UK Government consults on further reforms to the CfD scheme

On 21 February 2025, the Department for Energy, Security & Net Zero (“DESNZ”) published a consultation seeking views and supporting evidence on proposed further changes to the seventh Allocation Round (“AR7”) of the Contracts for Difference (“CfD”) scheme and long-term policy considerations concerning future CfD rounds (the “Consultation”). Our commentary on the previous CfD AR7 consultation and the Government response to this can be found here.

Consultation on the Future of the CfD Scheme

The Government's Clean Power 2030 Action Plan, published in December 2024, outlines the renewable deployment required to achieve the UK's goal of 95 per cent clean power by 2030. The Action Plan provides a roadmap detailing changes to the CfD scheme that could help meet these targets. The Consultation focuses on these proposed reforms for the AR7 CfD scheme, in the hope of achieving substantial renewable deployment while minimising costs to consumers.

The Consultation covers the following topics:

Support for Floating Offshore Wind

To ensure the UK remains a global leader in floating offshore wind, the Government plans to support multiple Test & Demonstration scale projects in AR7, with the appropriate budget and parameters. The Consultation does not propose any changes to reduce the Administrative Strike Price for floating offshore wind from the previous allocation round (adjusted for inflation to £245/MWh). DESNZ is seeking views on whether any additional measures are necessary to support the Government’s intention to back multiple Test & Demonstration scale floating offshore projects in AR7.

Relaxation of the CfD Eligibility Criteria

Fixed-bottom offshore wind projects often have development lead-in times of over a decade, which can result in fewer bidders in some allocation rounds. DESNZ is considering removing the requirement to obtain planning consent for fixed-bottom offshore wind projects to be eligible to apply for a CfD. This change would allow CfDs to be awarded earlier in the development cycle but potentially increase the risk that CfD awarded projects do not materialise, for example, if planning consent is not achieved.

Changes to the Eligibility Requirements

Under the proposed change, a new rule would be introduced into the Contract Allocation Framework allowing projects that have not yet received planning consent (“unconsented projects”) to apply for CfDs. To manage risks — such as early-stage bids being too low, potentially leading to non-delivery, or unconsented projects including higher risk premiums due to uncertainty — DESNZ proposes that projects must reach an intermediate stage in the consenting process before they can submit a CfD application.

The Consultation presents two possible options for when projects must reach the required stage in the planning process ("Consent Eligibility Date"):

• Proposal A (DESNZ preferred): CfD application deadline
• Proposal B: 13 December 2024 (when this change was first proposed in the 2030 Action Plan)

By the Consent Eligibility Date, projects in England and Wales would need to have their application for a Development Consent Order (“DCO”) accepted for examination by the Planning Inspectorate (applies only to the main generating station). Projects in Scotland would need to have applied to the Scottish Ministers for any required section 36 consent and marine licence(s) for the proposed generating station, with public consultation having commenced.

In either case, developers would need to submit evidence with their CfD application to the Delivery Body, proving they have reached the required stage in the planning process. The specific evidence required will be outlined in the CfD Allocation Framework before AR7. All other eligibility requirements would continue to apply.

Unconsented projects that are successful in the auction would still be required to sign a contract with the Low Carbon Contracts Company (“LCCC”), as with all successful CfD applications.

Changes to the CfD Standard Terms and Conditions

The CfD contract is currently designed for consented, ‘shovel-ready’ projects, with milestones that must be met, or contracts could be terminated, and generators may be excluded from future allocation rounds under the Non-Delivery Disincentive. As unconsented projects cannot commit to firm timelines, the Government proposes deferring certain milestones until planning consent is granted.

The Government also seeks views on whether unconsented projects should be able to exit the contract early without penalty if planning consent is not granted beyond a certain date. Additionally, flexibility could be provided to allow projects to adjust contracts to accommodate planning conditions, such as reducing contracted capacity or revising the description of their CfD facility.

The full terms of the CfD Agreement would apply once planning consent is granted, allowing developers to proceed with their projects.

Amending the Budget Publication Process

AR7 CfD Budget Amendments

The Government proposes to remove the requirement to publish a CfD Budget Notice at the start of the allocation round for all technologies. Instead, the CfD Budget Notice would be published after the allocation round has concluded. Prior to the allocation round opening, the Government will publish a capacity ambition and a forward schedule for future allocation rounds. Key parameters such as the Administrative Strike Prices and technology pots will still be made available before the opening of the allocation round as usual.

