🇬🇧 UK Reforms CfD Scheme: Renewable Energy Contracts Extended to 20 Years

The UK government has announced a significant update to its Contracts for Difference (CfD) scheme, extending contract lengths from 15 years to 20 years. This change will take effect from Allocation Round 7 (AR7), beginning in August 2025, and will cover key technologies including solar, onshore wind, offshore wind, and floating offshore wind.

Why the change?

The CfD scheme is designed to offer developers a stable, fixed price for the electricity they generate. By extending contracts to 20 years, the government aims to lower the cost of capital for renewable developers, with the expectation that these savings will translate into lower costs for consumers.

The Department for Energy Security and Net Zero has emphasised that longer-term contracts will provide greater certainty and help developers recoup the significant upfront investment required for renewable infrastructure—critical as the UK seeks to meet growing electricity demand and progress towards its Clean Power 2030 targets.

Industry response and evolving market conditions

The extension follows extensive consultation and feedback from industry stakeholders, many of whom argued that 15-year contracts no longer reflect the realities of today’s market. Rising interest rates, greater exposure to negative pricing, and more volatile power markets have heightened risks for developers, prompting calls for longer contracts to spread these risks over a longer horizon.

Importantly, the payment indexation mechanism, tied to the Consumer Price Index (CPI), will remain unchanged, providing continued inflation protection.

Potential challenges ahead

While the reform is intended to incentivise investment, critics caution that longer contracts may inadvertently lock consumers into payments that could exceed future market prices. If wholesale electricity prices decline significantly after year 15, consumers could face higher-than-market costs during the final five years of the contract.

Additional AR7 reforms…

AR7 will also introduce other important reforms, including:

• Dedicated budgets for floating offshore wind projects to support innovation in emerging technologies
• Extended commissioning windows for solar PV projects
• Allowing offshore wind bidders to participate without full planning consent, provided they have at least 12 months of planning history

Overall, these changes reflect the government’s intention to balance investment risk and reward, accelerate project delivery, and ensure the UK’s renewable energy ambitions remain on track.