Fixing the price: government consults on Wholesale CfDs for existing low carbon generators

On 28 October 2026, the Department for Energy Security and Net Zero (“DESNZ”) issued a joint consultation with the Scottish Government on the design of a Wholesale Contract for Difference (“WCfD”) for existing low carbon generators, with responses due within six weeks, by 9 December 2026.

In this joint consultation, DESNZ and the Scottish Government set out further detail on proposals to move existing low carbon generators onto fixed-price contracts. These generators supply around a third of Great Britain's power today, and stakeholders have only a short window to influence the design. 

For owners, operators, investors and suppliers across the renewables and nuclear fleet, the proposals raise immediate questions about revenue certainty, participation strategy and how legacy assets will be treated as Renewables Obligation (“RO”) support begins to fall away from March 2027.

This briefing sets out what is proposed, what remains undecided, the related consultations and market reforms running alongside it, and the practical steps clients should be taking at each stage between now and contract start.

Background

Wholesale electricity prices in Great Britain remain heavily influenced by the price of gas. Under the marginal pricing system that governs the day-ahead and intraday markets, the clearing price is set by the most expensive generator required to meet demand, which in practice is frequently gas-fired generation. High international gas prices therefore continue to feed through to consumer bills even as the low carbon share of the system grows. The government estimates that gas set the marginal price around 90% of the time in the early 2020s, a figure that has already fallen by about a third and could reach roughly half the time by the early 2030s. The 2022/23 gas price shock drove the average annual Intermittent Market Reference Price (“IMRP”) to around £190/MWh and pushed the energy price cap up by over £1,300 for a typical household.

A significant proportion of existing low carbon generation still earns revenues linked to those gas-driven wholesale prices, so accelerating deployment alone will not remove consumer exposure in the near term. In April 2026 the government announced that it would explore measures to reduce consumer exposure to gas price volatility, and the WCfD is the main proposal. The WCfD would offer eligible generators a fixed price for the wholesale component of their revenues, replacing variable wholesale market income. It is based on the existing Contract for Difference (“CfD”) regime established under the Energy Act 2013, and the government intends to follow much of that framework closely while making changes where needed. For RO-accredited assets, the lead proposal is that the WCfD would apply only to wholesale revenues and would neither replace nor extend existing RO support, which remains a separate variable subsidy.

Key dates and next steps

The proposals are at an early stage, and several decisions and related processes need to happen before any WCfD payments begin. On the government's current assumptions, the key milestones are:

Analysis

The WCfD is a two-way revenue swap. Payments between the generator and the scheme counterparty adjust for the difference between the strike price and the applicable wholesale market reference price: where the reference price is lower, the generator receives a top-up, and where it is higher, the generator pays back the difference. Participation would be voluntary, and the government has stated that contracts would be awarded only where they represent clear value for money for consumers. The primary objective is to reduce consumer exposure to wholesale gas price volatility; any support for the life extension of assets is described as a secondary benefit only.

On eligibility, the government is minded to require that an asset be operational at the point of application, located in Great Britain, and not already supported by a CfD or Regulated Asset Base model. It proposes to include most renewable technologies, including solar photovoltaic, onshore and offshore wind, floating offshore wind, remote island wind, run-of-river hydro, tidal stream, wave and geothermal. It is minded to exclude fuel-based technologies such as dedicated biomass, energy from waste and anaerobic digestion, large-scale biomass above 100MW, electricity storage and hybrid technologies, while seeking views on the inclusion of merchant generators, landfill gas and legacy nuclear. 

On an upper estimate covering RO and merchant (but not nuclear) capacity, around 33.2GW could participate in the allocation process with no minimum threshold, falling to 29.8GW at a greater-than-5MW threshold and 26.9GW at a greater-than-10MW threshold. The government expects the capacity eventually awarded to be lower, as contracts will be allocated competitively subject to a consumer value test.

The government's minded-to position is to allocate WCfDs to most generators through a one-off auction using a process similar to the standard CfD allocation rounds, with legacy nuclear a possible exception. As in previous rounds, it is considering a sealed-bid, pay-as-clear (rather than pay-as-bid) design, under which all successful bidders receive the clearing price set by the marginal successful project, and may again divide the auction into pots. The budget-setting approach builds on recent reforms: in Allocation Rounds 7 and 8, the Secretary of State has had the option, in certain pots, to view anonymised information about bids that did not fit within the published budget and, with HM Treasury approval, increase the budget where those bids represent value for money. Rather than publishing Administrative Strike Prices and budgets before the auction, as in all rounds to date, the government is considering withholding either or both, so that the Secretary of State can view the anonymised bid stack and determine each pot's budget, and therefore how much of the bid stack to purchase. If that approach is adopted, applicants would be limited to a single sealed bid, with no flexible bids. 