Expediting the Allocation Process for Fixed-Bottom Offshore Wind

Additionally, the Government is considering speeding up the allocation process for fixed-bottom offshore wind, if there are no appeals. This could involve a regulatory change to allow the Secretary of State to direct the Delivery Body to run part of the allocation process ahead of others, including conducting the fixed-bottom offshore wind auction if no Tier 1 appeals are made.

Removing Restrictions on Seeing Auction Information

For AR7, the Government proposes allowing the Secretary of State to request anonymised price-related information for fixed-bottom offshore wind, such as bid price and capacity, from the Delivery Body before setting the final budget. The sealed bid window will open for all technologies before the budget is published. After the Delivery Body verifies the bid data, the Secretary of State may review it to inform the final budget decision, which will then be communicated to the Delivery Body to run the auction. DESNZ does not intend to review anonymised bid information for other technologies before setting the budget.

The Government also proposes not to allow flexible bids for fixed-bottom offshore wind applications, as they would no longer serve a useful purpose if the Budget is set after reviewing anonymised bid information.

Increasing the Contract Term for Future CfD Projects

The Government is considering extending the current 15-year CfD term to ensure crucial renewable capacity is secured cost-effectively.

Potential Benefits and Challenges

• Reducing Cost of Capital & Project Costs: Longer contracts could enhance revenue certainty, lowering financing costs. However, industry views vary on the contract length required to significantly reduce costs.
• Lowering Strike Prices: Extending the term of CfD support could spread the required ‘top-up’ over a longer period, potentially reducing strike prices. However, insufficient reductions in strike prices could increase total costs for consumers.
• Short-to-Medium-Term Bill Reduction: A longer CfD term could reduce consumer bills from 2027 and 2028 when AR7 projects start generating. However, additional years of revenue support would raise consumer costs later in the contract period.

CfD strike prices are indexed for inflation via the Consumer Price Index (“CPI”), meaning a longer contract duration could shift inflation risk from generators to consumers. To balance risks, adjustments such as limiting inflation protection to 2% or introducing partial indexation for additional years may be considered.

The Government is consulting to assess whether extending the CfD duration benefits consumers. No preferred contract length is proposed at this stage; the final decision will be informed by consultation responses and further analysis. The Government is also seeking views on whether the extended contract duration should apply to all technologies.

Other Proposed Changes to the CfD Scheme

The Consultation also includes the following other proposals:

• Increasing the length of the Target Commissioning Window for Solar PV from 3 to 6 months.
• Temporarily removing the ability to apply surrendered capacity from previous allocation rounds into AR7, while reviewing the implications of this practice. A permanent policy will be introduced for AR8.
  • Developers can still reduce capacity under existing CfD rules, but they would not be able to bid for the surrendered capacity in AR7.
• Introducing stricter eligibility checks and documentary evidence requirements for CfD applicants in AR7:
  • Applicants must confirm their application is not excluded (i.e., does not contain surrendered CfD capacity).
  • They must provide additional evidence, if the new projects share planning consent, grid connection agreements, or leases (for offshore generators) with an existing CfD unit (to be specified in Schedule 5 of the Allocation Framework).
• The Government is also seeking views on how it intends to implement the policy decisions it made in its previous consultation response (our commentary here), in relation to repowering onshore wind and phased CfDs for floating offshore wind.
• The Government is consulting on the introduction of the minor and technical amendments to CfD contract terms it intends to make due to the establishment of NESO.
• Amending the CfD Private Network Agreement to exclude Clean Industry Bonus payments from being withheld when a generator fails to comply with specific conditions related to their status as a Private Network Generator.
• Making minor changes to CfD Regulations to enable the costs of the Clean Industry Bonus to be included in Ofgem’s price cap methodology.
• The Government is consulting on the potential impact on AR7 from wider risks around renewables, including the scale of change at domestic and international level.

Commentary

The Consultation closed on 21 March 2025. The Consultation reflects the Government's continued commitment to ensuring the CfD regime supports the UK's clean energy transition in a cost-effective manner. The proposed changes, including the relaxation of eligibility criteria for unconsented projects and the removal of the requirement to publish a CfD Budget Notice before the allocation round, suggest a shift towards greater flexibility in the CfD process to earlier CfD participation. This is intended ensure that the required capacity is delivered to meet GB’s net zero targets. Clearly as the UK pushes ahead on offshore wind development as its key net zero target, the ability to get such projects through the planning and CfD process is a key consideration going forward. Whether this, and potentially longer period of support, will encourage more projects to come forward is something to watch as the new CfD rounds open.