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Contracts for Difference Scheme

This bage is a summary of the full PDF report Contracts for Difference scheme.

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

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

Projects awarded CfDs

There have been seven competitive auction rounds for CfD capacity. These were preceded by ‘investment contracts’ awarded to renewable projects in 2014 and a CfD for Hinkley Point C finalised in 2016.

Sources: LCCC, Auction outcomes dataset; DECC (accessed 1 May 2026), Final Investment Decision Enabling for Renewables: Updates 1, 2 and 3 (Updated April 2014); DESNZ, Hinkley Point C

The amount of capacity awarded increased at each of the first four auction rounds (ARs). However, the fifth auction round did not attract any bids from offshore wind developers. The overall capacity of successful projects in this round was 66% below the total from AR4 four. This result was widely criticised by representatives from the offshore wind industry.

AR7 results were announced in two phases in January and February 2026 saw new record amounts of capacity awarded for offshore wind, solar and overall. Overall, 14.7 GW of capacity was awarded to successful projects in AR7. This was 36%, or 3.9 GW, higher than the previous record set in AR4.

Output of generators with CfDs

Generation from projects with CfDs increased consistently from late 2016 to early 2021. It then fell for much of the following three years, due to lower output from biomass generators. Output has increased again since this time.

Source: LCCC, Actual CfD Generation and avoided GHG emissions dataset (accessed 27 July 2026)

Costs

Energy suppliers pass on the costs of CfD payments to consumers. The energy regulator Ofgem adds an allowance for CfD costs to the energy price cap for household electricity to account for the costs of this. This element has varied over time and was negative during the energy crisis. It currently adds almost £40 a year for a household with typical levels of consumption.

The CfD allowance added a total of around £180 to typical domestic electricity bills over the period April 2019 to May 2026. This was 3.2% of the total electricity bill that a household with typical consumption would have paid over this period under the price cap.

Source: Ofgem, Energy price cap (default tariff): 1 April to 30 June 2026, Annex 2 – Wholesale cost allowance methodolog

Proposed changes to CfDs

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

Local area data

The Low Carbon Contracts Company (LCCC), which operates the CfD scheme, publishes a dashboard of the location of CfD generators by Parliamentary Constituency.

Further Information

The LCCC publishes datasets and data dashboards looking at different aspects of CfDs including generation, costs, location, auction outcomes and projects.