Government announces the ‘biggest-ever’ round of Contracts for Difference scheme


£265 million per year will be provided to businesses in the fourth round of the Contracts for Difference (CfD) scheme, the Government’s primary method of encouraging investment in low-carbon electricity.

The new round aims to double the renewable electricity capacity secured in the previous round and generate more than the previous three rounds combined.

According to the Government, the additional offshore wind capacity resulting from the funding alone could power around 8 million homes.

Energy Minister Anne-Marie Trevelyan commented on the announcement: “The Contracts for Difference scheme has helped the UK become a world leader in clean electricity generation and lowered prices for consumers.

“The new plans set out today deliver on the Prime Minister’s Ten Point Plan and will support the next generation of renewable electricity projects needed to power our homes and meet our world-leading climate change targets.”

For the first time since 2015, established technologies, including onshore wind and solar, will also be able to bid.

The fourth allocation round is divided into three pots:

Pot 1: Established technologies (includes Onshore wind, Solar and Hydropower):

  • £10 million pot budget
  • Cap of 5GW on total capacity
  • Maximum capacity limits of 3.5GW imposed on both onshore wind and solar PV

Pot 2: Less-established technologies (includes Floating Offshore Wind, Tidal Stream, Geothermal and Wave):

  • £55 million pot budget
  • No capacity cap imposed
  • £24 million ringfenced support for floating offshore wind projects

Pot 3: Offshore wind:

  • £200 million pot budget
  • No capacity cap

Contracts for Difference are 15-year private law contracts between renewable electricity generators and the Low Carbon Contracts Company (LCCC), which manages CfDs at arm’s length from Government.

Contracts are awarded in a series of competitive auctions, known as allocation rounds, which have been run every two years since 2015. The lowest price bids are successful in the auction process.

The fourth allocation round of CfD is planned to open in December 2021.

The announcement has also been welcomed within the industry.

Dan McGrail, CEO of RenewableUK, commented: “Today’s announcement will encourage even greater investment in renewables and is a huge boost for the UK’s green recovery.

“We could see investment of over £20bn on the back of the next clean power auction, which will boost jobs and the UK supply chain, and cut costs for consumers in the transition to net zero.

“The sector had called on Government to increase the ambition for new renewable energy capacity at the upcoming auction and that is reflected in today’s announcement.

“In this round we want to see just how low the price of new solar and onshore wind has fallen in the past five years, and make sure that the auction does the heavy lifting to take us towards our 2030 target of 40GW offshore wind.

“There is a huge appetite for investment in floating offshore wind in the UK, it’s a technology that is vital for net zero and which has a truly global potential.

“The dedicated support for floating projects at the upcoming auction will help the UK to compete with the other countries vying for global leadership in this new technology.”

Alongside the Draft Budget Plan, the Government has also published:

More information about the CfD scheme can be found from the UK Government website.