CfD Allocation Round 8 and beyond – proposed changes to the scheme

While the sector awaits the outcome of Allocation Round 7 (“AR7”) of the UK’s Contracts for Difference (“CfD”) scheme, with results currently expected to be published imminently, the Department for Energy Security and Net Zero (the “Government”) is already looking ahead, launching its latest consultation on a proposed package of refinements for Allocation Round 8 (“AR8”) and future rounds (the “AR8 Consultation”). AR8 is expected to cover delivery years commencing from 2028/29 onwards, with subsequent allocation rounds continuing to support later delivery years in line with the Government’s “Clean Power 2030” objectives. The AR8 Consultation closes on 30 January 2026, and we set out below the key proposals which have been put forward.

Surrendered CfD Capacity – Permanent Exclusion from Future Rounds

In AR7, a temporary restriction prevented CfD projects from re-entering AR7 with capacity they had earlier relinquished (in Allocation Rounds 1-6), to avoid what Government termed as “capacity arbitrage”^[1]. The AR8 Consultation now proposes to make this restriction permanent, such that from AR8 onwards, any project awarded a CfD (in Allocation Rounds 1-7) and that associated capacity will then be barred from bidding that same capacity again. The Government explains that this reflects the original policy intention behind the “permitted reduction” and “final installed capacity” mechanisms, which were designed to allow developers to respond to evolving construction and delivery circumstances, rather than to facilitate the recycling of capacity into later auctions for other reasons. These reasons may have been purely commercial, such as to circumvent an uncompetitive CfD strike price by seeking to withdraw capacity and rebid this for a more favourable price in a later round. The underlying contractual provisions that allows CfD generators to decrease their project capacity in response to evolving construction circumstances (i.e. the permitted reduction mechanism) will, however, remain unaffected.

Hybrid Metering – Shared Metering for CfD & Merchant Output

The AR8 Consultation proposes to introduce hybrid metering under the CfD scheme. This will allow generators with the same technology - whether under multiple CfD contracts or a combination of CfD and merchant arrangements - to share a Balancing Mechanism Unit (“BMU”) while still recording Metered Output separately at the point of generation at a sub‑BMU level. By allowing like-for-like assets at the same site to share BMU infrastructure, rather than requiring each facility to be registered and metered as a standalone BMU, the proposal reduces duplicative metering, cabling and grid interface arrangements, enabling more flexible and cost-efficient co-location of generation capacity. 

This represents a departure from the requirement to date for output to be measured exclusively at the BMU boundary. Under the proposed approach, the sub-BMU metering data would be used solely for CfD settlement purposes, allowing the Low Carbon Contracts Company (“LCCC”) to allocate generation accurately between CfD-supported and merchant capacity. Settlement under the Balancing and Settlement Code would, however, continue to take place at the BMU boundary, meaning that electricity market trading, imbalance settlement and wider BSC processes would remain unchanged despite the introduction of more granular metering for CfD calculations.

The proposal applies to all technology types, and, as a general rule, multiple CfD projects awarded within the same Allocation Round will not be permitted to share a BMU. This will not apply to phased offshore wind developments or certain types of tidal energy project.

Importantly, the AR8 Consultation confirms that hybrid metering is proposed to be introduced retrospectively, meaning that existing CfD generators may elect to adopt hybrid metering arrangements if they subsequently introduce merchant capacity or additional CfD facilities at the same site, subject to approval by LCCC.

Floating Offshore Wind – Extended Commissioning Window

In recognition of the growing scale and complexity of Floating Offshore Wind (“FLOW”) projects, the AR8 Consultation proposes more generous contract terms for new FLOW projects with effect from AR8 onwards. Specifically, extending the CfD Longstop Period to 24 months (from 12 months) and lowering the Required Installed Capacity (RIC) threshold to 85% (from 95%) for floating wind. This aligns floating wind with the terms already given to fixed-bottom offshore wind and is prompted by evidence that upcoming FLOW projects will likely be far larger (potentially 1 GW+) and face greater construction risks than earlier pilot-scale floaters.

