Jul 16, 2025
The UK has lengthened renewable energy contracts to 20 years in its latest overhaul of Contracts for Difference (CfD).
The UK government has announced an extension of renewable energy contracts under the Contracts for Difference (CfD) scheme from 15 years to 20 years. This change, effective from Allocation Round 7 (AR7) starting in August 2025, will apply to solar, onshore wind, offshore wind, and floating offshore wind technologies.
The CfD scheme guarantees developers a fixed price for the electricity they produce, and the government believes that extending the contract length will reduce developers' costs of capital and ultimately benefit consumers. However, it remains uncertain whether these savings will actually occur.
The Department for Energy Security and Net Zero states that longer contracts will help offset the high initial costs of renewable infrastructure with more stable, long-term returns. The government believes this will facilitate the energy transition and support its Clean Power 2030 objectives, particularly as electricity demand increases in the coming years.
This decision comes after industry lobbying and extensive consultation, with many developers indicating that 15-year contracts no longer meet market demands due to fluctuating power prices, increasing interest rates, and greater risks from negative pricing.
Importantly, the government assures that the payment index, tied to the Consumer Price Index (CPI), will remain unchanged despite the contract extension.
Critics warn that extending the CfD contracts may serve as an indirect subsidy that could bind consumers to longer payment periods without guaranteeing better value. If wholesale electricity prices significantly drop after year 15, consumers might end up overpaying in the last five years of the contract.
In addition to the contract extension, the AR7 reforms include measures to support floating offshore wind projects with special budgets, a longer commissioning window for solar PV projects, and allowing offshore wind bidders to participate without full planning consent, just requiring a 12-month planning history.
Overall, AR7 aims to balance risk, returns, and regulatory requirements to expedite renewable energy projects. The outcome—whether it leads to significant growth or merely more bureaucratic processes—will depend on the competitiveness of developers during the bidding phase.
The CfD scheme guarantees developers a fixed price for the electricity they produce, and the government believes that extending the contract length will reduce developers' costs of capital and ultimately benefit consumers. However, it remains uncertain whether these savings will actually occur.
The Department for Energy Security and Net Zero states that longer contracts will help offset the high initial costs of renewable infrastructure with more stable, long-term returns. The government believes this will facilitate the energy transition and support its Clean Power 2030 objectives, particularly as electricity demand increases in the coming years.
This decision comes after industry lobbying and extensive consultation, with many developers indicating that 15-year contracts no longer meet market demands due to fluctuating power prices, increasing interest rates, and greater risks from negative pricing.
Importantly, the government assures that the payment index, tied to the Consumer Price Index (CPI), will remain unchanged despite the contract extension.
Critics warn that extending the CfD contracts may serve as an indirect subsidy that could bind consumers to longer payment periods without guaranteeing better value. If wholesale electricity prices significantly drop after year 15, consumers might end up overpaying in the last five years of the contract.
In addition to the contract extension, the AR7 reforms include measures to support floating offshore wind projects with special budgets, a longer commissioning window for solar PV projects, and allowing offshore wind bidders to participate without full planning consent, just requiring a 12-month planning history.
Overall, AR7 aims to balance risk, returns, and regulatory requirements to expedite renewable energy projects. The outcome—whether it leads to significant growth or merely more bureaucratic processes—will depend on the competitiveness of developers during the bidding phase.