Clean Power 2030 Action Plan. In line with other non-contract CfD consultation we will provide an assessment alongside the Government Response once the proposals are more developed and reflective of feedback from the consultation. For repowering for onshore wind and extending phasing to floating offshore wind, please refer to the Assessment published alongside the Government Response to the previous consultation ^{[footnote 2]}.

Amendments to the CfD Contract Terms

Some of the proposals in this consultation require changes to the CfD contract terms. A CfD is a private law contract between a generator of low carbon electricity and the Low Carbon Contracts Company (LCCC), a government-owned company. The contract terms have been amended ahead of each allocation round to evolve with policy and ensure that they remain fit for purpose. The changes proposed in this consultation document will apply for contracts signed from AR7. The proposed drafting changes are shown as tracked amendments in the CfD Agreement, the CfD Standard Terms and Conditions and the CfD Agreement (Apportioned) Phase 1 and the CfD Private Network Agreement published alongside this consultation document. We encourage respondents to the consultation to read and consider the draft changes to the contracts carefully.

The CfD contract consists of two components: the CfD Agreement and the CfD Standard Terms and Conditions. The CfD Agreement is the document that a successful generator will sign following an allocation round. It contains project-specific information and designates which conditions of the CfD Standard Terms and Conditions apply to that project. There are variants to the generic CfD Agreement drafted for phased offshore wind projects (‘Phasing Agreements’), private network generators (‘Private Network Agreement’) and Unincorporated Joint Ventures (‘CfD Agreement for Unincorporated Joint Ventures’). Any final changes will be transposed into the other variants of the CfD contract as appropriate and published before AR7 opens to applications in summer 2025.

Amendments to the Contract Allocation Framework

The rules of a CfD allocation round, including the eligibility requirements and the checks that the National Energy System Operator (NESO) must conduct to ensure that applications are eligible to participate in a round, are set out in a document known as the Allocation Framework. The title of this document has been changed to ‘Contract Allocation Framework’ following amendments to CfD regulations in 2024 ^{[footnote 3]} to introduce the Clean Industry Bonus and a separate rules document for CIB competitions, referred to as the ‘Clean Industry Bonus Allocation Framework’. Some of the reforms proposed in this document require amendments to the Contract Allocation Framework. The key reforms are outlined in this consultation document.

We are inviting views on specific reforms to the Contract Allocation Framework concerning repowered CfD units and excluding ‘surrendered capacity’ from AR7. Stakeholder views are considered necessary in both cases to ensure that proposals sufficiently implement the policy intention and that documentary evidence and eligibility checks set out in the Contract Allocation Framework are robust and achievable. Otherwise, elements of a draft AR7 Contract Allocation Framework are included at Annex A for information only, in order to assist with the consultation on proposed policy at Chapter 2.2. Those elements of the Framework are not subject to consultation.

The final amendments will be confirmed in the Contract Allocation Framework, which will be published ahead of AR7.

1.3 Support for floating offshore wind

Floating offshore wind is a nascent technology which could help to secure the UK’s energy supply and deliver on our statutory decarbonisation obligations by unlocking access to the wind resource located in areas of deeper water. The UK is already a world leader in floating offshore wind, with the second most deployed capacity and the largest pipeline of projects in the world based on confirmed seabed exclusivity. In September 2024, the Green Volt project won a Contract for Difference in Allocation Round 6, making it the largest floating offshore wind project in the world to reach market.

Procuring further floating offshore wind capacity through the CfD scheme is needed to develop the UK’s ‘first mover’ advantage and take full advantage of the economic opportunities that this technology represents. In particular, the Government recognises the importance of providing a route to market for innovative Test & Demonstration scale projects, to provide learnings and support cost reduction ahead of commercial scale floating offshore wind deployment, as well as contributing to the development of the UK supply chain and providing opportunities for a just transition of the workforce from declining carbon intensive sectors.

We also recognise the importance of securing Test & Demonstration scale capacity in different geographic regions to help facilitate early investment in the development of the infrastructure and manufacturing capacity required to support the scale-up of the floating offshore wind sector across the UK, including in the Celtic Sea, in which The Crown Estate will award Agreements for Lease for areas of seabed capable of supporting up to 4.5GW of floating offshore wind capacity this year.

To provide greater certainty of the Government’s ambition to lead the world in the development of floating offshore wind to the developers of Test & Demonstration scale projects, we intend to support multiple Test & Demonstration scale projects in AR7. We will look to set the budget and other round parameters to facilitate this, to help support the sustainable development of this nascent sector in deployment zones across the UK, with consideration for cost to the consumer. At this stage the Government does not see a case for reducing the Administrative Strike Price for floating offshore wind compared to AR6 (£176/MWh 2012 prices, equivalently £245/MWh 2024 prices), subject to further analysis and a final decision on contract length.

2. Proposed reforms to the CfD scheme

2.1 Relaxing CfD eligibility criteria for fixed-bottom offshore wind projects

Policy context

The CfD scheme aims to use the power of markets and competition to minimise costs to consumers while delivering the investment needed for clean power.

Fixed-bottom offshore wind projects can have lead-in times of more than a decade ^{[footnote 4]}, so there is always a risk that a given allocation round sees relatively few bidders. This could create market power and undermine the scheme’s ability to secure value for money through competitive tension.

We are therefore considering removing the requirement to obtain planning consent before applying, for fixed-bottom offshore wind only. The primary rationale for this change is to attract more bidders to the auction, improving competition. Improved competition should deliver better outcomes for consumers as we aim to scale up renewable deployment, by incentivising developers to bid at their minimum viable price. Increasing liquidity could also help Pot 2 (emerging technologies), though in that case we judge that there would be a greater risk of unintended consequences from relaxing eligibility requirements, including an increased risk of non-delivery.

As a secondary benefit, unconsented projects that are successful in the auction may be able to deliver more quickly, by not facing a waiting period between securing planning consent and applying for a CfD. As CfD auctions are intended to be annual, but planning consent can be decided at any time, this hiatus can be up to a year. Removing this waiting period may mean shorter project timelines overall, although we recognise that this will depend on other factors. ^{[footnote 5]}

We are aware that this proposal comes with risks. For example:

• Bids by early-stage projects may turn out to be too low, which could result in non-delivery. Similarly, projects may be refused planning consent. This would prove an inefficient use of the CfD budget, especially if awards are at the cost of viable projects.
• Unconsented projects may include a higher ‘risk premium’ in their bids, due to increased uncertainty over project costs, which could result in higher costs to consumers.

Our current view is that the potential benefits of this change outweigh the risks, but we are seeking to understand the scale of these risks and benefits in our questions below.

The Clean Power 2030 Action Plan sets out the importance of integrating clean power and the natural environment in the delivery of energy infrastructure. The proposed reforms to the CfD process will not negate or reduce the requirements to do what is possible to avoid damage to nature, and delivering compensation when damage is impossible to avoid, as outlined in current planning processes.

We anticipate that the change would remain in place for future allocation rounds until specified otherwise, with any decision to reverse the change for a future round subject to consultation.

Proposal

The eligibility requirements allowing projects to participate in an allocation round and the CfD Standard Terms and Conditions would have to be amended to implement this policy. A possible framework to achieve this is outlined below.

Changes to the eligibility requirements

The eligibility requirements for a CfD allocation round are set out in regulations and the Contract Allocation Framework. Currently, one of the main eligibility requirements is that a developer must have obtained planning consent for its project before the deadline for submitting a CfD application has passed. The developer must provide documentary evidence to the National Energy System Operator (NESO) - which carries out the application checks - that planning permission has been granted, including a copy of the planning consent issued by the relevant planning authority.

Under the proposed change, a new rule would be inserted into the Contract Allocation Framework ^{[footnote 6]} to allow unconsented projects to apply for CfDs. To mitigate the risks highlighted in the ‘Policy context’ section above, we consider that projects should have reached an intermediate point in the consenting process before they can submit a CfD application. As the consenting process in Scotland differs from that in England and Wales, this would necessitate the following slightly different, but broadly equivalent, approaches.

We propose that by a date, which is referred to here as the ‘Consent Eligibility Date’:

• projects in England and Wales would have had their application for a Development Consent Order (DCO) accepted for examination by the Planning Inspectorate (to apply to the main generating station only); ^{[footnote 7]}
• projects in Scotland would have had to have applied to the Scottish Ministers for any required section 36 consent and marine licence(s) in respect of the proposed generating station, and public consultation commenced.

Our lead proposal (Eligibility Proposal A) is that the Consent Eligibility Date is the CfD application deadline.

However, there is a risk that some projects that meet this criterion do not receive planning consent in time to deliver for Clean Power 2030. To partly mitigate this risk, we are also seeking views on an alternative proposal (Eligibility Proposal B) where for AR7 the Consent Eligibility Date is brought forward to 13 December 2024 (the publication date for the Clean Power Action Plan, when this change was first suggested).

In either case, a developer would have to submit evidence to NESO with their CfD application to demonstrate that they had reached the required stage in the planning process. Subject to the final policy following consultation, the evidence that applicants will have to submit will be confirmed in the Contract Allocation Framework ahead of the allocation round. All other eligibility requirements (including the requirements to have a grid connection agreement, a Crown Estate lease or agreement for lease and a Clean Industry Bonus statement) would continue to apply.

Unconsented projects that are successful at auction would be expected to sign a contract with the LCCC. This requirement applies to all successful CfD applications, and projects that fail to return a signed CfD contract to LCCC within 10 working days of being offered one by LCCC are excluded from participating in the next two allocation rounds for which they are eligible. This sanction, known as the Non-Delivery Disincentive (NDD), is intended to discourage speculative bidding. We consider that it would be appropriate to maintain this sanction for non-signature of contract by unconsented projects.

Changes to the CfD Standard Terms and Conditions

The contract is currently designed to operate only with consented, ‘shovel ready’, projects and requires generators to meet certain time-bound and spend-related milestones. Failure to achieve certain milestones gives the LCCC the right to terminate a contract, and generators whose contracts are terminated could be excluded from participating in the following two allocation rounds under the NDD.

As unconsented projects will be unable to commit to firm timings, the contract terms would need to be adjusted to accommodate their particular circumstances and ensure that they do not face the risk of contract termination while awaiting planning consent. The Government’s preliminary view is that certain contractual obligations and milestones could be deferred or permit some flexibility until a planning decision is issued.

One example of a milestone where deferment may be appropriate is the Milestone Delivery Date. The Milestone Delivery Date occurs 18 months after contract signature and is the deadline by which CfD generators must demonstrate delivery progress by providing evidence to the LCCC that they have either spent 10% of total project pre-commissioning costs, or signed contracts for delivery or installation of material equipment (e.g. wind turbines). It is questionable whether a generator could be expected to have incurred significant costs or signed supply chain contracts before receiving planning consent. Other milestones and obligations might also have to be deferred. The full terms of the contract would apply from when consent is granted allowing the developer to proceed with their project.

