CFD Scheme

The Contracts for Difference (CfDs) is intended to provide long-term revenue stabilisation to low-carbon Generators, allowing investment to come forward at a lower cost of capital and therefore at a lower cost to consumers.

CfDs will support new investment in all forms of low-carbon generation (renewables, nuclear power and Carbon Capture and Storage) and have been designed to provide efficient and cost-effective revenue stabilisation for new generation, by reducing exposure to the volatile wholesale electricity price. CfDs require Generators to sell energy into the market as usual but, to reduce this exposure to electricity prices, CfDs provide a variable top-up from the market price to a pre-agreed ‘strike price’.

At times of high market prices, these payments reverse and the Generator is required to pay back the difference between the market price and the strike price thus protecting consumers from overpayment.

The CfD will be implemented through a bilateral contract between the Generator and the Low Carbon Contracts Company.

CfDs will be available to a wide range of low-carbon technologies, supporting investment in established and emerging technologies, and encouraging competition between these technologies as we make the transition to a low-carbon generation mix. This investment will make a valuable contribution to the UK economy: providing jobs; developing skills and supporting the development of local supply chains.