Contract for Difference

The Contracts for Difference (CFD) scheme is the Government’s main mechanism for supporting low-carbon electricity generation. CFDs incentivise investment in renewable energy by providing developers of projects with high upfront costs and long lifetimes with direct protection from volatile wholesale prices, and they protect consumers from paying increased support costs when electricity prices are high.

Waste related projects are eligible by virtue of the renewable content of the waste used in a project that generates electricity.

Successful developers of renewable projects enter into a private law contract with the Low Carbon Contracts Company (LCCC), a Government-owned company. Developers are paid a flat (indexed) rate for the electricity they produce over a 15-year period; the difference between the ‘strike price’ (a price for electricity reflecting the cost of investing in a particular low carbon technology) and the ‘reference price’ (a measure of the average market price for electricity in the GB market).