“Other Deepwater” Offshore Wind – New Technology Category

The AR8 Consultation proposes the introduction of “Other Deepwater Offshore Wind” (“ODOW”) as a new CfD technology category to sit alongside fixed-bottom and FLOW. A draft definition of ODOW has been provided, which specifies particular technical criteria (e.g. excluding traditional monopiles or jackets) and requires a minimum water depth of at least 50 metres.

This targets innovative foundation designs for deep waters that are not fully floating. Currently, a project is only classed as “FLOW” (and eligible to participate in the auction for that pot) if all turbines use floating foundations and are in waters of at least 45 metres in depth. As a result, emerging non-floating deep-water foundation designs do not fall within the current UK CfD definitions for either fixed-bottom offshore wind or FLOW, notwithstanding that similar technologies may be recognised or supported under offshore wind frameworks in other jurisdictions. By creating an ODOW category, such projects (e.g. using tension-leg or semi-buoyant foundations that fix to the seabed in >50m depth) could compete for CfDs under appropriate terms.

ODOW projects would be treated as a subset of offshore wind (including eligibility for 20-year contracts, phasing, and eligibility for the Clean Industry Bonus^[2]) with their own designation in the contract.

Summary of Proposed AR8 Offshore Wind Technology Categories

Improving Scheme Efficiency – Administrative and Regulatory Tweaks

The AR8 Consultation looks to streamline the CfD application and allocation process, reducing delays and administrative burdens that developers have faced in previous rounds:

• Correcting Administrative Errors: Proposals require NESO (which is the delivery body for the CfD scheme) to fix any clerical errors or oversights during qualification without requiring a full appeal. This helps avoid situations where a simple error drags a project into a months-long appeals process (as has been known to occur in previous rounds).
• Clarifying Non-Material Application Errors: The AR8 Consultation proposes to give NESO discretion at Tier 1 appeal stage to accept new evidence or fixes for “non-material” mistakes or omissions.
• Pending Applications Process: Minor regulatory changes are suggested to make the “pending application” mechanism (for projects under Tier 2 appeal) more workable. While a technical fix, by tweaking how pending bids are submitted and processed, AR8 aims to manage appeals in parallel without derailing the main auction.

Taken together, these efficiency improvements should benefit participants by shortening CfD round timelines and reducing legal/administrative overheads. One area of ongoing attention will be how these changes are implemented in practice – ensuring NESO and Ofgem have clear guidance to exercise new powers fairly, and balancing speed with due process (particularly if an error correction pauses part of the auction).

Preventing CfD Start Delays – Stronger Unilateral Commercial Operations Notice Measures

In response to some generators seeking to exploit high market prices by delaying their CfD start, the AR8 Consultation proposes tougher contractual rules to prevent deferred start dates, especially for distribution-connected projects. Under the Unilateral Commercial Operations Notice (“UCON”) mechanism (which has existed since AR5), LCCC can force a project to commence its CfD if it is deemed operational, such that the generator cannot simply obtain merchant revenues while postponing CfD payments that may be payable to LCCC. However, LCCC has found that the progress of distribution-connected generators has been harder to monitor in real time due to a lack of visibility of their metering data. Proposed changes for AR8 will give the LCCC rights to near real-time metering data from distribution projects. This would be achieved by extending the generators’ metering access and information obligations such that LCCC’s rights begin as soon as meters are installed, rather than only from the CfD Start Date, and by requiring generators to provide data and access on request.

Where a generator fails to provide metering data or access, the LCCC would be entitled to assume that the UCON trigger conditions have been met and to issue a UCON accordingly, removing the ability to delay CfD commencement by withholding information. Additionally, if a generator withholds data, the CfD contract will allow default interest to be charged on any owed repayments once the data is sorted, introducing a financial penalty to deter generators from stalling the process.

Grid Connection Eligibility – Excluding “Gate 1” Projects

Aligning with NESO’s Connections Reform Process and the new Gate 2 to Whole Queue (“G2TWQ”) process^[3], the AR8 Consultation proposes that in order to apply for AR8, a project must hold a “Gate 2” connection agreement. If a project only has Gate 1 status (i.e. an “indicative only” connection offer with no confirmed connection point or connection date, which it will have received if it did not meet NESO’s readiness or strategic alignment criteria in the Q2TWQ process), it will be excluded at qualification stage. This requirement would apply equally to transmission and distribution-connected projects.

