Reforms to the Contracts for Difference (CfD) process for the upcoming UK allocation round announced by DESNZ, signifying a shift in energy policies.

Reforms to the Contracts for Difference (CfD) process for the upcoming UK allocation round announced by DESNZ, signifying a shift in energy policies.

The UK Department for Energy Security and Net Zero (DESNZ) has unveiled a series of significant reforms to the Contracts for Difference (CfD) process for Allocation Round 7 (AR7), aiming to accelerate the deployment of renewable energy and meet the country's ambitious Clean Power 2030 (CP30) targets.

One of the key changes is the relaxation of eligibility criteria for fixed-bottom offshore wind projects, allowing those without full planning consent to participate. This move recognises the long lead-in times of more than a decade for such projects and is intended to speed up deployment to meet 2030 renewable goals[1]. To mitigate risks from unconsented projects failing to obtain planning permission, these projects must reach an intermediate milestone in the planning process by a specified cut-off date, with evidence of progress[1].

The government will replace the traditional monetary budget for the auction with a "capacity ambition," giving the Secretary of State flexibility to set the final budget to maximize contracted offshore wind capacity. This shift aims to secure record volumes of offshore wind needed for CP30[5]. The contract length is proposed to be extended from the current 15 years to either 20 or 25 years, which is expected to reduce strike prices and ease pressure on consumer energy bills[5].

AR7 will maintain support for innovation in floating offshore wind and tidal technologies, and efforts are ongoing to enable co-location and hybrid metering to facilitate more integrated renewable projects[3]. Following stakeholder feedback, amendments to CfD Standard Terms and Conditions are being consulted on to formalize these changes and ensure smooth implementation for AR7[1][3].

The AR7 application window is scheduled to open in August 2025, with results expected by early 2026[2][4]. These reforms are designed to enhance investor confidence, accelerate renewable deployment, and help the UK meet its ambitious Clean Power 2030 targets.

In addition, the government has launched a call for evidence on a proposal to mandate solar canopies on new outdoor car parks and explore potential deployment on existing car parks above a certain size. This move is linked to the Clean Power Action Plan, which suggests at least 45GW of solar energy capacity will be required to meet the UK's 2030 ambitions[6].

The government has also published its response to the Capacity Market consultation, considering proposals to support security of supply while incentivizing decarbonization. Moreover, a portion of the AR7 budget will be kept for floating offshore wind projects to support their development[7].

The UK will maintain approximately 35GW of unabated gas reserve capacity to ensure security of supply until 2030. From 2026, new or substantially refurbished combustion plants will be required to provide credible plans to either convert to hydrogen to power or CCUS[8].

DESNZ intends to allow a contract budget notice (CBN) to be published later in the allocation round process and will allow the secretary of state to request anonymised bid information from the National Energy System Operator (NESO) across all technologies[9]. The final budget notice for the AR7 CIB is £20.1 million per gigawatt of capacity applying for a CIB, amounting to a total budget of over £544 million.

DESNZ has commissioned Cambridge Economics Power Associates and global consultancy GHD to assess the costs of extending the life of existing unabated gas plants. The Clean Power Action Plan outlines a significant shift in the role of unabated gas, transitioning from regular daily use to a strategic reserve role[10].

These comprehensive reforms mark a pivotal moment in increasing the scale and pace of clean energy investment in the UK, particularly offshore wind, which is central to the government’s clean energy strategy[5].

The proposed changes in the Contracts for Difference (CfD) process for Allocation Round 7 (AR7) not only aim to support innovation in floating offshore wind and tidal technologies but also extend to finance, with the government replacing the traditional monetary budget for the auction with a "capacity ambition" to invest more in offshore wind projects [5]. Furthermore, the energy sector will see a shift in the role of unabated gas, transitioning from regular daily use to a strategic reserve role, signifying a significant change in the finance and energy landscape of the UK [10].

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