The government expects to publish a WCfD Allocation Framework and run the round towards the end of 2027, separately from the main CfD Allocation Rounds, following the standard round process of application, qualification checks, reviews and appeals, and sealed bidding, which usually takes five to six months.

The table below summarises the principal commercial design parameter proposals and the government's current position on each.

The revenue streams can be summarised as follows:

Funding would follow the standard CfD model, through the Supplier Obligation levy on licensed suppliers, which is ultimately recovered through consumer bills. The consultation acknowledges that moving large volumes of generation onto fixed prices could have wider market consequences. Many of these issues have already been explored for the standard CfD through the Review of Electricity Market Arrangements (“REMA”) and the Reformed National Pricing (“RNP”) programme.

In addition to the design of the Wholsale CfD, the consultation also discusses three other key areas:

Negative pricing and intraday bidding. The working assumption is that the standard CfD negative pricing rule applies, withholding payments when the day-ahead-based IMRP is below zero. This may push WCfD generators to bid around zero at day ahead, as many CfD generators already do. The government also recognises that the rule does not cover negative prices in the intraday market. A generator without a day-ahead position can offer its output intraday at a negative price, still receive difference payments on its metered output, and keep the margin between the two. Positions may also be traded intraday between generators with different strike prices, distorting the merit order. A WCfD could increase the volume offered at negative intraday prices, in effect subsidising storage, flexible demand and interconnectors to consume more. If the rule were extended to intraday, the same behaviour could move into the Balancing Mechanism (“BM”) or imbalance trading. RO assets holding a WCfD may also bid differently from standard CfD assets, and the government is seeking evidence on how far trading behaviour would change.

Forward market liquidity and supplier risk. Because the reference price is based on day-ahead prices, WCfD generators would be incentivised to trade at day ahead to avoid basis risk. That may discourage them from entering long-term power purchase agreements (“PPAs”). Depending on take-up, this could reduce forward market liquidity for suppliers and businesses seeking to hedge. It could also affect battery projects whose debt financing relies on tolling agreements or revenue floors contracted in forward markets. Moving existing generators onto a WCfD would also pass their volume and price risk to suppliers through the levy. Suppliers already face uncertainty over levy costs when setting tariffs, and the CfD gives them only an imperfect natural hedge, since volume risk is hard to hedge. That uncertainty could feed into risk premia and higher consumer costs. The government is asking for evidence on whether the WCfD would reduce liquidity beyond the effect of growing renewables deployment generally, and on the hedged positions of RO, merchant and CfD generators.

Constraints, BM pricing and the merit order. When the transmission network is constrained, the National Energy System Operator turns generators down through the BM, broadly in price merit order. A WCfD generator would factor its top-up or payback into its BM bid, shifting that bid by the difference between its strike price and the wholesale price. When wholesale prices are above the strike price, constraint management becomes cheaper; when they are below it, as the government expects on average over time, it becomes more expensive. This subsidy-related opportunity cost could mean turn-downs are not taken in consumer cost order, raising balancing costs and distorting wider market signals. Balancing and Settlement Code modification P462, which proposes removing subsidies from BM bid prices, would address this, so the WCfD's impact depends on whether and when P462 applies to WCfD payments. The government is seeking evidence on whether higher constraint payments would be a genuine increase in system costs or mainly a transfer between WCfD support and balancing costs.

The consultation also flags that levy recovery tends to make suppliers' costs highest on windy, low-price days, muting time-of-use signals and weakening the case for consumer-led flexibility. It asks whether WCfD design features or wider reforms, such as P462, RNP or changes to cost recovery outside the WCfD, could mitigate the impacts respondents consider most significant.

In addition to the WCfD, the government has announced that the Electricity Generator Levy (“EGL”) rate will increase from 45% to 55% and that the levy will be extended beyond its previously scheduled 2028 end date for the duration of the longest WCfD contracts. As with other CfDs, a generator securing a WCfD would not be subject to the EGL for the length of its contract.

The consultation also seeks views on an extended “hybrid” option for RO generators. Under this voluntary extension, a participating generator could exchange both its wholesale revenues and its remaining RO revenues for payments under a single private law contract. The RO element would be paid at a fixed price, discounted against expected RO revenues, to reflect the value of receiving it under a contract with the same protections as a CfD rather than through the certificate market. 

