Contracts for Difference (CfD): the UK’s renewable energy support scheme explained

Contracts for Difference (CfD) is a government scheme designed to support the development of renewable energy capacity in the UK. Here’s what you need to know.

What’s the point of the Contracts for Difference scheme?

Contracts for Difference was created because the UK government wants to support private investment in renewable energy capacity. Developers of generation projects have to make a significant capital investment, without knowing what will happen to energy prices over the lifetime of the asset. Contracts for Difference lets the UK government remove some of the risk for investors by guaranteeing a known price for the energy they will be selling.  

This agreed price also means that the energy from the generation asset won’t get too expensive if wholesale prices soar. So the Contracts for Difference set-up protects UK energy users as well as developers.

How does Contracts for Difference work?

• Renewable generation projects compete against each other to be chosen for contracts, in what’s known as an Allocation Round (AR).
• Successful developers sign contracts agreeing to sell their energy at a specific price.
• Once a renewable generator is up and running, they send electricity to the grid and get paid for it.

Allocation Rounds

In each allocation round, multiple developers submit bids for contracts. As well as showing they meet the eligibility criteria, they also need to say how big the project is and what year it will be up and running. But the most important part of the bid is the price they intend to charge for their electricity.

The most important part of a developer’s bid is the price they intend to charge for their electricity – the strike price

The price per MWh is known as the strike price. The government awards each contract to the bidder with the lowest strike price. It’s a sealed bid system, so developers don’t know what their competitors are planning to charge. But all bids have to stay below a certain maximum, set by the government. (This cap is sometimes called the Administrative Strike Price, or ASP.)

The contract that developers sign isn’t directly with the government, but with a government-owned organisation called the Low Carbon Contracts Company (LCCC).

Why is there a Contracts for Difference charge on my energy bill?

The Contracts for Difference charge on your bill goes towards making top-up payments to generators. Top-up payments cover the difference if the wholesale market price of energy goes below the agreed strike price in the contract. This ensures that CfD generators get paid the same per unit of electricity, no matter what happens on the energy markets.

The CfD levy is one of a number of non-commodity costs that make up over half the typical business electricity bill. (There are exemptions from green levies for energy-intensive businesses if they meet the criteria, but most businesses in the UK pay them.)

How long does a Contract for Difference last?

Since 2025, each new Contract for Difference is signed for 20 years. The original duration at the start of the scheme was 15 years. But the government extended it to 20 for the seventh Allocation Round, which kicked off in summer 2025. The longer contract is intended to give developers of renewable projects a greater guaranteed return, reducing the financial risk to them and making CfD more attractive to bidders.

Is CfD working?

The government says that CfD is its “main mechanism for supporting low carbon electricity generation”. Around 15% of GB’s electricity comes from infrastructure built through the Contracts for Difference scheme. That’s around half of the power we get from generators built under the older Renewables Obligation (RO) scheme: around 30%. But the balance will shift as the older RO generators get decommissioned and CfD expands. RO used to offer a subsidy on top of the market price, so CfD is better value for the taxpayer.

CfD is definitely serving its purpose of expanding renewable capacity for the GB grid, ultimately bringing bills down. Whether it’s working perfectly is another question. We expect government to keep tweaking the system as time goes on – like the introduction of Sustainable Industry Rewards (SIRs) after consultation in 2023.

Contracts for Difference FAQs

What is the Low Carbon Contracts Company?

The LCCC is the body operating the Contracts for Difference scheme – and that is its only job. Although the LCCC is owned by the Department for Energy Security and Net Zero (DESNZ), it works independently from any government department. It’s also separate from regulator Ofgem. Creating the LCCC as a dedicated, independent body was intended to boost confidence in the CfD scheme.

How long has the CfD scheme been running?

The CfD scheme has been running since 2014. Allocation Round 1 took place between October 2014 and March 2015.

How often do Allocation Rounds happen?

At the outset, Allocation Rounds were every two years. Now they’re every year. The application window for Allocation Round 8 opens on 20 July 2026 and closes on 7 August 2026.

How long does an Allocation Round take?

The actual bidding window is usually only around a week. But the whole process takes months, because it has to allow time for steps such as:

• Publishing guidance for bidders
• Publishing statutory notices
• Assessing the eligibility of bidders
• Allowing applicants to appeal if they don’t qualify

There is a draft timeline for each Allocation Round, which gets adjusted depending on how quickly or slowly things are going.

For the latest changes introduced in Allocation Round 8, read our dedicated AR8 update.