The Department for Energy Security and Net Zero (DESNZ) consultation on further reforms to the next Contracts for Difference (CfD) allocation round (AR7) closes on 21 March 2025.[1] This consultation represents a crucial opportunity for the energy industry and investors to shape the future of the CfD regime. Key proposals include relaxing eligibility requirements for offshore wind, shifting from budget-based allocations to capacity targets, extending CfD contract durations, and supporting repowering projects.
The Government’s Clean Power 2030 ambition is a key driver for the proposed changes. In this article, Brevia’s Energy team outlines some of the key issues under consideration, the potential impact on the industry, and the broader implications for the CfD mechanism.
Key considerations
1. A relaxation of eligibility requirements for fixed-bottom offshore wind
Currently, to be ‘eligible’ to bid into the CfD mechanism, a fixed-bottom offshore wind project needs to secure leasing from the Crown Estate, or Crown Estate Scotland, a grid offer, and have its planning consents in place.
The new proposal will allow projects to bid in prior to securing planning consent, provided the application has been submitted.
Securing planning consent can take upwards of two years. This change would expedite the amount of capacity competing for contracts in AR7, and it is hoped that competition will drive downward pressure on the strike price for offshore wind.
However, the move is controversial. It could lead to projects securing contracts that ultimately fail to receive the necessary consents for deployment, potentially preventing ‘shovel-ready’ projects from securing a CfD.
2. Capacity ambitions to replace budgets
One of the most significant changes being considered is for the Government to set capacity ambitions rather than budgets ahead of running the bidding process. The consultation is seeking views on how that may impact bidding behaviour and the importance of maintaining clear budgets for industry.
As part of this reform, DESNZ is proposing allowing the Secretary of State to access anonymised bid information for fixed-bottom offshore wind to inform final capacity procurement decision. This could help maximise CfD auction rounds and ensure viable projects do not miss out due to marginal budget overruns.
It remains unclear how capacity ambitions will work in practice, whether these will be aspirational or be mandatory procurement thresholds. There is also uncertainty as to whether there will be capacity ambitions for all technologies that qualify to bid into the CfD.
The introduction of capacity ambitions could however help provide a longer-term view of Government procurement intentions across multiple allocation rounds, rather than individual budgets. This, in theory, could go some way towards providing greater clarity for industry planning.
3. Extending contract term for future CfD projects
Another key proposal under consideration is extending CfD contract durations beyond the current 15 years, enhancing revenue stability for developers. The Government has not indicated a preferred option and will assess this based on a balance of value for money, affordability, investor confidence, and decarbonisation impact.
Extending contract length is attractive for two key reasons:
- It could boost investor confidence by providing clarity of the return from renewable projects.
- By spreading the cost over a longer period, it could reduce the strike price and reduce the cost on energy bills in the 2020s and 2030s.
Importantly, contract length extensions may not apply uniformly across all technologies. DESNZ has highlighted more established technologies, such as offshore wind, onshore wind, and solar PV, as stronger candidates for extension, with the expectation that longer contracts will drive down strike prices. For emerging technologies such as tidal stream, DESNZ anticipates that cost reductions will be achieved through other mechanisms rather than extended contract lengths.
4. Repowering on the table
The consultation proposes enabling CfD support for repowering onshore wind projects. This will enable projects seeking to modernise and upgrade their projects, for example by replacing older turbines with more efficient models, to bid for financial support. Applicant projects must be at the end of their operational lifespace, defined as 25 years, by the end of the applicable delivery year. However operators can begin replacing turbines before this period lapses.
These policies were initially outlined in October 2024, and the consultation now sets out how the policy will be implemented, providing much-needed clarity to developers.
5. Solar PV Target Commissioning Window
The solar industry currently faces a shorter Target Commissioning Window (TCW) compared to other technologies – three months compared versus 12 months for most. The TCW is a key stage in the timeline of a CfD project, representing the period whereby the generator is able to commission its project while maintaining the full value of its 15-year payment.
Solar projects were afforded a shorter TCW as they tend to have a shorter build time compared to other technologies. However, the solar industry has argued that the existing TCW poses challenges for large-scale solar projects (500MW or over), which face considerable delivery and supply chain considerations, alongside grid connection delays. This in turn presents an increased risk of projects failing to commission within the allotted time, subsequently receiving less subsidy on a daily basis.
In recognition of this potential risk presented to the growing number of large scale solar projects, DESNZ has proposed extending the TCW for solar to six months from AR7 onwards.
6. Temporary Removal of Capacity Surrendering
Currently, CfD generators are able to reduce their contracted capacity and later reallocate this into a subsequent allocation round. This has been allowed to provide sufficient flexibility to developers and to avoid a situation whereby a contract is terminated due to only a marginal shortfall in achieving expected installed capacity.
However, DESNZ is proposing to temporarily remove the capacity to surrender due to concerns that this could be incentivising generators to obtain a higher strike place in a subsequent allocation round. DESNZ will be reviewing the implications of this practice with a view to making an enduring decision ahead of AR8.
Actions for businesses
Business should assess how these proposed changes may impact their operations and investment strategies, particularly concerning eligibility criteria and contract duration.
Engaging with the consultation before 21 March 2025 is critical to shaping the final reforms and ensuring that industry concerns are adequately addressed. By staying informed and proactive, businesses can position themselves to capitalise on new opportunities within the evolving UK renewable energy landscape.
DESNZ is still seeking to open the AR7 bidding process this summer, alongside final decisions on the Review of Electricity Market Arrangements (REMA) and zonal pricing (see here for our Brevia explainer and latest state of play). Strategically engaging in the coming months will be critical for industry to shape the future of the UK energy system.
Brevia Energy is a dedicated division of Brevia Consulting, and has a longstanding reputation for its expertise and experience in the Energy Sector.
To organise a discussion with Brevia Energy on how we can help you and your organisation, please get in touch via the link here. You can also contact the Brevia Energy Team on 020 7091 1650 or email contact@brevia.co.uk
Notes
[1] Department for Energy, Security and Net Zero, ‘Further reforms to the Contracts for Difference scheme for Allocation Round 7’, 21 February 2025, Link