Unlike the Voluntary CfD (“Pot Zero”) model, which the government assessed as highly challenging to deliver and has not taken forward, the two revenue streams would stay separate rather than being combined into a single strike price. The RO payments would also end on the date the generator’s RO support would have ended, so the hybrid would not extend support beyond the original RO period. The government is cautious about the hybrid. It accepts that the discount could save consumers money, but considers that the hybrid would add significant complexity and could delay the WCfD. It therefore wants clear evidence that the benefits outweigh those costs. Timing is a further issue. Until the planned Fixed-Price Certificate (“FPC”) system is in place, generators would have no clear benchmark for judging a discounted offer, and moving generators out of the RO early could reduce liquidity in the ROC market. Delivering the hybrid alongside the FPC system would address both points, but would delay any savings and make each scheme dependent on the other. The government has not yet decided whether the discount would be set through a separate competitive process or fixed administratively. For RO generators and their lenders, the hybrid would give greater certainty over the remaining RO revenues. In return, they would need to weigh the size of the discount, the loss of any upside from ROC prices and the effect of the transfer on existing financing arrangements. The consultation asks RO generators directly whether they would accept a material discount on their RO payments in exchange for a hybrid contract.

The government anticipates amendments to the CfD secondary legislation, including the Allocation Regulations, the Eligible Generator Regulations and the Standard Terms Regulations, together with changes to the Renewables Obligation Order 2015, the Electricity Capacity Regulations and Capacity Market Rules, and, in Scotland, the Renewables Obligation (Scotland) Order 2009.

The WCfD sits within a wider set of consultations and reforms that respondents will need to read together. These include the forthcoming consultation on the post-March 2028 design of the EGL, which will be shaped by the final WCfD structure; the planned consultation on Fixed-Price Certificates for the RO; a later consultation on detailed WCfD contract terms; and Elexon's P462 modification on BM bid prices. The government also says the design and timing of the WCfD should take account of the Clean Power Mission, the Strategic Spatial Energy Plan and RNP's siting and investment levers. 

Implications

For existing RO and merchant generators, the WCfD offers an opportunity to lock in revenue certainty. This may be attractive for generators approaching the end of RO support (from March 2027), or those with ageing equipment or rising operating costs, where uncertain wholesale revenues make commercial decisions harder to justify. The government expects bids to be lower than wholesale price expectations, reflecting the value of revenue certainty to bidders, so bid strategy will depend on each asset's own view of future wholesale prices and remaining life.

If the Administrative Strike Price and budget are not published, bidders will lose that pricing backstop and will need to bid their actual minimum acceptable price without a visible ceiling. The proposed single-bid, no-chunking, no-capacity-reduction design reduces strategic flexibility and means that commitments made at bid stage must be honoured. The consultation acknowledges that generators holding Capacity Agreements face a particular timing problem, as current rules prevent holding both a Capacity Agreement and an auction-allocated CfD, and the existing 16-month termination notice may not align with WCfD start dates unless amended.

Investors and lenders will want to understand how fixed-term WCfD revenues, the narrow exit provisions and the indexation choice interact with existing financing, PPAs and hedging arrangements. They will also need to consider how the EGL exemption attached to a WCfD affects the overall commercial picture.

Recommendations

Before 9 December 2026. While the proposals are still being developed, sponsors with potentially eligible assets should map their portfolio against the proposed eligibility criteria and the two candidate capacity thresholds, identifying which sites qualify and where the greater-than-5MW or greater-than-10MW cut-off would be decisive. The government wants to understand how the scheme design will affect uptake and which parameters drive this. Generators should model the revenue swap against their own wholesale price expectations and remaining asset life to form a view on contract length, indexation and whether participation is attractive, recognising that the auction is designed to reward competitive bids. Those with evidence on trading behaviour, hedging, PPA appetite or constraint exposure should consider including it in their responses, as the government has asked for quantitative data on these market impacts.

During 2027, ahead of the allocation round. Those holding Capacity Agreements, PPAs or hedges should assess how the assumed 2028 contract award, the subsequent payment start and any start-date flexibility would interact with existing commitments, or future commitments being considered, flagging any timing issues in responses. Capacity Agreement holders should watch the current 16-month transfer notice deadline closely. Generators should also scope any metering upgrades needed to meet CfD standards, and follow the Fixed-Price Certificate, EGL and contract terms consultations as they emerge. 

At award and contract start. Successful bidders will need to sign within a short window, honour the capacity they bid, and have metering and settlement arrangements in place before payments begin. 

Comment and how we can help

As the WCfD is based on the existing CfD regime, investors and lenders will already be familiar with much of its structure and documentation, which should help when assessing bankability. However, the differences from the standard CfD, including the shorter fixed terms, limited exit rights, the open indexation question and the possibility that the Administrative Strike Price and budget will not be published, will change the risk allocation between generators, the counterparty and consumers, and will need particularly careful consideration in any financing or investment analysis.

The WCfD is still at consultation stage, and the detail that will determine its commercial value, from eligibility and allocation to indexation, exit and the Capacity Market interface, remains open for input. We are advising generators, investors and suppliers on eligibility analysis, bid strategy, the interaction with existing commercial arrangements and the preparation of consultation responses. If you would like to discuss how the proposals could affect your assets or portfolio, please get in touch with any of the authors or your usual CMS contact.