We would welcome views on whether unconsented projects should be allowed to leave their contract early without penalty (i.e. without application of the NDD) if consent is delayed beyond a certain date, and the reasons why this may be appropriate. Depending on consultation responses and Government’s analysis of the current NDD rules, it may be necessary to amend regulations to disapply the NDD in these circumstances

Other flexibilities may be appropriate, such as allowing generators to adjust their contracts to accommodate planning conditions imposed on their projects. This might include the ability to reduce contracted capacity (in addition to existing capacity adjustment arrangements, e.g. permitted reduction and reduction for a relevant construction event) or revise the description of their CfD facility to comply with planning conditions.

The full terms of the contract would apply to the project from when consent is granted allowing the developer to proceed with their project.

We will propose further details on required contract changes in a subsequent consultation, subject to Government decisions on this policy following this consultation.

2.2 Amending the budget publication process and information received

Policy Context

Offshore wind is a key technology for achieving the 2030 mission, with the next allocation round playing a major role in achieving this milestone. In Allocation Round 6, there was unspent budget for fixed-bottom offshore wind which could have secured additional capacity available in the pipeline. Addressing this underspend risk will maximise the volume of capacity that can be contracted from each round, supporting delivery of Clean Power 2030.

The underspend risk is primarily a feature of the fixed-bottom offshore wind pipeline. The pipeline of offshore wind projects tends to be comprised of a small number of large projects, with this trend expected to continue in the forthcoming allocation round. If one of these large projects bids into the allocation round with a bid price that is competitive, but is ultimately in excess of the overall budget – even by a very small amount - then this capacity will not be secured. Instead, this marginal unsuccessful project would have to bid into a later allocation round, delaying a substantial amount of good value for money capacity from being deployed.

Current regulations require a Contract Budget Notice to be published a minimum of 10 working days before the opening of an allocation round. The Secretary of State can only receive certain limited non-price information related to auction bids, and only after the auction has completed and CfD notices have been awarded.

An amendment to auction processes would allow for auction budgets to be set to maximise capacity. Greater certainty of outcome in the auction could enable the Government to procure more fixed-bottom offshore wind, subject to value for money considerations, to deliver clean power by 2030. Further consideration is given below to the impact on bidding behaviour and ensuring consumers continue to receive good value for money from the scheme.

Contract Budget Notice publication

We recognise the budget can act as a helpful indicator of ambition for the round. Previously, the budget has been set based on conservative assumptions around project bid prices and estimates of capacities. Ultimately, this tends to lead to the budget being increased later in the allocation round process, as the legal framework permits budget increases but not budget decreases.

Amending the budget publication process could help maintain value for money of the scheme. Not publishing the budget before bidding opens would encourage projects to continue to bid at their minimum viable price.

Restrictions on seeing auction information

Currently, the Secretary of State can only receive certain information related to auction bids, and only after the auction has completed. This restriction was put in place to minimise the Secretary of State’s involvement in the auction process, to ensure industry confidence in the scheme. However, the current process of setting monetary budgets for fixed-bottom offshore wind projects without any certainty of outcome in terms of capacity procured or budget spent poses a risk to delivering clean power by 2030, given the potential for unnecessary ‘cliff edges’ in the bid stack which might stop good value projects being secured. This risk is particularly acute with a limited number of allocation rounds before 2030.

Proposal

In order to enable maximum efficient deployment from auctions, the Government is proposing to amend when the Contract Budget Notice is published and to remove some of the restrictions on the Secretary of State seeing auction information.

Contract Budget Notice

We propose to remove the requirement to publish a Contract Budget Notice at the opening of the allocation round for all technologies and instead to publish the Contract Budget Notice after the allocation round has run.

In place of a budget, the Government will publish a capacity ambition for the upcoming allocation round and publish a forward schedule for future allocation rounds (both documents will be published in due course). Key parameters such as the Administrative Strike Prices and technology pots will be made available before the opening of the allocation round as usual, and would not be subject to revision from 10 working days before the round opens. As the final budget would be set using actual bid price information once bids are received (see section below), we do not consider it necessary to set an earlier provisional budget based on estimated information.

All budget decisions will continue to be made in accordance with the statutory principles of the CfD, including to increase deployment of renewables, with due consideration for costs to consumers and security of supply.

Expediting the allocation process for fixed-bottom offshore wind

We are considering accelerating the fixed-bottom offshore wind allocation process, if there are no appeals. This may include a regulatory change to allow the Secretary of State to direct NESO to run part of the allocation process ahead of other parts, including running the fixed-bottom offshore wind auction if there are no Tier 1 appeals (appeals to NESO over an applicant’s failure to qualify for the relevant allocation round).

Removing restrictions on seeing auction information

The Government is proposing to allow the Secretary of State to request price-related information from the Delivery Body (NESO), such as bid price and capacity. This information would be anonymised and will not include planning consent status, subject to the consultation on eligibility (see chapter above). All anonymised bid information will be held securely within Government and will not be shared externally.

The sealed bid window would open for all technologies before the budget is published. NESO would seek assurance from the Auditor that bid information is correct, then the Secretary of State may request to see the anonymised bid information from NESO. The Secretary of State may then use this information to inform their final budget decision. The Secretary of State will communicate the final budget to NESO, who will then run the auction.

We are proposing that this regulatory change will apply to all technologies. For Pot 3, there is a clear rationale for enabling this approach for fixed-bottom offshore wind considering the risk of budget underspend. Providing the Government greater control over how much capacity is successful, by enabling greater visibility of auction information for budget setting, increases the likelihood of buying the right volume of offshore wind. The Government is aware that there is a risk that changes to the current process may lead to gaming and inflated bids. The Government is committed to balancing capacity with fair costs to consumers when setting the budget for fixed-bottom offshore wind.

However, for AR7 we only intend to review anonymised bid information for fixed-bottom offshore wind. This will be set out in the Contract Allocation Framework ahead of the allocation round. Offshore wind projects are typically much larger than those of other technologies. As a result, individual projects are of greater significance to our 2030 ambition. This, combined with longer project lead-in times, which limit the number of rounds available to deliver capacity pre-2030, means the current process poses risks to our ability to deliver our Clean Power Mission (and plausibly wider decarbonisation objectives such as Carbon Budgets). The Government judges these risks to be largely specific to fixed-bottom offshore wind.

We do not intend to review anonymised bid information for other technologies. At present, we do not consider that moving away from the current approach to the bid stack for other technologies has a clear rationale.

The AR6 auction ^{[footnote 8]} demonstrated for Pot 1, that the small size of individual projects ensures that the budget is typically ‘spent’ in the auction. As such, risk of underspend does not jeopardise Pot 1 technologies’ pathway to 2030.

Therefore, the auction process will remain unchanged other than the budget being published later.

On Pot 2, whilst floating offshore wind is not considered to be crucial in contributing to our 2030 milestones, the Government understands that the nascent technology could help to secure the UK’s energy supply and deliver on our statutory decarbonisation obligations by unlocking access to the wind resource located in areas of deeper water. In particular, securing Test & Demonstration scale capacity is important to support technology learning and enable cost reduction ahead of wider commercial floating offshore wind deployment. However, the Government considers that seeing more auction information would not be the best option for floating offshore wind. The small pipeline would offer challenges in presenting anonymous information, and the need to consider all technologies in the pot in the same way could complicate consideration of an appropriate budget. Changing pot structure to address this would reduce competition and offer further challenges to ensuring value for money. Accordingly, the Government intends to rely on setting an appropriate budget and auction parameters with the intention of securing multiple Test & Demonstration scale projects in AR7.

Figure 1 (text version): Proposed allocation round process

This figure provides a high-level overview of how the new budget process would work in the allocation round.

1. Capacity Ambition

2. Core Parameters

3. Application Window

4. Appeals

5. NESO Valuation

6. Sealed Bid Window

7. NESO Response to Information Request, and Audit

8. Auction and Audit

9. Budget and Results published

Amendments to the Contract Allocation Framework

Following the proposed amendments to regulations, the Government also proposes to make amendments to the Contract Allocation Framework. Draft amendments for the Contract Allocation Framework are provided at Annex A for information to illustrate how this policy could be implemented following the conclusion of this consultation.

We propose not to allow flexible bids for fixed-bottom offshore wind applications. This is because flexible bids will not serve a useful purpose if we have the ability to set the budget following sight of anonymised bid information.

To ensure the legislation for this reform does not delay the opening of the allocation round, we may publish a government response on the proposals in this section of the response ahead of the other sections of the consultation.

2.3 Increasing the contract term for future CfD projects

As set out in the Clean Power 2030 Action Plan, the Government is considering the merits of increasing the current 15-year CfD term as an additional measure to ensure crucial renewable capacity is secured as cost effectively as possible. We are now consulting on this to gather the evidence needed to assess whether any change in this space would be in the interest of consumers.

Policy context

The Electricity Market Reform (EMR) (2013) concluded that the optimal contract term for a CfD was 15 years. At the time, this was judged to appropriately balance the risks between Value for Money (VfM), bill affordability and investor confidence. However, due to recent global cost pressures that have impacted all electricity generating technologies, there is significant pressure on consumer energy bills. As such, we consider it appropriate to reassess the term of the CfD to consider whether 15 years remains the most appropriate, and whether increasing it could help to place downward pressure on consumer energy bills in the medium-term. We consider that to implement this policy, we require sufficient evidence that the change would be in the interests of consumers, when the impacts on VfM and bill affordability are assessed.

Longer contracts could reduce the exposure of renewable assets to merchant tail revenue risk, within a renewables-heavy system with low wholesale prices (‘price cannibalisation’). This could have the effect of reducing project risk, enabling cheaper financing arrangements and reducing overall project cost. This in turn could reduce strike prices and bill impacts relative to the counterfactual of maintaining contract length at 15 years. Renewables-led price cannibalisation, increasing wholesale price volatility and more frequent periods of zero, or sometimes even negative, pricing could also lead to renewables developers requiring greater price risk protection.

Modern renewable technologies are also expected to have longer operating lifetimes than earlier generations. For example, in 2011 the typical operating lifetime of an offshore wind project was estimated to be 25 years ^{[footnote 9]}, whereas new projects are now expected to operate for at least 30 years ^{[footnote 10]}. This means under a 15-year CfD term, offshore wind projects, for example, may now be expected to operate in their merchant tail for at least 5 years longer than was originally envisaged in the EMR.

Increasing the contract term beyond 15 years may be effective in mitigating the additional risk from these effects by extending the period in which their revenues are protected. A longer contract term could reduce the exposure of renewable assets to market price volatility post contract until their retirement (in their merchant tail).

Reducing cost of capital and project costs

Longer CfD contracts would extend the period in which revenues are certain, protecting generators from price risk for longer. This should, in turn, reduce the cost of capital, enable cheaper financing arrangements, and reduce total project cost. For example, longer contracts may allow developers to borrow more and achieve a better gearing ratio ^{[footnote 11]}. However, we have received mixed evidence from industry on the exact CfD contract term increase that would be required to enable a significant reduction in the cost of capital and total project cost.

