If you’re wondering what a Contract for Difference actually is in the world of solar, why £65 keeps appearing in headlines about renewables, or how a scheme you’ve never personally bid for ends up on your electricity bill, you’re in the right place. The CfD is the single most important mechanism behind the UK’s solar farm boom, and the most recent allocation round produced numbers that genuinely matter for everyone who pays for electricity, whether you have panels on your roof or not.
- The crucial disambiguation between energy CfDs and financial trading CFDs
- How the strike-price mechanism actually works (with diagrams)
- The Pots, the Allocation Rounds, and what AR7 awarded
- The £65/MWh solar number from February 2026 and why it matters
- How CfDs sit alongside the Smart Export Guarantee and older schemes
- What happens next with AR8 and where this is all heading
Two different things, same acronym
A “Contract for Difference” in financial trading is a derivative product (think IG, eToro, spread betting). That is not what this article is about. We’re discussing the energy CfD scheme: a long-term contract between renewable energy generators and a government-backed counterparty that fixes the price they receive for electricity. The acronym is the same, the products are entirely separate.
Key points
For people who don’t have time to read the whole thing
- A CfD is a 20-year price contract between a renewable generator (a wind farm, solar farm, tidal project) and the Low Carbon Contracts Company. It guarantees a fixed price per megawatt-hour, regardless of wholesale market swings.
- The mechanism is two-way. If wholesale prices are below the strike price, the LCCC pays the generator the difference. If wholesale prices are above, the generator pays the LCCC. This second part has saved consumers money during recent price spikes.
- Allocation Round 7 (AR7) was the largest ever. Results in January and February 2026 awarded 14.7 GW of capacity across 201 projects, including 4.9 GW of solar at a strike price of £65.23/MWh.
- Solar got cheaper, wind got more expensive. The AR7 solar strike price was 6.5% lower than AR6. Offshore wind cleared at £91/MWh, reflecting supply chain pressures.
- CfDs cost the average household around £39/year in 2026, roughly 4.9% of an electricity bill. In return, they de-risk billions of investment in clean generation.
- You don’t bid for a CfD as a homeowner. CfDs are for utility-scale projects (typically 5MW+). Homeowners use the Smart Export Guarantee instead. The two schemes work in parallel.
01How a CfD actually works
The simplest way to understand a CfD is as a long-term hedge. A solar farm developer signs a contract that says: “Whatever happens in the wholesale electricity market over the next 20 years, you will receive £X per MWh of electricity you generate.” If the market price falls below £X, the government-backed counterparty tops the developer up. If the market price rises above £X, the developer pays the difference back. The technical name for £X is the strike price.
The “reference price” is the wholesale market figure the strike is compared against. For intermittent technologies like solar and wind, this is the Intermittent Market Reference Price (IMRP), an average of day-ahead market prices. For baseload technologies like nuclear it’s a different reference.
The two-way payment mechanism
The genius of the design is that it transfers price risk away from the developer (who builds the asset) and onto the LCCC (who is funded by a small levy on every electricity bill). For a solar farm developer trying to raise £100m to build a project that won’t generate revenue for two or three years, this risk transfer is what makes the project financeable. Banks and pension funds will lend against a CfD-backed revenue stream that they would never lend against pure merchant exposure.
- Strike price
- The fixed price per megawatt-hour (MWh) the generator receives under the contract. Set in the auction.
- Reference price
- The wholesale market benchmark used to calculate the difference. Usually the Intermittent Market Reference Price for wind and solar.
- LCCC
- Low Carbon Contracts Company. The government-owned counterparty that signs and manages every CfD.
- MWh
- Megawatt-hour, the standard wholesale electricity unit. 1 MWh = 1,000 kWh, roughly enough to power an average home for three months.
- Allocation Round (AR)
- The competitive auction process. Developers submit sealed bids and the lowest prices win until the budget is exhausted.
- Pot
- A budget category within an allocation round. Established technologies bid into Pot 1, emerging tech into Pot 2, offshore wind into Pots 3 and 4.
02The Pots and the Allocation Rounds
The CfD scheme has been running since 2014, with annual or near-annual allocation rounds. Each round splits the budget into pots so that mature, cheap technologies don’t crowd out emerging ones. Here’s how the current pot structure works.
| Pot | Technology | AR7 Admin Strike Price (2024 prices) |
|---|---|---|
| Pot 1 | Established technologies: solar PV, onshore wind, energy from waste with CHP, hydro, landfill gas, sewage gas | £75/MWh (solar), £92/MWh (onshore wind) |
| Pot 2 | Emerging technologies: floating offshore wind, geothermal, tidal stream, wave, advanced conversion technologies | Higher caps reflecting earlier-stage tech |
| Pot 3 | Fixed-bottom offshore wind | £113/MWh |
| Pot 4 | Floating offshore wind (split out from Pot 2 in AR7) | Tailored to the technology |
The Administrative Strike Price is a ceiling the government sets before bidding opens. Actual clearing prices have nearly always landed below the ASP, because the auction creates competitive pressure. AR7 was the first round to quote prices in 2024 money rather than 2012 money, which makes year-on-year comparisons clearer than in earlier rounds.
If you’re curious about what these solar farms actually look like once they’re built, our run-down of the biggest solar farms in the UK covers the projects that have come through previous CfD rounds. To translate gigawatts into something you can picture, our piece on how many solar panels make up a gigawatt is genuinely useful (the answer is around 2.5 to 3 million panels per GW).
03The AR7 results: what just happened
AR7 was structured differently to previous rounds. For the first time, offshore wind was decoupled from everything else and ran as its own auction (AR7), with onshore wind, solar and tidal running separately as AR7a. The offshore results were announced on 14 January 2026, and the onshore plus solar plus tidal results dropped on 10 February 2026.
