UK government proposes longer CfD contracts, wider commissioning window for solar PV

Consultation ahead of seventh Contracts for Difference (CfD) allocation round proposes longer contract lengths in a bid to reduce strike prices and lower cost of finance for renewables projects. A wider target commissioning window for solar projects is also proposed, in response to larger capacity plants in the pipeline.

The UK government has proposed increasing the term of Contract for Difference (CfD) contracts in its next allocation round, and lengthening the commissioning window that solar developers must propose in their application.

First floated as part of its Clean Power 2030 plan unveiled in December 2024, the government has now launched a consultation on CfD market reforms seeking views from industry stakeholders.

The CfD scheme currently supports more than 7 GW of new solar capacity and the government views it as a key mechanism for increasing deployment to achieve the 45-47 GW of total solar capacity targeted for 2030.

Proposals include increasing the CfD contract length, which is currently offered on a 15-year term. The government has argued offering longer CfD contracts could reduce the cost of financing renewable projects, and lower the strike price reached in the allocation round. This could result in lower energy bills for consumers, the government claims.

Solar PV, offshore wind and onshore wind in particular were identified as technologies that could see strike price reductions under extended CfD contract terms, due to the good understanding of project costs for these technologies.

Reasons for caution have also been outlined, and the UK government has not settled on extending CfD contract lengths as a preferred option.

The impact of increasing CfD contract terms on wholesale market prices is not fully understood. Generators bidding into the wholesale electricity market at a lower price – backed by the knowledge their bid will be topped up to the CfD strike price – could depress wholesale market prices, often referred to as price cannibalization.

A better understanding of how changes to the CfD regime would interact with proposed energy market reforms is also needed. An ongoing Review of Electricity Market Arrangements (REMA) is expected to conclude in 2025, potentially reshaping Great Britain's wholesale electricity market. The REMA Autumn 2024 update committed to honoring future commitments made under the seventh CfD allocation round, however, the industry has warned a shift to a zonal pricing model – one of the potential REMA outcomes – could expose projects to pricing risk.

Other proposals include offering solar project developers more leeway on proposed commissioning dates in the next CfD allocation round.

Under current CfD rules, solar project developers must include a start date for a three-month Target Commissioning Window (TWC) in their allocation round submission. This must overlap with one of the delivery years offered during the CfD allocation round. While the majority of generating technologies eligible for CfD allocation have TWCs of 12 months, solar has a three-month window due to its relatively quick pace of commissioning compared to, for example, offshore wind.

However, the government acknowledged this could become a “potential barrier to deployment of solar.” This is mainly due to the increasing size of projects in the UK solar pipeline. While current arrangements are “working well” according to the UK government, it anticipates that the growing pipeline of larger projects, including several with capacity greater than 500 MW, means a longer commissioning window may be required.

In a statement, Frank Gordon, director of policy for the Renewable Energy Association, welcomed the proposals. He also suggested a proposal to remove planning consent requirements for offshore wind to be considered for other generating technologies.

Industry stakeholders have until Mar. 21, 2025, to submit their views on the UK government’s Cfd proposals. The seventh CfD allocation round is due to open in summer 2025.