Reducing strike prices

A longer contract term would spread the ‘top-up’ that generators require above their wholesale market revenue over a longer term. This impact, plus the potential reduction in cost of capital and project costs described above could feed through to bidding behaviour and depress strike prices. We have seen analysis from industry that supports this argument. However, there are concerns that the strike price reductions would be insufficient to achieve a net benefit to consumers in the long term. As an indication of scale of the importance of achieving sufficient strike price reductions - given the scale of deployment required to meet 2030, overpaying by even £5/MWh on 20-year contracts could lead to costs in the order of billions or tens of billions of pounds across the c.12-19 GW of capacity needed to achieve the 2030 Clean Power range for offshore wind.

A reduction in strike price from a longer contract term also assumes that an auction clears at the minimum viable price of the most expensive successful project. Competition will need to be sufficiently strong to ensure lower project costs feed through into bids. If this is not the case, longer contracts could increase total consumer bills over the term of the contract by baking in higher prices for longer. There are mitigations in how we set the Administrative Strike Price (ASP) for AR7, e.g. setting this ‘tight’ as an additional protection for billpayers. However, the Government does not have full information on individual project costs - setting an ASP that is too ‘tight’ introduces new risks such as a lack of bids as developers cannot meet that price. As discussed below, there is also a concern that developers will discount the future benefits of a longer contract term to the extent that the impact on bids is insufficient to warrant the change. However, it is due to the uncertainty of revenues in the merchant tail that they are de-valued. Increasing contract term may increase the value placed on revenues in the additional contract years, lowering bids.

Reducing pressure on consumer bills in the 2020s and 2030s

Increasing the CfD contract term may, compared to the existing 15-year term, lower strike prices and place downwards pressure on consumer bills from 2027/8 when assets which have won contracts in AR7 could start generating. If this policy were to be successful, it would lead to lower bills in the short to medium term than maintaining the existing contract tenure. The additional years of revenue support would, however, increase consumer bills in those further years of CfD cover at the end of the contract (e.g. 5 additional years from 15 to 20).

Furthermore, as acknowledged in the 2013 EMR, there is a difference between private and social ‘time preference’ (discount rate). As a result of this difference, investors value future CfD revenue streams at a lower rate than society values the cost of paying them. This means that lower bills in the short to medium term are likely to come at the expense of higher overall billpayer costs over project lifetime, and this increase in total costs is likely to increase the longer the contract is. This increase in total billpayer costs would be compounded further if insufficient strike price reductions were achieved due to limited competition.

CfD strike prices are indexed to inflation via the Consumer Price Index (CPI). A longer contract could be considered therefore to give greater protection to the generator from unexpected inflationary events late in project life, at the expense of the consumer. The additional years of inflation protection could be considered an additional transfer of risk from generator to consumer. The difference in discount rates could also plausibly lead to overcompensation for the generator. It may therefore be appropriate to use an adjusted or partial indexation approach during any contract period beyond the current 15 years. For example, this could be to ensure that inflation protection does not exceed the Bank of England inflation target (2%), or the strike price remains only partially indexed during these additional years. This would be with the aim of ensuring consumers are not unduly protecting generators and better balancing the risk between consumers and generators during that period.

There is a trade-off between short to medium and long-term costs. Any decision to extend contract length may therefore be based partly on a view that in the current climate - following unprecedented pressure on household finances - relieving pressure on short to medium-term bills has increased in importance relative to overall lifetime costs.

We consider that to implement this policy, we require sufficient evidence that the impacts would be in the interests of consumers, when the impacts on VfM and bill affordability are assessed. We will conduct further internal analysis to identify the length and price at which contracts would maximise benefits to consumers.

Market interactions

Whilst there are potential benefits to increasing contract term, we are seeking to understand the implications for the wider electricity market. As set out above, increasing contract term for renewables may further depress the wholesale market prices (‘price cannibalisation’). This is because it is likely that CfD assets bid into the wholesale electricity market at a lower price, knowing that they will eventually be topped-up to their strike price if their electricity is sold. Extending contracts would also reduce the fleet of merchant generators that are exposed to market signals. There may also be implications for intra-day and balancing market behaviour. We welcome views on this, and outcomes from this consultation will be used alongside commissioned consultancy led analysis to build our evidence base.

There are also significant interactions with the options currently under consideration as part of the Review of Electricity Market Arrangements (REMA). In the REMA Autumn update, we confirmed our commitment to treat agreements under the next CfD allocation round (AR7) in the same way as existing/legacy CfD agreements in relation to wholesale market changes (i.e. through the introduction of zonal or reformed national pricing). We are aware of concerns that existing and AR7 CfD contracts will be exposed to zonal price risk, should zonal pricing be adopted in future but we stated in the Autumn Update that we expect existing, and AR7, CfD contracts to be insulated from zonal price risk through changing the reference price from a national to a zonal price.

Zonal pricing could bring significant benefits but would also transfer some locational risk to generators. This could lead to an increase in risks for some market participants, but we are considering options in this area to minimise the impact, which were set out in the REMA Autumn update, including considering adjustments to CfD contracts, free or discounted allocation of Financial Transmission Rights, and other ways to protect legacy and AR7 projects against volume risks that an introduction of zonal pricing would introduce. Increasing the CfD contract term could be one means to mitigate some of these new risks but should be considered alongside other potential reforms or mitigation options. We are engaging stakeholders on what effective protection must look like to best manage these risks if zonal pricing were to be introduced.

Proposal

As set out above, the Government is consulting to gather evidence to consider whether a change to contract term would be in the interests of consumers. As such, the Government is not presenting a preferred option on the term at this stage. We will instead consider evidence collected through this consultation as part of our assessment to inform a decision on whether to implement a change for AR7 in our consultation response.

Similarly to the EMR, we would consider this by seeking to appropriately balance the same three principles: value for money, affordability and investor confidence in the new policy context. We will balance these alongside our statutory requirements to consider impact on decarbonisation at least cost to consumer with consideration to security of supply, as well as alignment with subsidy control principles.

Eligible technologies

Were contract tenure to be increased, it may be that this should apply to all technologies. There is, however, a clearer policy rationale for some technologies over others.

Greater exposure to price risk in the merchant tail for example is most relevant for intermittent renewable technologies as baseload/flexible technologies would have greater opportunity to decide when to generate to maximise their returns from the market. This may reduce the case for enabling eligibility for baseload / flexible technologies.

Of the intermittent technologies, offshore wind (OFW), onshore wind (ONW) and solar PV are technologies for which we have a good understanding of projects costs and potential cost reduction potential. It may therefore be that increased contract term is a proportionate way to realise greater strike price reductions. These technologies also have a significant role to play in delivering a cost-effective Clean Power 2030 system. Floating offshore wind (FLOW) is also an intermittent technology likely to encounter similar price risk in the future.

As emerging technologies, FLOW and tidal stream do currently, however, have significantly higher costs than that of OFW, ONW and solar, and will have less of an impact on delivering Clean Power 2030. Whilst eligibility for a longer contract term may reduce strike prices for these technologies, we also anticipate that significant cost reductions for these technologies in the coming years could be realised through other means. As such we will consider further whether it is appropriate at this time to increase contract term for FLOW and tidal stream.

If further work identifies the greatest value to consumers would be from only enabling eligibility to a subset of technologies, then we should also consider how this may impact on those technologies not eligible. For example, due to correlation in generation profiles between OFW and ONW, it is feasible that implementing this change for OFW only may have wider effects on wholesale market prices that impact other technologies, which we will need to consider. FLOW would also likely be impacted by the same generation correlation challenge. Should we implement this for ONW and OFW only then this may impact on competition between ONW and solar and other relevant pot technologies. We welcome views through this consultation on how significant these knock-on impacts may be, specifically how this may affect other technologies and their CfD bidding behaviour.

When and how?

Subject to the outcomes of this consultation, we have also been considering how this policy could be implemented. We have considered alterations to the existing auction process to enable developers to enter multiple bids with a different contract term or even to be offered longer contracts once the auction has cleared but prior to contract awards. We do, however, consider that these are either undeliverable in time for AR7 or add significant delivery risk to the round, and as such have been discounted at this stage. We will keep these under consideration for future rounds.

We therefore consider that, subject to the outcomes of this consultation, an increase in contract term should be enacted by changing the term in the CfD Standard Terms and Conditions. As such, the contract term would be decided ahead of the round and bids would be expected to align to this new term. This proposal could be delivered in time for AR7. However, due consideration would have to be given to auction dynamics and the most appropriate auction design and parameters to ensure best outcomes for consumers. This work is ongoing, and core parameters will be published ahead of the round opening.

Should we assess that an adjusted or partial indexation approach to inflation indexation is required to appropriately balance risk between generators and consumers for the additional years of contract, we would also seek to implement this via the CfD Standard Terms and Conditions. This may require a change to Condition 14 – Strike Price Adjustments and Condition 20 - Strike Price Adjustments. We will consider regulation 3(1)(e) of the Contract for Difference (Standard Terms) Regulations 2014, and will assess if any amendments are required.

We require further evidence to establish that increasing contract term is in the best interests of the consumer. We also wish to test our assertion on which technologies should be eligible. We will assess consultation responses alongside further internal evidence and decide whether to implement an increase in contract term or not in the government response.

3. Other proposed changes to the CfD scheme

The Government keeps the CfD scheme under constant review and makes adjustments as necessary ahead of every allocation round to improve the scheme based on learning or stakeholder feedback, and to ensure the scheme continues to operate as intended. Two new measures are proposed for AR7.

3.1 Solar PV Target Commissioning Window

The Clean Power 2030 Action Plan identifies solar PV as an important technology in delivering clean power by 2030. The CfD scheme currently supports more than 7GW of new solar capacity and will continue to be an important pathway to help achieve our ambition of 45-47GW of solar by 2030. There is a significant pipeline of very large solar projects, but the current 3-month Target Commissioning Window (TCW) is a potential barrier to deployment of solar at scale through the CfD scheme. The Government proposes to increase the solar TCW to 6 months from AR7.

Policy context

The TCW is a key stage during the development timeline of a CfD project. It represents the period during which a CfD generator is able to commission its project while maintaining the full value of its 15-year payment term. If a generator has not commissioned its project by the end of the TCW, the 15-year payment term starts regardless and the project will receive less subsidy on a day-for-day basis as a result (this is known as ‘contract erosion’). For example, this means that a project commissioning six months after its TCW end date would receive 14 and a half years of CfD payments, and so on. This ‘cliff edge’ provides a financial incentive for CfD generators to plan to deliver their projects during the TCW to secure maximum available subsidy.

The majority of eligible CfD technologies have TCWs of 12 months. Solar PV has a 3-month TCW as it has a faster build time than other technologies. The TCW for each technology is published in the Contract Allocation Framework ^{[footnote 12]} ahead of an allocation round. Developers specify the start date of their TCW in their CfD application and this must overlap one of the delivery years offered for their particular technology to ensure that projects commission within the expected timeline. The LCCC enters the TCW start date into the contract of each successful project at contract signature. This then forms an important milestone in the project’s construction timetable.

