Contracts for Difference (CfD)
The Contracts for Difference (CfD) scheme is a key mechanism within the UK's energy strategy, aimed at incentivising investment in low-carbon electricity generation for consumers.
What is the goal?
The goal of CfDs is to provide financial stability to renewable energy developers by protecting them from fluctuations in the wholesale electricity market.
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.
CfDs are implemented through a bilateral contract between a generator and the Low Carbon Contracts Company (LCCC), ensuring a stable revenue stream for generators while supporting the UK's clean energy transition.
There is a dedicated website supported by all three delivery partners (DESNZ, LCCC and OFGEM) where allocation rounds are managed.