The UK Government has made the transformation of the energy sector a cornerstone of its strategy to establish Britain as a global clean energy leader. In the four months since the general election, notable progress has been made, including the creation of GB Energy, a state-owned clean energy company, the transition to the National Energy System Operator (NESO), and proposed reforms to streamline grid connections.
Building on this momentum, the Government has outlined significant changes to the Contracts for Difference (CfD) scheme following its recent consultation. These reforms, set to take effect from Allocation Round 7 (AR7) onwards, aim to build on a history of mixed outcomes—ranging from the lack of offshore wind awards in AR5 to the record-breaking success of AR6, which allocated £1.5 billion to 131 projects with a combined capacity of 9.6GW. The upcoming changes highlight the Government’s continued commitment to advancing renewable energy in the UK.
Introduction: Paving the Way for a Cleaner Future
The UK Government has reaffirmed its commitment to becoming a global leader in clean energy with significant reforms to the Contracts for Difference (CfD) scheme. Building on key initiatives such as the establishment of GB Energy and the transition to the National Energy System Operator (NESO), these changes aim to strengthen Britain’s renewable energy sector and streamline grid connection reforms.
The latest updates to the CfD programme, effective from Allocation Round 7 (AR7) onwards, underscore the Government’s focus on promoting clean energy technologies while addressing critical challenges within the sector.
Understanding the CfD Scheme
Contracts for Difference (CfDs) are long-term agreements designed to mitigate market price risks for low-carbon electricity generators. Operated by the government-owned Low Carbon Contracts Company (LCCC), CfDs provide generators with a stable revenue stream by guaranteeing a fixed ‘strike price’ per unit of electricity, adjusted annually for inflation.
Key features include:
- Strike Price Stability: Fixed through competitive auctions and indexed annually.
- Market Protection: Ensures generators are compensated when market prices fall below the strike price, while safeguarding consumers by clawing back payments when market prices exceed it.
- Decarbonisation Goals: Supports the UK’s carbon neutrality targets, enhances energy security, and aims to reduce energy costs for consumers.
What’s New for AR7? Key Changes and Updates
1. Floating Offshore Wind Projects (FLOW): A Phased Approach
From AR7 onwards, the phasing mechanism previously limited to fixed-bottom offshore wind will also apply to FLOW projects. This phased development allows projects to be built in stages, reducing delivery risks and facilitating deeper water installations with superior wind resources.
Initial rules for FLOW projects mirror those of fixed-bottom wind, including a 1,500 MW cap and a three-phase maximum, though these policies will be reviewed over time.
2. Support for Repowered Onshore Wind Projects
Repowering projects, involving the complete decommissioning and replacement of existing wind farms with modern technology, will now qualify for CfDs. Developers can apply for CfDs under standard terms for projects that meet specific criteria, such as:
- High upfront capital costs.
- A minimum operational lifespan of 25 years for the original asset.
- Forward bidding allowed before decommissioning existing projects.
The Government expects this change to increase renewable capacity and extend the life of ageing wind farms.
3. Streamlined CfD Appeals Process
To enhance the appeals process, a fixed timeline for appeals will be introduced from 2026, simplifying the current system and improving transparency.
Looking Ahead: Future Considerations for the CfD Scheme
Hybrid Metering for Co-Location Projects
While hybrid metering—enabling co-location with other assets such as battery storage—was explored, its implementation has been deferred pending further evaluation of market integration and regulatory adjustments.
Indexation of Strike Prices
The Government will retain the current Consumer Price Index (CPI) linkage for strike prices, despite concerns over pre-investment exposure to commodity price volatility.
Offshore Transmission Infrastructure
- Bootstraps: While recognised as a potential avenue for future CfD eligibility, further clarity on associated costs and regulatory frameworks is required before implementation.
- Multi-Purpose Interconnectors (MPIs): Although CfD eligibility for MPIs was considered, ongoing policy reviews are needed to assess their feasibility within the CfD framework.
Conclusion: A Step Forward for Renewables
The CfD scheme continues to evolve, reflecting the Government’s commitment to bolstering the renewable energy sector. From expanding eligibility for repowered onshore wind projects to introducing phased development for FLOW, these reforms aim to replicate the success of AR6 in AR7.
Ongoing evaluations of hybrid metering, offshore infrastructure, and strike price indexation further highlight the Government’s dedication to addressing the complexities of transitioning to a cleaner, more secure energy system.
Notes to Editors:
Contact Information:
- This article is written by Jules Daly, Marketing and Communications Manager at Powersystems.
- Email jules.daly@powersystemsuk.com Telephone 01454 318000
- Photography Copyright please credit all images used to powersystemsuk.co.uk
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As the first Lloyds National Electricity Registration Scheme accredited Independent Connection Provider (ICP), Powersystems has been delivering contestable grid connections at voltages up to 132 kV for 27 years.
Since 2000, Powersystems has successfully connected over 6.1 gigawatts of renewable energy to the UK electricity grid. Our projects span many sectors from onshore and offshore wind, solar energy, tidal and hydroelectric power, electric vehicle infrastructure, as well as generation installations for short-term operating reserves (STOR), combined heat and power (CHP), grid stability initiatives such as rotating stabilisers, battery energy storage systems (BESS), and commercial industrial private wire networks.
In collaboration with partners, Powersystems has connected 30% of all onshore wind farms in the UK, contributing significantly to the nation’s renewable energy capacity to collectively work towards a sustainable future to help the UK achieve Net Zero by 2050.
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