Operational experience suggests that the current TCW arrangements are working well and remain appropriate. However, there is clear emerging evidence of increasingly larger solar projects, with several projects 500MW or over which could come forward in the next few years ^{[footnote 13]}.

In this context, representatives of the UK solar industry have indicated to the Government that the 3-month window is insufficient for many solar projects, given their increasing size and the associated demands and delivery risks of developing larger projects, including the risks of supply chain shortages and grid connection delays. Industry considers that continuing with a 3-month TCW poses a significant risk of projects failing to commission within the allotted time and entering contract erosion, which could result in higher strike price bids to counteract this possibility. Solar representatives have proposed increasing the TCW for solar projects entering AR7 from 3 to 12 months, to bring this technology into line with the TCWs available to most other CfD technologies.

Proposals

The Government is working closely with industry and other stakeholders to accelerate the rollout of UK solar energy to strengthen our energy independence and support the 2030 clean power mission. We are taking forward a number of new measures to facilitate the significant ramping up of deployment needed over the next 5 years, including consulting on changes to planning and reconvening the Solar Taskforce. The CfD will continue to be a key route to market for large scale solar and it is therefore appropriate to ensure that the CfD scheme does not inadvertently act as a barrier, or result in increased costs, as the scale and type of solar projects change over time.

The Government accepts that there is a good case to increase the TCW for solar projects. However, there is limited evidence to support an increase to 12 months at this time.

The current TCW arrangements give developers considerable flexibility as to when to set the commissioning window for their project. For solar projects, this can be set up to three months before the start of the Delivery Year (provided the first day of the Delivery Year falls within that 3-month TCW) or set to start on the last day of the Delivery Year, meaning that the TCW can extend up to three months beyond that date. The TCW can also be set to fall anywhere within that broad range. Taking AR6 as an example, a solar developer choosing the second Delivery Year (2027/28) would have three years and 9 months, from contract signature in October 2024 until the latest possible TCW end date at the end of June 2028, in which to commission their project before entering contract erosion. Had a 12-month TCW been available to solar projects in AR6, developers choosing the second delivery year would have until the end of March 2029, approximately four and a half years, to commission without financial penalty.

The CfD scheme supports 202 solar projects, 90 of which were successful in AR6. All of these projects applied for the CfD scheme knowing that the TCW is 3 months. While the majority of current CfD solar projects (194 of 202) are smaller than 50MW, eight projects are 50MW or above, with the largest being 299MW ^{[footnote 14]}. This suggests that some larger projects can deliver within a 3-month TCW assuming the generator takes advantage of the full flexibility offered by the current TCW arrangements. Nevertheless, while we have very limited experience in the UK of constructing large solar projects to use as a benchmark, it is reasonable to assume that larger projects will take longer to commission than smaller ones.

The Government therefore proposes raising the solar TCW from 3 to 6 months with effect from AR7 and invites views on this proposal. In proposing resetting the solar TCW to 6 months, the Government wishes to strike a balance between giving future solar projects a reasonable timeframe in which to commission and maximising the likelihood of them coming online in time to contribute to the delivery of the 2030 clean power mission.

Assessment of Impacts – solar TCW

Since this is a consultation stage assessment, the assessment is draft and will be considered further following the consultation responses in line with the questions below.

Potential benefits and costs

The Government views the key potential benefits of the change to be:

• Lower risk priced into CfD bids since developers will have greater confidence in building out without contract erosion. This could result in lower bid prices and therefore strike prices compared to a counterfactual where larger projects building out with a 3-month TCW face higher project risk.
• The CfD remains an attractive route-to-market for the largest solar projects, helping to accelerate renewables deployment and contribute to the clean power mission.
• Increased developer confidence that the CfD scheme is able to adapt to the changing landscapes of larger projects and supply chain developments.

The Government views the key potential risk of the change is that it could risk slowing deployment in some cases, although this risk will largely be mitigated by the commercial incentive to begin operations as soon as possible.

Summary of consumer impacts

On balance, the benefits of this proposed change are likely to outweigh the risks, particularly given developers will be incentivised to build out efficiently, and the risk of slowing deployment is partly mitigated by the proposition of the 6-month TCW, which aims to reflect the technical challenges faced by larger projects whilst still being reflective of smaller projects which through operational experience have illustrated their ability to build within a shorter period. This proposal should therefore allow larger solar projects to develop through the CfD with lower project risk, and hence lower cost transferred to the electricity consumer.

3.2 Eligibility of surrendered CfD capacity for AR7

This chapter proposes introducing a temporary restriction on surrendered CfD capacity being entering into AR7 while the Government examines the value for money and other implications of this practice with a view to implementing an enduring policy from AR8.

Policy context

The CfD contract gives generators two discretionary opportunities to reduce their contracted capacity before commissioning their renewable power stations:

1) Permitted reduction ^{[footnote 15]} - generators may adjust the initial contracted capacity of their projects downwards by up to 25% but must notify the Low Carbon Contracts Company (LCCC) no later than the Milestone Delivery Date ^{[footnote 16]} (MDD) of their intention to exercise this right, otherwise they lose the opportunity to do so. Generators may use this flexibility only once, and their decision to do so is irreversible, i.e. generators cannot subsequently increase their adjusted capacity once they have utilised a permitted reduction.

2) Final Installed Capacity (FIC) flexibility ^{[footnote 17]} – once the MDD has passed, the project capacity, whether adjusted or not through a permitted reduction, is referred to in the contract as the Installed Capacity Estimate. CfD offshore wind generators must commission at least 85% of their Installed Capacity Estimate (95% for all other technologies) by no later than the Longstop Date or face the risk of contract termination. This is a precursor to LCCC and the generator agreeing the project’s FIC.

The purpose of the additional flexibility when determining a project’s FIC is to avoid developers being confronted with a ‘cliff edge’ at project commissioning stage where only a marginal shortfall in achieving the expected installed capacity could lead to contract termination. The original policy design acknowledged that the construction phases of projects can be long, and unforeseen events can arise which may affect the ability of the developer to commission the full agreed capacity before the Longstop Date.

The CfD rules and regulations currently do not prohibit generators from entering surrendered contracted capacity into a subsequent allocation round. Some of the capacity awarded to several offshore wind generators in Allocation Round 4 participated in Allocation Round 6 as ‘Permitted Reduction Offshore Wind’ projects and was successful. However, this use of surrendered capacity was not foreseen in the original policy design of these flexibilities. The Government views the macroeconomic circumstances of the last few years as largely exceptional and notes that the unprecedented cost changes for projects led to several AR4 generators to surrender some of their capacity, as allowed under the CfD contract, which they re-entered into AR6. Looking forward, the Government is concerned that the current rules on capacity adjustment may provide an incentive for generators to optimise the CfD scheme to increase their income beyond that agreed in their original contract for commercial gain, with consumers bearing the additional cost.

The Government is therefore examining the implications of allowing surrendered CfD capacity to be entered into future allocation rounds, including in relation to:

• value for money for consumers of generators signing a contract at one price and seeking to obtain a higher strike price for commercial gain in a subsequent allocation round for a part of that capacity;
• the risk that previously contracted capacity might be unsuccessful in a subsequent allocation round and the consequential business risk to the generator, e.g. potential contract failure, and/or delivery of the Government’s deployment ambitions by delayed commissioning of the released capacity;
• the potential for added complexity to the budget and parameter setting processes arising from the uncertainty as to whether, and how much, capacity CfD generators might release and submit into any given allocation round, and related value for money risks.

Proposals

To allow time for the possible implications to be fully examined, the Government is proposing to exclude from AR7 CfD capacity released by generators through the permitted reduction and FIC flexibilities. This temporary restriction will be implemented by inserting the following new exclusion at Rule 5 (‘Excluded Applications’) of the AR7 Contract Allocation Framework (the proposed new text is in bold):

5. Excluded Applications

5.1 Pursuant to Regulation 14(14), no Application may be made in respect of a CFD Unit where-

(b) the capacity of the CFD Unit was (i) subject to a CFD Agreement signed pursuant to Allocation Rounds 1-6, and (ii) surrendered through a capacity adjustment exercised in accordance with Condition 6 (‘Adjustment to Installed Capacity Estimate: Permitted Reduction’) and/or Condition 7 (‘Final Installed Capacity: Maximum Contract Capacity’) of the CFD Standard Terms and Conditions.”

Our proposal does not interfere with the ability of CfD generators to exercise their right to reduce their project capacity as permitted by the contract to accommodate changing circumstances around the construction of their projects. We therefore believe that this temporary restriction presents a very low risk to generators’ interests while the Government reviews its policy on this issue.

The Government will consult in due course on any proposals regarding the eligibility of surrendered CfD capacity to enter future allocation rounds, and associated matters, with a view to clarifying its policy in time for the launch of AR8.

Documentary evidence and eligibility checks

The National Energy System Operator (NESO) assesses the eligibility of applications wishing to participate in a CfD allocation round. All applicants wishing to participate in AR7 will be required to confirm that their application is not an excluded application under the new Rule 5.1(b) of the Contract Allocation Framework, as proposed above, and provide additional information, which will be specified in Schedule 5 of the Contract Allocation Framework ahead of AR7, including:

• where the Applicable Planning Consent(s) of the proposed CFD Unit is shared with an existing CFD Unit, the name of the existing CFD Unit;
• where the Connection Agreement applicable to the proposed CFD Unit is shared with an existing CFD Unit, the name of the existing CFD Unit;
• Where a lease, agreement for lease or option to lease agreement granted in respect of an Offshore Generating Station is shared with an existing CFD Unit, the name of the existing CFD Unit.

In addition to the above, NESO may review any documents provided by the applicant, including planning consents and connection agreements, to validate that an application is not an excluded application.

Assessment of Impacts – surrendering contracted capacity

Since this is a consultation stage assessment, the assessment is draft and will be considered further following the consultation responses in line with the questions below.

Initial assessment of potential benefits and costs

The Government views the key potential benefits of the change to be:

• Potential savings to electricity consumer costs by preventing surrendered capacity from rebidding into a subsequent allocation round and achieving a higher strike price purely for commercial gain.
• Ensures fairness in allocation of contracts, helping to support greater deployment of renewables since budgets will be allocated effectively to projects ready to build at the strike price.
• Ensures a strong incentive is maintained for project developers to bid sustainably, wherever possible pricing an appropriate level of risk into their bids, and locking in prices early through supply chain contracts.
• Greater certainty for the supply chain that capacity secured is more likely to build out according to the original bid timelines.
• Ensures positive public perception of the CfD scheme as a means of delivering new build renewable electricity generation at a low cost.

The key potential risk of the change is that it could prevent or slow renewable electricity deployment if developers would have sought to use this flexibility in order to respond to changes in project economics that would otherwise make their projects commercially unviable. However, the Government views the macroeconomic circumstances of the past few years as largely exceptional. Should this change be implemented for future rounds beyond AR7, the Government considers it reasonable for developers to manage the risk of cost increases through pricing in a proportionate level of risk into their bids, and negotiating terms with the supply chain.

