Price Trends for Britain's Electricity CfDs

Here's a decade of price trends for Contracts for Difference: Solar PV, onshore wind, offshore wind, and some others. Have prices fallen?

Britain's subsidy scheme for low carbon electricity has been a spectacular success in establishing its renewable electricity industry and decarbonising the UK's electricity supply.

The current scheme, based on Contracts for Difference, also provides very transparent pricing, and the auction process has been going for ten years now, so there's enough information available to look at price trends over a decade.

Here I'll look at decadal price trends for Britain's big-three renewable energy technologies, solar PV; onshore wind and offshore wind, with a few more thrown in for good measure.

The Contracts for Difference Scheme

A Contract for Difference provides an electricity generator with a fixed price, the "strike price", for its electricity, reducing the generator's exposure to volatile market prices. If the market price is below the CfD strike price, the generator gets a top-up payment to match the strike price. If the market price is higher than the strike price, generators must pay back the difference.

The Contracts for Difference scheme [^cfd] is administered by the Low Carbon Contracts Company, which acts as the counterparty to the CfD contracts. It lists all awarded contracts on its website [^lccc].

Most Contracts for Difference are awarded in auctions called Allocation Rounds. These were originally held every two years, and are now held annually. There have been six Allocation Rounds so far, with the AR1 outcome announced in February 2015, and AR6 announced in September 2024. Allocation Round 7 is due near the end of 2025.

The strike price represents the actual payment the generator receives per MWh of low carbon power. The cost of CfDs is ultimately met by electricity consumers via levies imposed on electricity suppliers in the UK.

Most of the Contracts for Difference run for 15 years from the commissioning date (with some exceptions), after which the generator will get the market price for its electricity. The strike price is index-linked to the Consumer Price Index. This provides exceptionally strong protection from inflation, compared with CfDs in some other countries. The index-linked strike prices are most often expressed in 2012 money to present a common price baseline.

Negative prices for electricity are an emerging problem, and from Allocation Round 4 onwards CfD contracts don't make payments when day-ahead prices fall below zero:

FAQ: How are CfD payments affected during negative pricing periods?
>For projects that are awarded contracts in Allocation Round 4, CfD payments will not be made during periods where the intermittent market reference price is below £0/MWh.

This removes the perverse incentive to generate power when there is already excess supply driving prices negative.

CfD Price Trends

Thirteen generating technologies have been awarded Contracts for Difference in the UK, each with its own strike price for each Allocation Round and delivery year. I won't go through them all here, just the ones with the largest number of contracts awarded:

<table> <tr><th>Technology</th><th>Number of CfDs</th></tr> <tr><td>Solar PV</td><td align="center">212</td></tr> <tr><td>Onshore Wind</td><td align="center">71</td></tr> <tr><td>Offshore Wind</td><td align="center">62</td></tr> <tr><td>Tidal Stream</td><td align="center">21</td></tr> <tr><td>Remote Island Wind</td><td align="center">11</td></tr> </table>

I've also added Floating Offshore Wind, though it's in its infancy, because it's likely to grow fast in the near future, and the one nuclear project, which is among the largest single projects.

The technologies I've omitted are listed in the footnote a.

Solar PV

Solar PV prices have been falling sharply around the world, but that hasn't shown up in British CfD auctions, where the winning bids have stayed roughly flat at around £50/MWh over the last three auction rounds..

Solar PV CfD Auction outcomes are arranged by Allocation Round, then by delivery year within each Allocation Round.

The two projects awarded CfDs at £50/MWh in AR1 (a remarkably low bid at the time) withdrew from their contracts, and those solar farms did not get built.

Onshore Wind

The price trend for onshore wind shows an early price reduction followed by a flattening out near the £50/MWh mark:

Onshore wind CfD Auction outcomes are arranged by Allocation Round, then by delivery year within each Allocation Round.

Onshore wind technology had already reached a degree of maturity when the CfD scheme got going, so it's perhaps unsurprising that prices have flattened out.

Offshore Wind

Each country looks to its own natural geographical advantages for its renewable electricity mix. Some have hydro, some have sunshine, Britain has a vast expanse of windy North Sea. Offshore wind looks set to be the dominant generating technology for the UK, so its price evolution is rather critical to the UK's energy strategy.

The early CfD auctions saw rapidly falling prices, but things went wrong in Allocation Round 5:

Offshore Wind Auction outcomes are arranged by Allocation Round, then by delivery year within each Allocation Round. The "permitted reduction" contracts awarded in AR6 are listed as "AR6 PR".