Auction Process Changes – Sealed Bids and Competition Rules

• Visibility of Sealed Bids: In AR7, the Secretary of State was permitted to view anonymised sealed bid data for fixed-bottom offshore wind before finalising the auction budget. This was a controversial but targeted step to allow more informed budget-setting by Government in the face of uncertain costs for the market. The AR8 Consultation is considering retaining this visibility for offshore wind and, potentially, extending it to other technologies (with no further information as to which technologies might be included).
• Limiting Multiple Bids: The AR8 Consultation proposes limiting bidders to one sealed bid per project for technologies where the Government has visibility of bids. This builds on the approach taken in AR7, where fixed offshore wind developers were already restricted to a single bid, reflecting the fact that Government budget-setting could render multiple bid strategies ineffective. AR8 may formalise this approach: if the Government has visibility of the bid stack and can set or adjust budgets accordingly, there is limited rationale for bidders to submit alternative bids. This cap would not apply to technologies without bid visibility.
• Removal of Default Bids: Another important proposed change is abolishing “default bids.” Currently, if a qualified project fails to submit a bid during the auction window, it is deemed to bid at a price equal to the Administrative Strike Price (the maximum price). These default bids are rarely successful and can complicate the issue of tie-breaking between bids. The Government now proposes that from, any project that does not actively submit a bid will be treated as withdrawn, disqualifying passive participants.

Minor Contract Tweaks – Inflation Index and Insider Information

Finally, the AR8 Consultation lists some technical contract amendments to keep CfD terms up to date:

• Indexation Update: The AR8 Consultation sets out a move to a the full-year 2024 Consumer Price Index (“CPI”) average for inflation adjustments, rather than a single month’s figure. This change provides a more stable and accurate baseline for annual strike price updates, bringing the CfD approach closer to the long-standing methodology used under the Renewables Obligation scheme, which also relies on annual CPI averages, and is therefore expected to have minimal impact on project economics.
• “Inside Information” Definition: Proposals update the definition of “inside information” to align with the UK Market Abuse Regulation, expanding it to cover material information about financial instruments or commodities linked to the generator. This change affects listed companies, with no practical impact on most projects or their revenues.

These minor tweaks underscore the ongoing maintenance of the CfD framework.

Commentary

On balance, the proposals set out in the AR8 Consultation signal a more flexible yet disciplined regime, seeking to ensure it remains fit for purpose. Several proposals have direct financing implications. Extended commissioning windows, lower Required Installed Capacity thresholds and tighter CfD start rules reduce delivery risk and improve certainty over the timing of CfD payments, while the permanent restriction on rebidding surrendered capacity signals a stricter approach to auction discipline.

The changes proposed for floating offshore wind are particularly notable in light of AR7. By aligning key contractual parameters for FLOW more closely with those applicable to fixed-bottom offshore wind, the Government appears to be responding to the increased scale and complexity of upcoming projects. These reforms may therefore be especially welcome for developers whose projects did not secure support in AR7 but are expected to re-enter the pipeline for AR8 under a more appropriate risk allocation.

However, the interaction with the process connection reform should continue to be monitored: excluding Gate 1 projects makes sense in principle, but the timing of grid offer updates and CfD applications will have to be managed closely to avoid inadvertently excluding projects that could be viable.

The Government has published updated drafts of the CfD Agreement, the CfD Standard Terms and Conditions and the CfD Agreement (Apportioned) Phase 1, setting out how the underlying contracts would be amended should the proposals put forward in the AR8 Consultation be adopted.

^[1] See UK government publishes key AR7 documents and final response to consultation.

^[2] See DESNZ consults on regulatory reform to the Clean Industry Bonus scheme

^[3] See our LawNow TMO4 plus ça change? Winter update on the “TMO4++” and wider electricity connection and network reforms in the Great Britain electricity market for more information