Summary of consumer impacts

The extent to which capacity reductions may have rebid into AR7 depends largely on individual projects and expected clearing prices, which is uncertain. On balance, this proposal should help support renewable deployment whilst protecting consumers from potential arbitrage opportunities between CfD rounds. This proposal also maintains the possibility for permitted reduction and FIC flexibility in the contract, which means that overall there is not a high risk transfer to the developer from this proposed change.

4. Implementing AR7 policies

In January 2024, the Government consulted on proposed changes to the CfD regulatory framework to enable onshore wind projects seeking to fully repower. Following consultation to enable repowering support on the CfD for AR7, amendments have been made to the Contracts for Difference (Definition of Eligible Generator) Regulations 2014 and the Contracts for Difference (Allocation) Regulations 2014 to remove potential barriers for onshore wind repowering applications. This chapter outlines proposed amendments to the Contract Allocation Framework and the CfD contract terms and conditions to implement this policy.

4.1 Repowering of onshore wind

Policy context

The Government announced ^{[footnote 18]} its decision on 18 October 2024 to enable CfD support for full onshore wind repowering projects in AR7. The government response confirmed the following policy decisions in respect of onshore wind repowering:

• The existing CfD eligibility criteria for onshore wind apply, in particular, that the technology must be onshore wind greater than 5MW;
• The application must be in respect of an existing onshore wind generating station which is to be fully repowered and not a life-extension project.
• An application may be submitted in respect of an existing generating station that is to be fully or partially decommissioned. Therefore, “full repowering” relates to the part of the existing station to be decommissioned and repowered rather than requiring the whole station to be repowered;
• Projects must have at least reached the end of their operating life by/before the end of the applicable Delivery Year in the next allocation round (i.e. the developer’s chosen delivery year) and not be in receipt of any other subsidy for electricity generation at that point. End of operating life is to be based on an assumed operating asset life of 25 years ^{[footnote 19]}.

The Government has already taken the first steps to implement this policy. Amendments to the Contracts for Difference (Definition of Eligible Generator) Regulations 2014 and the Contracts for Difference (Allocation) Regulations 2014 (the 2025 Changes to Regulations) came into effect on 13 January 2025 ^{[footnote 20]}. These amendments permit CfD applications from onshore wind developers who have decommissioned, or intend to decommission, their existing power stations. Regulations have also been amended to enable forward bidding for repowering projects by removing barriers on such projects which may have been commissioned and/or previously received another form of government support, e.g. through the Renewables Obligations scheme or a non-fossil fuel order, such as the Non-Fossil Fuel Obligation.

This consultation now proposes how the policy as set out in the October 2024 government response will be implemented through amendments to the Contract Allocation Framework and the CfD contract.

Proposals

Demonstrating eligibility at application stage

The eligibility requirements and checks that the National Energy System Operator (NESO) will carry out to ensure that applications are eligible to participate in AR7 as a repowering onshore wind project will be set out in the Contract Allocation Framework. The following new eligibility criteria and enabling provisions will be added to the Framework:

• A new section will be added to Rule 4.1 to implement the policy objective that only an onshore wind project with a generating capacity of more than 5MW will be eligible to apply for CfD support as a repowered onshore wind project;
• Rule 4.1 will also be amended to require that an onshore wind project to be decommissioned and repowered either has or will reach the end of its operating life by the Target Commissioning Date specified in its application (see section on Clarification of ‘end of operating life’ below for further information on this requirement);
• Rule 5 (concerning Excluded Applications) will be amended to remove the barrier currently preventing previously commissioned onshore wind projects, whether or not they have received other forms of government funds, from being able to apply for a repowering CfD, as permitted by the 2025 Changes to Regulations. Consistent with longstanding CfD policy excluding commissioned projects from accessing CfD support, existing (i.e. commissioned) onshore wind projects will not be eligible for CfD support except through the new repowering route.

Documentary evidence and eligibility checks

Applications from developers wishing to repower an existing onshore wind generating station will be required to submit a range of documentation and evidence to NESO to demonstrate that they meet the relevant eligibility requirements. The key requirements will be:

• A copy of the planning consent granting planning authority approval for the existing onshore wind station to be decommissioned and repowered. The consented repowering capacity must be equal to or greater than the proposed capacity of the new CfD Unit specified in the application;
• A copy of the developer’s decommissioning plan setting out the stages and timetable for the existing station to be decommissioned;
• A map of the existing generating station to be decommissioned showing the geographic location of the existing generating assets;
• Evidence of the existing station’s operating life, including evidence to establish its original commissioning date, such as a copy of the Interim Operational Notification issued by the system operator at the time, or where the existing station is or has been an embedded generator, the grid connection notice from the relevant Distribution Network Operator, or where the existing station is or has been in receipt of support under the Renewables Obligation (RO), the date on which the station joined the RO scheme (i.e. became accredited), or other evidence acceptable to NESO confirming the date on which the existing power station first started generating electricity. Documentary evidence for the date of energisation will be required for sites that are connected via private network.

The Contract Allocation Framework will place a new obligation on NESO to forward a copy of a successful applicant’s decommissioning plan and map of the existing generating station and assets to LCCC at the conclusion of the allocation round. Full details of the required documentation and evidence will be set out in Schedule 5 of the Contract Allocation Framework, which will be published before AR7 opens to applications.

New definitions in the Contract Allocation Framework and CfD contract

Several new definitions are required to implement the eligibility and evidential requirements outlined above. The following new definitions will be added to the Contract Allocation Framework to facilitate this.

Eligible technology – as indicated above, only onshore wind projects with a capacity above 5MW are eligible to repower under the CfD. Accordingly, the Contract Allocation Framework will specify that an application in respect of an onshore wind station that is, or is to be, repowered (a “Repowered CfD Unit”) must have a generating capacity of more than 5MW and be an “Eligible Repowering Technology”. We propose to define these two terms as follows:

• ““Eligible Repowering Technology” means onshore wind technology”;
• ““Repowered CFD Unit” means a CfD Unit with Applicable Planning Consent to:
  
  (i) establish an Eligible Generating Station following the Decommissioning of an existing Eligible Generating Station ^{[footnote 21]}; or
  (ii) alter an Eligible Generating Station by Decommissioning part of it in order to replace that part.”

Decommissioning – the existing generating station (or the part of it to be repowered) must be decommissioned before the new CfD facility can be eligible to receive CfD payments. New definitions are therefore necessary to ensure there is clarity over the generating assets that have, or are to be, decommissioned. We propose the following definitions:

• ““Decommissioning” means dismantling and removing the Existing Generating Assets and, in the case of foundations, the removal or refurbishment of those foundations of an existing Eligible Generating Station”.
• ““Existing Generating Assets” in respect of the Repowering Facility shall include, but are not limited to, the following: foundations, turbine towers, blades, nacelles and associated generating equipment such as transformers and switchgear”.

Allowing ‘refurbishment’, as well as removal, of foundations is intended to afford developers flexibility in how they decommission, with the aim of encouraging innovative and sustainable means of repowering. The categories of assets listed in the definition of “Existing Generating Assets” is not intended to be exhaustive. The intention is that the existing generating assets that are to be decommissioned should be specified by the applicant in their decommissioning plan and map submitted with their application.

In order for LCCC to be able to fulfil several new provisions relating to the management of repowered onshore wind contracts, described below, it is necessary that LCCC can distinguish clearly between the existing generating assets of the station being repowered and those of the new CfD Facility. As such, information relating to the existing generating assets, provided by successful generators in their CfD applications, will be included in their CfD Agreement and flow through to their CfD Standard Terms and Conditions. This will be achieved by adding new language at Clause 4.12 of the CfD Agreement, defining “Existing Generating Assets” in accordance with the information provided by the generator in their decommissioning plan and map, provided at application. Corresponding definitions of “Decommissioning Plan” and “Existing Generating Asset Map” have been introduced into the CfD Agreement to facilitate this. The definition of “Existing Generating Assets” set out in the CfD Agreement will be cross-referenced in the CfD Standard Terms and Conditions, meaning that the existing generating assets identified by the generator at the point of application will become “Existing Generating Assets” for the purposes of the repowering provisions in the CfD Standard Terms and Conditions.

Clarification of ‘end of operating life’

As indicated in the ‘Policy context’ section above, the October 2024 government response confirmed that in order to qualify for a repowering CfD, projects must have at least reached the end of their operating life by/before the end of the delivery year that they specify in their CfD application. Several stakeholders have requested further clarification as to the date on which the end of operating life will be reached, i.e. whether it will fall on the first or last day of the delivery year, or on some other date during the delivery year.

The Government response published on 18 October 2024 confirmed ^{[footnote 22]} that the 25-year ‘end of operating life’ can include the period of time required to decommission the existing project and commission the new CfD facility. The Government therefore confirms that an onshore wind project will qualify for repowering support if the developer can demonstrate to NESO that the existing project commenced commercial operation at least 25 years before the Target Commissioning Date (TCD) specified in their CfD application. The TCD must be set within the applicant’s chosen delivery year and is the date on which the applicant indicates that it intends to start generating electricity from its CfD facility if it wins a contract. The TCD is therefore an appropriate date by which an existing onshore wind station should have come to the end of its operating life in order to access CfD support. The developer will be required to provide evidence of this at the application stage (see below).

Once a generator has entered into a CfD for a repowered onshore wind project, the contract will reflect this requirement, while creating some flexibility to reflect the practical realities of construction and the potential for projects to be completed prior to the TCD. To fulfil the Operational Conditions Precedent (OCPs), the generator must declare that the existing generating station has reached the ‘end of operating life’ or would have done, had the facility not been decommissioned. The generator will not be required to demonstrate again that the end of operational life would have occurred by the TCD. Fulfilment of the OCP must occur before the repowered onshore wind facility can start generating under contract terms and receiving CfD subsidy (subject to Condition 3 (Conditions Precedent and Milestone Requirements). See also section on ‘Milestone Requirements & Operational Conditions Precedent’ below for further information on the new OCP.

Other amendments to the CfD contract terms

The CfD contract will be adjusted to accommodate repowered onshore wind projects. Several amendments are required to the CfD generic Agreement and the CfD Standard Terms and Conditions to implement the Government’s specific policy objectives with regard to CfD support for repowered onshore wind.

Ensuring that projects are full repowering and not life-extensions

One of the key criteria for access to CfD support is that the project must be a fully repowered onshore wind station and not a life extension project. The following contract changes are proposed to achieve this policy aim:

• The contract will include a new Generator undertaking that they will not use pre-existing generating assets, other than any refurbished foundations that are in place (new Condition 30.1(G));
• A new termination event will be added, as Condition 53.1(I), giving LCCC the right to terminate the contract if the generator breaches Condition 30.1(G) by using pre-existing generating assets;
• In addition, the Generator undertaking in Condition 32.19 will grant LCCC the right to recover any payments from Generators who receive CfD payments for the use of pre-existing generating assets;
• An OCP is added requiring evidence that no generating assets forming part of the new CfD Facility were Commissioned before the Generator’s CfD application date and that the existing generating assets have been decommissioned;
• To aid the interpretation of these new provisions, various terms, including a new section (at Condition 1.21 in the CfD Standard Terms and Conditions) will be added to describe what constitutes the decommissioning of assets in the context of a repowering facility. A new defined term of “Existing Generating Assets” will be inserted into the contract, based on information that applicants will be required to provide at application stage (see above).

