CfDs incentivise investment in renewable energy by providing developers of projects with high upfront costs and long lifetimes with direct protection from volatile wholesale prices, and they protect consumers from paying increased support costs when electricity prices are high.

CfDs work by guaranteeing a set price for electricity – known as a strike price – that generators receive per unit of power output.

Renewable generators located in Great Britain that meet the eligibility requirements can apply for a CfD by submitting what is a form of ‘sealed bid’. There have been 6 auctions, or allocation rounds, to date, which have seen a range of different renewable technologies competing directly against each other for a contract.

Successful developers of renewable projects enter into a private law contract with the Low Carbon Contracts Company (LCCC), a government-owned company. Developers are paid a flat indexed rate for the electricity they produce over a 15-year period; the difference between the ‘strike price’ (a price for electricity reflecting the cost of investing in a particular low carbon technology) and the ‘reference price’ (a measure of the average market price for electricity in the GB market). | The CfD scheme aims to reduce developers’ risks by providing more certainty in revenue and to support investment in a wide range of renewable technologies with different levels of maturity.

The CfD system aims to give investors certainty over the levels of returns they can receive, amid wild swings in the price of power – as witnessed during the energy crisis.

As part of the government’s Net Zero agenda, we have committed to a fully decarbonised electricity system by 2035, subject to security of supply considerations, with an ambition to deploy up to 50GW of offshore wind by 2030, including up to 5GW of floating offshore wind. Delivering this will require rapid and sustained scale-up of renewable electricity deployment.

The Contracts for Difference (CfD) scheme is fundamental to achieving this goal, supporting investment in low cost, low carbon electricity generation. | | | | | | Open consultation Introducing a Contracts for Difference (CfD) Sustainable Industry Reward:

https://www.gov.uk/government/consultations/introducing-a-contracts-for-difference-cfd-sustainable-industry-reward#:~:text=The CfD Sustainable Industry Reward aims to help accelerate the,challenges identified by the industry. | The government is proposing to introduce a CfD Sustainable Industry Reward (CfD SIR) from CfD Allocation Round 7 onwards.

The government said in a statement that, beyond cost, the reforms could result in “non-price factors” including “supply chain sustainability, addressing skills gaps, innovation and enabling system and grid flexibility” being included in the bidding process. | The aim of the CfD SIR is to help accelerate the deployment of low carbon electricity generation, specifically offshore wind and floating offshore wind, by addressing some of the recent challenges that have been identified by the industry such as:

• underinvestment in supply chain capacity despite growing demand; • environmental stress exacerbating difficulties in obtaining key materials and deploying at pace; • a reliance on unsustainable means of production and deployment; • lack of supply chain resilience in the face of a multitude of economic, political or environmental shocks; • and the need for more visible social benefits from Net Zero linked policies.

Combined, these issues could potentially hinder the UK’s ability to meet its renewable energy deployment targets at a sustainable cost to the consumer, and materially threaten the future security of our electricity supply. | CON: This proposal is termed “industry-led” because it is applicants who would estimate and propose the cost of delivering their SIR commitments, to minimise the risk that the government sets inaccurate prices or reward values for each SIR criteria, and to make sure the reward is both necessary and proportionate as part of our Subsidy Control principles | | | | | | | | | | | |