Contracts for Difference (CfD)
A government scheme to support renewable energy generation. The generator receives a fixed 'strike price' for electricity — if the market price is lower, the government pays the difference; if higher, the generator pays back.
Independent editorial summary — not the official statute text. Read the official version on legislation.gov.uk.
A Contract for Difference (CfD) is a private law contract between a low carbon electricity generator and the Low Carbon Contracts Company (LCCC), a government-owned company, rather than a contract directly with the government or a subsidy paid out of general taxation.
The mechanism works by fixing the price a generator receives regardless of what happens in the wholesale market. Developers are paid a flat indexed rate for the electricity they produce over a 15-year period: the difference between the 'strike price' (a price for electricity reflecting the cost of investing in a particular low carbon technology) and the 'reference price' (a measure of the average market price for electricity in the GB market). If the market (reference) price is below the strike price, the generator is topped up; if it rises above the strike price, the generator pays the difference back.
The Low Carbon Contracts Company (LCCC) is a private company owned by DESNZ, and its role is purely administrative and contractual: the LCCC is counterparty to the contracts awarded in CfD allocation rounds (auctions) and its primary role is to issue the contracts, manage them during the construction and delivery phase and make CfD payments — insulating the day-to-day running of the scheme from direct ministerial control.
Example
An offshore wind developer that wins a CfD at a strike price of £50/MWh will receive a top-up payment from LCCC whenever the market price falls below £50/MWh, and will pay LCCC the surplus whenever the market price rises above it.
Related terms
Official sources
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