Milestone Requirements & Operational Conditions Precedent

The following contract changes are proposed to implement the Government’s policy that existing onshore wind projects wishing to repower must have reached the end of their operating life and not be in receipt of any other subsidy for electricity generation before they can be eligible to receive CfD support payments.

• Milestone Requirement - Currently, CfD generators must demonstrate their commitment to delivering their CfD projects by fulfilling a Milestone Requirement by the Milestone Delivery Date (MDD), which occurs 18 months after contract signature. They may do this either by providing evidence that they have spent 10% or more of total project pre-commissioning costs up to that point (the Pre-Commissioning Costs route) or that they have entered into contracts for the purchase/supply and/or installation of material equipment (the Project Commitments route). In the case of wind generators, contracts for the purchase or supply of material equipment must always include wind turbines.
• We consider that the current Milestone Requirements do not provide an adequate basis for repowered wind generators to demonstrate that they are committed to, and have made reasonable progress towards, decommissioning their existing facility. We propose that if a generator decides to follow the Project Commitments Route, they must also provide LCCC with evidence that they have entered into an engineering, procurement and construction (EPC) contract to decommission the existing onshore wind plant in accordance with their decommissioning plan (see Annex 5, Part B, paragraph 10 (Onshore Wind) of the CfD Agreement). In the case of generators choosing to follow the Pre-Commissioning Costs route, as turbines make up the majority of a wind farm’s pre-commissioning costs, the current 10% spend threshold alone is not a sufficient measure of a developer’s commitment to proceed with the decommissioning and repowering of a new onshore wind project. We therefore propose that generators following the Pre-Commissioning Costs route must, in addition to satisfying the spend requirement, also provide evidence that they have entered into an EPC contract to decommission the existing onshore wind plant in accordance with their decommissioning plan.
• Operational Condition Precedent (OCP) – an OCP is a condition which the generator must fulfil before they can commission their CfD generating station under contract terms and start receiving CfD payments. A new OCP will be inserted (Schedule 2, Part B, para 2.2(I) and (J)), requiring generators of repowering facilities to evidence the full decommissioning of existing assets (including that the facility has or would have, had decommissioning not occurred, achieved the end of operational life, as set out above) and that they are no longer in receipt of any non-CfD subsidy in respect of the decommissioned plant before submitting a Start Date Notice to LCCC.

Separation between the CFD facility and existing decommissioning plant

Uniquely among CfD technologies, generators of a repowering onshore wind facility are likely to be decommissioning their existing power station while also working towards the delivery of their new CfD facility. The Government wishes to ensure that the obligations and benefits of the contract terms do not extend to the plant being decommissioned except in circumstances where there is a genuine interdependency between the decommissioning of the old plant and construction of the new facility. Several contract changes are proposed, including the following:

• Costs or savings - the generator will not be able to claim certain costs or savings under the CfD contract terms associated with decommissioning the existing generating assets as part of compensation paid to the CfD generator in respect of a Qualifying Change in Law (QCiL) or QCiL-related events (see the relevant QCiL definitions in the CfD Standard Terms and Conditions);
• Milestone Requirement – costs incurred by the generator for the purpose of decommissioning the existing generating station will not count towards meeting the 10% Milestone Requirement at MDD (see Condition 4.1(B)(iii));
• Distinction between the old and new facilities - the contract will include a clarification that any reference to the term “Facility” in the contract shall not include reference to any existing generating assets except foundations forming part of those that have been or will be refurbished for use with new CfD facility (see new Condition 1.21(B));
• Scope of the definition of “Project” - the Government considers it appropriate for the definition of “Project” to include “the decommissioning of the Existing Generating Assets…” in the majority of cases. This broader definition will, for example, entitle the generator to request Force Majeure relief where a delay to the CfD Project results from delays to the decommissioning of the existing onshore wind station which may justify an extension to the MDD, Target Commissioning Window and/or Longstop Date. Certain exceptions are listed in new Condition 1.21(C), which exclude “Existing Generating Assets” in the definition of “Project” for the purposes of some subsidy cumulation provisions. This includes, for example, the provisions requiring the generator to undertake that they had not previously received subsidy for the existing generating assets, as they may have done so under schemes such as the Renewables Obligation. For the avoidance of doubt, any ‘forward-looking’ subsidy cumulation provisions – i.e. those which require the generator to undertake that they will not receive any subsidy apart from under their CfD for the costs of the Project after the Subsidy Declaration Date - will apply to repowered CfD units.
• Required Authorisation – these are the authorisations that a CfD generator needs to perform and comply with its obligations under the CfD and to deliver the CfD facility, including planning consent any licences and certificates. As the generator of a CfD repowering facility will have to fulfil several contractual obligations regarding the decommissioning of the existing onshore wind station, the generator will be required to hold the necessary consents to decommission their existing onshore wind assets as a condition of their CfD contract, and the definition of “Required Authorisation” will be amended accordingly.

4.2 Phased CfDs for floating offshore wind

The Government has decided to allow floating offshore wind projects supported by the CfD scheme to build out in up to three phases from AR7 onwards. This chapter proposes changes to the CfD contract terms to implement this decision.

Policy context

Phasing policy allows offshore wind projects to build in several stages to de-risk project delivery. Currently only fixed offshore wind projects may phase. FLOW has not previously been eligible to phase as projects have been too small to justify inclusion in this policy before now.

FLOW is an emerging technology which allows us to access wind resource in deeper waters, which tend to be further from shore with higher, more consistent wind speeds. The capacity of individual FLOW projects is expected to increase rapidly to match that of the largest fixed offshore wind projects. The Government is committed to radically increasing the UK’s offshore wind capacity by 2030, including FLOW. To help facilitate this, the Government has decided ^{[footnote 23]} to extend phasing to FLOW from AR7 onwards.

The Government has amended CfD regulations ^{[footnote 24]} to allow FLOW projects to construct in phases. As with fixed offshore wind, FLOW projects will be able to apply to build in up to three phases, subject to a maximum total capacity of 1,500MW for the project as a whole. At least 25% of the total project capacity must be constructed and commissioned in the first phase.

The Contract Allocation Framework and NESO’s application process will be amended to reflect that FLOW projects may now apply as phased offshore wind CfD units. In addition, the CfD contract terms need to be amended and this chapter invites views on proposed contract drafting changes to implement this policy decision fully.

Proposals

Minor amendments need to be made to the phased CfD contract templates to accommodate phasing for floating offshore wind. The proposed contract amendments are as follows:

• A definition of “Floating Offshore Wind” has been inserted (Condition 1 – Definitions and Interpretation). This is the same definition as is currently in the generic CfD Agreement, which will continue to be used for unphased floating offshore wind projects;
• The amendment at Condition 4.1 confirms that Floating Offshore Wind is a Facility Generation Technology for the purposes of the phased contract terms. This change will enable LCCC to offer and complete phased contracts in respect of FLOW projects that are successful in a CfD allocation round;
• Condition 6.3 will be amended to confirm that FLOW projects must commission a minimum of 95% of their contracted capacity. This is known as the Required Installed Capacity and reflects the current policy in respect of FLOW projects that are constructed in a single stage.

Each phase of a phased CfD project has its own separate contract, up to a maximum of three contracts. There are six phased contract templates in all, three for projects that connect to the network using an apportioned (i.e. shared) metering arrangement and three for projects where each phase is connected separately. The changes summarised above are set out in the draft Phase 1 Apportioned Metering CfD Agreement published with this consultation. Subject to a final decision following this consultation, the corresponding changes will be set out in the final versions of the remaining phased contract templates before AR7 opens to applications later in 2025. A small number of tidying up amendments have also been made in addition to the material contract changes described above.

The Contract Allocation Framework will be amended to reflect that FLOW projects may phase.

5. Minor and Technical changes to the CfD contract terms

5.1 Changes relating to implementation of Part 5 of the Energy Act 2023 (establishment of NESO)

AR7 will be the first CfD round to be launched since the establishment of NESO on 1 October 2024. ^{[footnote 25]} NESO (formerly National Grid ESO) now holds an electricity system operator (ESO) licence, rather than a transmission licence, under the Electricity Act 1989 (as amended by Part 5 of the Energy Act 2023 (EA23)). It is now owned by the Secretary of State, rather than being part of the National Grid group. The EA23 refers to its new role as that of the Independent System Operator and Planner (ISOP) – a role in which it carries out long-term planning and forecasting activities in relation to the gas network alongside its electricity system operator responsibilities. EA23 also confers new duties on the ISOP that apply to all of its functions. ^{[footnote 26]}

NESO continues to carry on, under its ESO licence, the functions that, as National Grid ESO, it carried on under a transmission licence: indeed, its old licence was converted into the new licence by a direction of the Secretary of State under s.167 of EA23. This direction also provides for all rights, liabilities and obligations that had effect before 1 October 2024 in connection with the old licence or industry codes to continue to have effect notwithstanding the change in licensing.

In parallel with these changes, a number of amendments have been made to primary and secondary legislation to reflect the fact that the GB electricity system operator now holds an ESO licence, rather than a transmission licence. For example, the definition of “national system operator” in the Energy Act 2013 now refers to the ISOP. [^27] During the process of identifying such “consequential amendments”, we identified a possible need to reflect NESO’s new position in the CfD Standard Terms and Conditions, for example, in the definitions of “NETSO” and “Transmission System Operator”. Further review of a number of NESO-related definitions in Condition 1 has led us to propose a number of minor changes to this Condition.

The definitions amended are those of the following terms: “Balancing Mechanism”, “BSC”, “CfD Counterparty Confidential Information”, “Curtailment”, “CUSC”, “Embedded Generator”, “Emergency De-energisation Instruction”, “Foreseeable Change in Law”, “GB Transmission System”, “Generation Tax”, “Government Entity”, “Grid Code”, “Imported Input Electricity”, “Industry Documents”, “Other Change in Law”, “Partial Curtailment”, “Qualifying Curtailment”, “Qualifying Partial Curtailment”, “Qualifying Shutdown Event”, “SOTO Code”, “Sustainability Change in Law”, “Transmission Licence”, “Transmission Licensee”, “Transmission System Operator”.

A new definition of “ESO Licence” has been inserted. The definition of “Master Registration Agreement” has been deleted to reflect its effective replacement by the Retail Energy Code. The definition of “NETSO” has been deleted as unnecessary (and replaced by “Transmission System Operator” where it was used).

Some of the changes reflect the numbering and structure of NESO’s new licence (see “BSC”, “CUSC”, “Grid Code”, “SOTO Code”, and deletion of “Section C (system operator standard conditions) Direction”) or the language of the Electricity Act 1989 as amended by EA23 (“Transmission Licence”, “Transmission Licensee”, “Transmission System Operator”). A reference to “the Transmission Licence” has also been removed and replaced with alternative drafting at Condition 64.10.