The auction for Allocation Round 5 set the price cap for offshore wind at £44.00/MWh, which turned out to be too low. There were no bids at all for offshore wind in AR5. The era of falling prices had ended. Higher interest rates, and rising input costs meant CfD strike prices would have to rise.

Allocation Round 6 had additional "permitted reduction" bids (shown as "AR6 PR" in the chart), which allowed 25% of the project capacity from an already awarded AR4 Contract for Difference to be withdrawn and rebid into AR6 as a standalone project [^permred]. 1.6 GW of capacity was awarded by this route, with these projects getting a £16.88/MWh price rise over their earlier CfD award in AR4.

[^permred]:Accompanying Note to the Budget Notice for the Sixth Contracts for Difference Allocation Round, 2024, DESNZ, 6 March 2024.

Tidal Stream

Contracts for Difference for Tidal Stream technology were awarded in the last three Allocation Rounds, AR4–AR6.

The tidal stream capacity with CfDs is far smaller than the "big three" technologies listed above. Only 21 tidal stream projects have been awarded CfDs, with 122 MW of total capacity.

Tidal Stream CfD Auction outcomes are arranged by Allocation Round, then by delivery year within each Allocation Round.

Prices remain uncompetitively high, and haven't started falling yet.

Remote Island Wind

Remote Island Wind is a separate category in the CfD auction scheme to support non-mainland wind projects in the north of Scotland, in Orkney, Shetland and the Western Isles.

There are 11 Remote Island Wind projects funded by CfDs, with a total capacity of 1.1 GW.

Remote Island Wind Auction outcomes are arranged by Allocation Round, then by delivery year within each Allocation Round.

This category serves a specific geographically limited purpose, so long-term price evolution isn't really an issue here.

Floating Offshore Wind

Floating wind turbines will be needed if offshore wind is to expand into deeper water. It's early days for this technology, and only two projects have been awarded CfDs so far, the TwinHub Floating Offshore Wind Project (32 MW) demonstrator project and the large-scale Green Volt Offshore Windfarm (GV01) (400 MW), but this looks set to be the fastest growing generating technology in Britain over the coming years.

<table> <tr><th>Allocation Round and Delivery Year</th> <th>CfD Strike Price per MWh</th><th>Capacity (MW)</th></tr>

<caption> In 2012 prices, inflation linked</caption> </table>

Nuclear

There is only one nuclear power project with a CfD, so there's no price trend to find here, but I'll include it for context. The 3.2 GW Hinkley Point C nuclear power plant has a CfD strike price of £92.50/MWh (2012 prices) for 35 years, which will reduce to £89.50/MWh if the Sizewell C nuclear plant progresses to a Final Investment Decision.

If it proceeds (latest decision date is June 2025), Sizewell C will be financed under the Regulated Asset Base (RAB) funding scheme, rather than by a CfD.

Summing Up

Onshore wind prices have flattened out, perhaps unsurprisingly given the mature state of he technology. More surprisingly, solar PV has seen flat pricing over several auction rounds in the UK, even though global prices seem to be falling fast.

Offshore wind saw very rapid price falls over the first few auction rounds, as the technology matured. There also seem to have been some aggressively priced bids at marginally unprofitable strike prices, presumably to build market share in the North Sea. Rising interest rates and materials costs, leading to the failure of the AR5 auction round, have seen a switch to somewhat higher bid levels.

The auction for Allocation Round 7 will be held later in 2025.

Footnote

a I've omitted the following CfD technologies from this blog post: Geothermal; Biomass Conversion; Dedicated Biomass; Advanced Conversion Technology; Energy from Waste; Electrolytic Technology.

References

[^cfd]:Contracts for Difference, Collection, Department for Energy Security and Net Zero, 2024.

Contracts for Difference (CFD) Allocation Round One Outcome, DECC, 26 February 2015.

Contracts for Difference Second Allocation Round Results, BEIS, 11 September 2017.

Contracts for Difference Allocation Round 3 Results, BEIS, 11 October 2019.

Contracts for Difference Allocation Round 4 results, BEIS, 7 July 2022.

Contracts for Difference Allocation Round 5 results, DESNZ, 8 September 2023.

Contracts for Difference Allocation Round 6 results, DESNZ, 3 September 2024.

[^lccc]:Schemes Register, Low Carbon Contracts Company.