Some of the changes involve what we think is better internal use of other terms defined in Condition 1 (see the amendments to “Balancing Mechanism”, “Curtailment”, “Embedded Generator”, “Emergency De-energisation Instruction”, and deletion of “GB System Operator”, “Partial Curtailment”, “Qualifying Curtailment”, “Qualifying Partial Curtailment”).

Some changes are unrelated to the establishment of NESO but fall into the category of minor “tidying up” or updating improvements to the drafting (see e.g. “CfD Counterparty Confidential Information”, “Foreseeable Change in Law”, “Generation Tax”, “Government Entity”, “Imported Input Electricity”, “Industry Documents”, “Other Change in Law”, “Qualifying Shutdown Event”, “System Restoration” (as used in “Curtailment”), “Sustainability Change in Law”).

5.2 Changes relating to Clean Industry Bonus payment suspensions

The government response to the consultation on additions to the Contract for Difference contract arising from the introduction of the Clean Industry Bonus, published in February 2025, set out circumstances in which CIB payments would be excluded from certain provisions related to the suspension of CfD payments. This was because the link between the reason for the suspension of CfD payments (in the circumstances outlined) and the CIB was not sufficiently robust as to justify withholding of CIB payments.

A further exclusion is now proposed. The CfD Private Network Agreement allows suspension of CfD payments where generators have failed to comply with certain undertakings related to their position as Private Network Generators. These are set out in Condition 30.1(K) and (L) and require the generator to undertake that (a) they shall at all times remain a Private Network Generator and (b) that they shall not supply electricity, directly or indirectly, to an Offshore Installation. In line with the previous policy intent, an amendment to the CfD Private Network Agreement is now proposed to exclude CIB payments from being withheld where the generator fails to comply with Conditions 30.1(K) and (L). A copy of the draft CfD Private Network Agreement containing the proposed amendments is published alongside this consultation document.

6. Other consultation matters

6.1 Changes to regulations relating to the Clean Industry Bonus

The current price cap methodology from OFGEM does not yet include future Clean Industry Bonus (CIB) costs, as part of CfD costs. Amendments to regulations 2, 4 and 7 of the Contracts for Difference (Electricity Supplier Obligations) Regulations 2014 are proposed to enable CIB costs to be included in the price cap methodology. In practice, this means that CIB payments are to be explicitly captured in daily and quarterly settlements between the LCCC and the generator, which allows the total cost of the CIB to be factored in fully to the Supplier Obligation. This is necessary so that CIB costs, carried by the Supplier Obligation Levy, are reflected in the total price cap and to ensure that the price cap is accurate.

6.2 Wider Risks that may impact the Allocation Round

Given enduring challenges around renewables and the scale of change domestically and internationally, we are keen to understand if there are other issues or risks that might affect this Allocation Round.

7. Additional scheme changes not subject to consultation

Updating the CfD price base

Note: This change is not subject to consultation but is included here to provide notice to stakeholders.

The CfD scheme has used a 2011/12 price base for Budgets since its inception, in line with low-carbon levy controls, and a 2012 price base for Strike Prices and Reference Prices. This approach has enabled easier comparison of the respective costs of low-carbon technologies across allocation rounds, demonstrating how the CfD has contributed to significant cost reductions over time. The disadvantage of this approach, however, is that it risks causing misunderstanding of true costs for those who are unfamiliar with the scheme’s design. This risk increases with time, particularly after a period of high inflation.

We consider that now is an appropriate time to update the CfD price base. We will update it in AR7 to 2024 prices, the latest full-year price base. This change means that Administrative Strike Prices, Reference Prices and Budgets for AR7 will be published in 2024 prices.

The price base change will be reflected in the AR7 Contract Allocation Framework, which will be published shortly before the round opens. Prospective AR7 applicants should note that bids must be submitted in the price base specified in the Contract Allocation Framework.

After updating the price base for AR7 and finalising the round’s parameters, we will consider the frequency of future updates to the price base. This approach will allow us to have a better understanding of the impact on resources and delivery partners before deciding on the appropriate frequency. We will communicate the decision to stakeholders.

List of consultation questions

Chapter 1.3 - Support for floating offshore wind

1. Are there any further measures you believe are necessary to facilitate the Government’s intention to support multiple Test & Demonstration scale floating offshore wind projects in AR7, whilst considering potential impacts on auction dynamics? If so, what and why?

Chapter 2.1 - Relaxing CfD eligibility criteria for fixed-bottom offshore wind projects

2. Do you support the general proposal to relax eligibility requirements to enable projects to apply for a CfD while awaiting their planning consent? Yes, No, Unsure? Please provide any further comments to support your answer.

3. The proposal outlines two options for the Consent Eligibility Date. Which option do you prefer? Eligibility proposal A, Eligibility proposal B, No preference? Please provide any further comments to support your answer.

4. Are newly eligible (unconsented) projects likely to take advantage of the proposed relaxation of eligibility requirements? Yes, No, Unsure? Please provide any further comments to support your answer.

5. Is this change likely to reduce development timelines for newly eligible projects (either now, or in future once the change can be adjusted to)? Yes, No, Unsure? Please provide any further evidence to support your answer.

6. Are there any challenges or barriers a developer would face in preparing a bid for a newly eligible (unconsented) project compared to a consented project? Yes, No, Unsure? Please provide any further evidence to support your answer.

7. Would the proposed changes have a positive, negative or neutral impact on supply chains? Positive impact, Neutral/No impact, Negative impact? Please provide any further evidence to support your answer.

8. Do you agree that the Non-Delivery Disincentive should apply to unconsented projects that fail to return a signed CfD contract by the statutory deadline? Yes, No, Unsure? Please provide any further evidence to support your answer.

9. Do you agree that certain contractual obligations and milestones should be deferred or some flexibility permitted for unconsented projects until a planning decision is issued? Yes, No, Unsure? Please provide any further evidence to support your answer.

10. Do you support the following flexibilities in the CfD contract to accommodate unconsented projects?:

a. Deferment of the Milestone Delivery Date until a planning condition is issued. Yes, No, Unsure?

b. Ability to leave contract early without penalty if planning consent is delayed beyond a certain date. Yes, No, Unsure?

c. Provision to allow unconsented generators to adjust their contracts to accommodate planning conditions imposed on their projects following consent approval. Yes, No, Unsure?

11. Are there any other contractual obligations and milestones that you think should be deferred or granted flexibility not mentioned above? Please provide further details to support your answer.

Chapter 2.2 - Amending the budget publication process and information received

Budget Notice publication

12. Is it important to receive a monetary budget in advance of the sealed bid window? Yes, No, or Unsure. Please provide your view on whether it is important to receive a monetary budget in advance of the sealed bid window.

13. Would replacing a monetary budget with a capacity ambition impact participation in the allocation round? Yes, No, or Unsure. Please provide your view on whether replacing a monetary budget with a capacity ambition would impact participation in the allocation round.

14. Would publishing a budget notice after the sealed bid window have a negative impact on:

a. Competition and bidding behaviour: Yes, No, Unsure.

b. Boards / developer decision making timelines / processes and whether this could impose any unintended consequences / additional costs on developers: Yes, No, Unsure.

c. Non-delivery/withdrawal from auction: Yes, No, Unsure.

Please provide further evidence on this/these impacts.

Expediting the allocation process for offshore wind

15. Are you in favour of the auction process being run for parts of the allocation round, whilst other parts proceed with an appeals process? Yes, No, Unsure. Please provide further evidence in support of your views.

Removing restrictions on available auction information

16. Are you in favour of the Secretary of State having the power to see anonymised bid stack information. Yes, No, Unsure. Please provide further evidence in support of your views.

17. Would the Secretary of State seeing anonymised OFW bid information have a negative impact on:

a. Bidder behaviour: Yes, No, Unsure.

b. Investor confidence in the CfD scheme: Yes, No, Unsure.

c. Consumers: Yes, No, Unsure.

Please provide further evidence in support of your views.

18. Do you believe this proposal could increase the likelihood of a preferable outcome for both industry and consumers? Yes, No, Unsure. Please provide further evidence on why this proposal may increase the likelihood of a preferable outcome for both industry and consumers.

19. Do you believe any further assurances, other than those in the Contract Allocation Framework, are required? Yes, No, Unsure. Please list any further assurances which would be required.

20. Do you agree with the rationale to only apply the new bid stack approach to fixed-bottom offshore wind, for now: Yes, No, Unsure

[If 20 = “No” or “Unsure”] Please select which other technologies you think the new bid stack approach should apply to: Solar PV, Onshore Wind, Tidal, Geothermal, Wave, Floating Offshore Wind, Unsure.

Please provide any further comment on your view on the rationale to only apply the new bid stack approach to fixed-bottom offshore wind, for now.

Contract Allocation Framework amendments

21. Do you agree with the rationale for flexible bids being closed for OFW projects? Yes, No, Unsure. Please provide further evidence on your view on flexible bids being closed for OFW projects.

Chapter 2.3 - Increasing the contract term for future CfD projects

Market failure

22. Do you expect that new renewable electricity projects operating on a 15-year CfD will be exposed to greater market price risk than was originally conceived in the EMR (2013)? Yes or No? Please explain why, providing evidence where possible.

23. In your view, do you have concerns about the economic viability of CfD assets once they have reached the end of their CfD term? Yes or No? Please explain why, providing evidence where possible.

24. If yes to 22 and/or 23, where possible, please provide evidence quantifying the impact you believe this may have on CfD strike price bids (% and/or £/MWh).

Potential benefits

25. Do you agree that increasing the contract term will reduce cost of capital? Yes or No? If yes, please state the breakdown of impacts on i) cost of debt, ii) cost of equity, and iii) gearing. If no, please explain why, providing evidence where possible.

26. If yes to 25, where possible, please provide evidence to quantify the impact you believe this may have on CfD strike price bids (% and/or £/MWh) via i) reduced cost of capital, ii) increased subsidy period, and iii) details of discount rates applied.

27. To what extent would a potential reduction in strike price from longer contracts be limited if there was insufficient competition in auctions? Please provide evidence where possible, specifically, detail on the justification for your assessment of the extent would be appreciated.

28. Are there any further changes to auction rules or design that the Government could make to increase the likelihood that project cost savings feed through to strike price bids, and so billpayers, and/or offset the limitations from insufficient competition?

Costs / unintended consequences

29. Do you agree that increasing contract term for CfD assets would increase wholesale electricity price cannibalisation? Yes or No? Please explain why, providing evidence where possible.

30. If yes to 29, do you consider that this could materially impact security of supply? Yes or No? Please explain why, providing evidence where possible.

31. Do you consider that increasing the contract term would materially increase overall investor confidence in the renewable electricity industry? Yes or No? Please explain why, providing evidence where possible.

32. Do you consider there are any unintentional consequences that this policy change could create which have not been considered within this consultation? Yes or No? If yes, please provide evidence where possible.

Implementation

33. Considering the factors of i) the impact on the wholesale market and security of supply, ii) the impact on CfD strike price bids and billpayers, and iii) overall investor confidence in the renewable electricity industry, in your view, what contract term best balances these factors? Please provide evidence to support your view.

34. Do you consider that an alternative approach to price indexation (currently CPI) may be required in any additional years of the contract to better balance the risk between generator and consumer? Yes or No? Where possible, please set out which mechanism you believe is most appropriate and why.

35. Do you consider that increasing the contract term from 15 years should apply to all renewable technologies currently supported under the CfD? Yes or No? Please explain why, providing evidence where possible.

36. If no to 35, what unintended consequences do you consider there may be for enabling longer contract term for i) OFW only, ii) OFW and ONW only, iii) OFW, ONW and solar only. Please provide evidence where possible.

Chapter 3.1 - Solar PV Target Commissioning Window

37. Do you agree with the Government’s proposal to increase the current TCW for Solar PV from 3-months to 6-months with effect from AR7. If not, please tell us why and provide evidence to support your position.

If you wish to propose a different length for the solar TCW, please explain your rationale together with evidence. We would particularly welcome evidence on any commercial, technical or supply chain challenges that would prevent larger solar projects commissioning within a 6-month window.

38. Do you have any views on any of the impacts explored in the assessment? In particular, we would welcome further evidence on:

a. The benefit that could be captured in the near-term (AR7 and AR8) for solar PV projects from extending the TCW, or any risks of the proposal;

b. Any alternative design options that you consider might better balance the need for increased flexibility for some solar projects whilst ensuring that developers are still incentivised to build out efficiently.

Chapter 3.2 - Eligibility of surrendered CfD capacity for AR7

39. Do you agree with the Government’s proposal to apply a temporary restriction on CfD capacity released by generators through the permitted reduction and FIC flexibilities being entered into AR7, and the proposed drafting in the Contract Allocation Framework to achieve this?

If not, please tell us why and provide evidence to support your position. We would particularly welcome evidence from any existing CfD generators that may be adversely affected by this proposal.

40. Do you agree with the confirmation and documentary evidence that applicants will have to provide to demonstrate that their applications do not contain any capacity which was previously subject to a CfD awarded in Allocation Rounds 1-6? If not, please tell us why and provide evidence to support your position.

41. Do you have any views on any impacts explored in the assessment? In particular, we would welcome further evidence on:

a. The assessment of benefits and risks identified in this assessment, including any additional evidence on the likelihood and significance of benefits and risks identified;

b. Whether there are further benefits or risks to this proposal which are not explored in this assessment.

Chapter 4.1 - Repowering of onshore wind

42. Do you agree with the proposed changes to the Contract Allocation Framework proposed above? If you disagree, please tell us why and support your answer with evidence.

43. Do you agree with the documentary evidence and eligibility checks proposed above? If you disagree, and/or wish to suggest alternative evidence/checks, please tell us why and support your answer with evidence.

44. Do you agree with the definitions to be added to the Contract Allocation Framework proposed above and in the CfD Agreement and Standard Terms and Conditions published alongside this consultation? If you disagree, please tell us why and support your answer with evidence.

45. Do you agree that applicants should be required to demonstrate at the point of application that the existing onshore wind station for which they are seeking CfD support will, or would have but for decommissioning, have reached the end of its operating life by the Target Commissioning Date? If you disagree, and/or wish to suggest an alternative cut-off point, please tell us why and support your answer with evidence.

46. Do you agree to allowing a more flexible approach to demonstrating that the existing generating station has reached the end of its operating life through fulfilment of an Operational Condition Precedent?

47. Do you agree with the proposed contract changes outlined above and shown as tracked changes in the CfD Agreement and Standard Terms and Conditions published alongside this consultation? If you disagree with any of the proposed changes, or have alternative suggestions, please tell us why and provide evidence to support your position.

48. Do you agree with the Government’s proposed amendments to ensure the separation between the CfD facility and the existing decommissioning plant as outlined above? If not, please tell us why and provide evidence to support your position.

Chapter 4.2 - Phased CfDs for floating offshore wind

49. Do you agree with the proposed amendments to the phased CfD contract terms to implement fully the Government’s policy to extend phasing to Floating Offshore Wind? If not, please tell us why and provide evidence to support your position.

Chapter 5.1 - Changes relating to implementation of Part 5 of the Energy Act 2023 (establishment of NESO)

50. Please flag any unintended consequence of these changes that Government may need to consider, and let us know if you think any other changes ought to be considered as a result of the establishment of NESO.

Chapter 5.2 - Changes relating to Clean Industry Bonus payment suspensions

51. Do you agree that the amendment to the conditions relating to CfD payment suspensions is sufficiently clear and fit for purpose? If not, please state your reasons and an alternative proposal.

Chapter 6.1 - Changes to regulations relating to the Clean Industry Bonus

52. Please flag any unintended consequence of this change that Government may need to consider.

Chapter 6.2 - Wider Risks that may impact the Allocation Round

53. Are there exogenous issues not covered elsewhere in this consultation that you are particularly concerned about when it comes to Allocation Round 7?

Next steps

Once the consultation has closed, we will analyse the responses and feedback received and set out how we intend to proceed in a government response. The response will provide a summary of the views expressed by stakeholders and will set out the decisions that Government has taken. Further consultation may be required, for example, if Government’s decisions necessitate significant changes to policy design or further amendments to the CfD contract terms and conditions.

To ensure the legislation for the reforms to the budget process and visibility of auction information outlined in Chapter 2.2 does not delay the opening of the allocation round, we may publish a government response on the proposals in that chapter ahead of our response to the other sections of this consultation.

We plan to engage with stakeholders during the consultation period to discuss our proposed reforms in more detail and gather feedback. Details will be confirmed shortly.

Annex A: Illustrative drafting for the application of new auction rules proposed in Chapter 2.2

This annex sets out illustrative drafting amendments for inclusion in the Contract Allocation Framework to provide stakeholders with an overview of how the proposed changes to the rules concerning the budget process and visibility of auction information outlined in Chapter 2.2 could be applied during the allocation process. The full Contract Allocation Framework is not covered in this annex, only the areas impacted by the proposals in Chapter 2.2.

This annex is for information purposes only and does not constitute the final Contract Allocation Framework. We are not seeking views on the text below, which is subject to change in light of consultation responses and the Government’s final policy decisions on this matter.

Rule 9 - Estimated Budget Notice

9.1 Pursuant to Regulation 54, the Delivery Body can send Auction Information (“Auction Information”) to the Secretary of State, before the Auction is held. For Allocation Round 7, it is intended to apply to Offshore Wind CFD Units.

9.2 Pursuant to Regulation [X], the Secretary of State shall make an ‘Estimated Budget Notice’ available to the Delivery Body [X] Working Days before the opening of the sealed bid window.

Rule 10 - Submission of sealed bids

10.1 Where, pursuant to Regulation 33, the Delivery Body must commence the Allocation Process, the Delivery Body must carry out the steps in this Rule 10.

10.2 The Delivery Body must issue the Notice of Sealed Bids, no later than 1 Working Day before the opening of the sealed bid window (“Submission Opening Date”).

10.3 The “Notice of Sealed Bids” must contain the following- (a) That the sealed bids are invited in the form and manner described in Rule 10.4; and (b) the sealed bid Submission Closing Date (“Submission Closing Date”), which must be a Working Day no less than 5 Working Days after the day the Delivery Body issues the Notice of Sealed Bids.

10.4 Each sealed bid must—

(a) be submitted on or before the Submission Closing Date;

(b) be submitted in accordance with the instructions set out in the Notice of Sealed Bids;

(c) contain the following—

(i) the Applicant’s proposed Strike Price in pounds sterling (using 2024 prices) that it will accept for each megawatt hour of Metered Output, which must not be more than the relevant Administrative Strike Price;

(ii) the Applicant’s Target Dates; and

(iii) the capacity of the CFD Unit. For Offshore Wind CFD Units, this capacity must be no greater than the capacity specified in the Original Application.

10.5 Subject to Rule 15 below, for each Application, the Applicant may submit only one sealed bid (and one Strike Price) for the same Target Dates and for the same capacity as specified in the Original Application.

10.6 Only one sealed bid per Application may be a Successful Application.

10.7 The lowest Strike Price bid in each Delivery Year must be expressed to be to the nearest £0.01.

10.8 Any Application made for Offshore Wind CFD Units may not submit Flexible Bids.

10.9 For each Application that is not an Offshore Wind CFD Unit, the Applicant may submit up to four Flexible Bids, which are sealed bids with varying capacities and/or Target Dates, of which no more than two bids may have a Target Commissioning Window Start Date in the same Delivery Year.

10.10 All Flexible Bids made by the Applicant must—

(a) be made at different Strike Prices;

(b) subject to Rule 10.4 above, be expressed to be to the nearest £0.001;

(c) subject to Rule 14.2 below, have a Target Commissioning Window Start Date that is no earlier than the Target Commissioning Window Start Date specified in the Original Application;

(d) subject to Rule 14.2 below, have a capacity that is no greater than the capacity specified in the Original Application; and

(e) satisfy Rule 4 above and Rule 5 above if applicable.

10.11 All bids—

(a) should be requested and submitted using 2024 prices; and

(b) will be valued using 2024 prices (which are set out in Appendices 1 and 2 of Schedule 2). 10.12 Where no sealed bid is submitted by the Applicant by the Submission Closing Date, subject to Rule 15.1 below, the Delivery Body must assign the Application a bid of the relevant Administrative Strike Price for its Technology Type, and the Target Dates and capacity, as specified in the Original Application.

10.13 The Delivery Body must not accept any sealed bids submitted after the Submission Closing Date.

Rule 11 - Sending of Auction Information

11.1 Pursuant to Regulation [X], the Delivery Body can send Auction Information to the Secretary of State, before the Auction is held. For Allocation Round 7, it is intended to apply to Offshore Wind CFD Unit.

11.2 After the Submission Closing Date, the Delivery Body must prepare Auction Information to be sent in a format requested by the Secretary of State and must maintain anonymity.

11.3 The Delivery Body is responsible for ensuring all Auction Information is assured by the Auditor, before being sent to the Secretary of State.

11.4 The Delivery Body must send Auction Information to the Secretary of State no later than [X] Working Days after the Submission Closing Date.

Rule 12 - Notice of Auction

12.1 As detailed in Rule 11, the Secretary of State intends to request Auction Information in AR7. Therefore, pursuant to Regulation [X], the Secretary of State shall have [X] Working Days to review Auction Information provided by the Delivery Body and send the Contract Budget Notice for Allocation Round 7 to the Delivery Body.

12.2 If one or more auctions are to be held pursuant to Rule 13 below, the Delivery Body must, as soon as practicable—

(a) notify the Secretary of State that it will hold an auction; and

(b) issue a notice (“Notice of Auction”) to the relevant Applicants, informing Applicants an auction will take place.

12.3. The Notice of Auction must state the following—

(a) that an auction is to be held;

(b) when Applicants will be notified of the outcome.