For solar specifically, the AR7a result is significant for two reasons. First, the strike price fell while almost every other generation cost was rising. Second, the contract length increased from 15 years to 20 years across the board, which dropped financing costs and let developers bid more aggressively. The combination means solar-farm electricity will be cheaper for consumers over the long run than the headline £65 might suggest.
| Technology | AR7 strike price (2024 prices) | How it compares |
|---|---|---|
| Solar PV | £65.23/MWh | 6.5% lower than AR6 |
| Onshore wind | £72.24/MWh | 2% higher than AR6 |
| Offshore wind (fixed) | £91/MWh weighted avg | Higher than AR6 |
| Tidal stream | Various | 21 MW awarded |
| For context: 2025 wholesale average | ~£80/MWh | UK average |
| For context: new gas station running cost | ~£147/MWh | Estimated levelised |
Notice the comparison rows at the bottom. AR7 solar at £65/MWh is cheaper than the 2025 wholesale average, and dramatically cheaper than the running cost of a new gas station. This is the headline argument for the CfD scheme: it’s locking in low-carbon generation at prices that are competitive with, or below, the alternatives.
04Why CfDs matter even if you’ll never bid for one
Most readers of this article will never sign a CfD. The minimum threshold is well above any rooftop scheme, and the application process involves grid studies, planning consents, and engagement with National Grid that effectively exclude anyone smaller than serious commercial scale. That doesn’t mean CfDs don’t affect you. They affect every electricity bill in two opposite directions, and the net impact has shifted dramatically over the past three years.
The cost direction. CfD payments to generators are funded through a small levy added to electricity bills. According to Parliament’s POST analysis, this currently amounts to around £39 a year for the average household, roughly 4.9% of an electricity bill. Whenever wholesale prices fall below CfD strike prices, this levy goes up.
The savings direction. When wholesale prices spike above strike prices, generators pay back. During the 2022 energy crisis, CfD generators paid hundreds of millions back to consumers, materially softening the shock. The Energy and Climate Intelligence Unit estimates that without existing CfD contracts for wind, the current wholesale electricity cost could be around £100/MWh rather than the £76/MWh seen in early 2026. That’s a real cost saving compared to the counterfactual.
The scheme also affects the broader UK solar landscape because it determines how much utility-scale capacity gets built. More CfD-backed solar farms means more low-carbon supply on the grid, which (eventually) means lower wholesale prices and better SEG export rates for rooftop solar owners. Our analysis of agrivoltaic farming and solar farms and wildlife covers some of the on-the-ground realities of these projects, while community solar projects looks at the alternative ownership models that sit alongside the CfD-funded developers.
05How CfDs sit alongside FiT, RO and SEG
The UK has been through several support schemes over the years, and they’re easy to confuse. Here’s how the current state of play breaks down for solar.
| Scheme | Who it’s for | Status | Mechanism |
|---|---|---|---|
| Feed-in Tariff (FiT) | Domestic and small-scale (closed scheme) | Closed to new applicants in 2019 | Generation tariff plus export tariff, paid for 20-25 years |
| Renewables Obligation (RO) | Utility-scale (closed scheme) | Closed to new entrants in 2017 | ROCs sold to suppliers obliged to buy renewable energy |
| Smart Export Guarantee (SEG) | Domestic and small-scale | Live | Suppliers required to pay homeowners for exported electricity |
| Contracts for Difference (CfD) | Utility-scale (typically 5MW+) | Live, AR7 just settled | 20-year fixed-price contracts via competitive auction |
The FiT and SEG cover the rooftop end of the market, the RO and CfD cover the utility end. There’s no overlap and no double-payment: a project either has a CfD or it has a different support arrangement, not both. If you have rooftop panels, your SEG calculation is the relevant figure for export earnings, and the CfD scheme operates entirely separately above your head.
One subtle interaction worth knowing
SEG export rates are set by individual suppliers, not by the government. As more CfD-backed solar comes online and pushes daytime wholesale prices down, the natural ceiling on competitive SEG rates also drops. We’ve seen this in 2026 as some suppliers cut their rates by a few pence per kWh. CfDs and SEG are separate schemes, but they share a market.
06What’s next: AR8 and the road to Clean Power 2030
The government’s Clean Power 2030 Action Plan, published in December 2024, set targets that will require multiple more allocation rounds at AR7-scale or larger. AR8 is expected to launch later in 2026, with a budget and pot structure that will be confirmed nearer the time. NESO modelling indicates the UK needs to procure at least another 12 GW of offshore wind, plus continued solar and onshore wind growth, to hit its 2030 targets.
Replaces the Renewables Obligation under the Coalition government’s Electricity Market Reform.
Six allocation rounds delivered around 30 GW of contracted capacity. AR5 in 2023 famously failed to attract any offshore wind bids due to mispriced caps.
Largest round ever: 14.7 GW including 4.9 GW solar at £65.23/MWh. First round on 20-year contracts and using 2024 prices.
Budget and pot structure to be confirmed. Industry expects continued strong solar allocation.
Target range of 43-50 GW offshore wind installed, alongside continued growth in solar and onshore wind.
For day-by-day detail on which projects have signed contracts and what they’re being paid, the LCCC’s public CfD register is the definitive source. It lists every contract by project name, technology, capacity, strike price and delivery year, and is updated whenever new contracts are signed.
The single most important number in UK solar finance
The CfD strike price for solar (£65.23/MWh as of February 2026) is more than just a procurement number. It’s the rate at which large-scale solar gets built in this country, and therefore the rate that determines how fast utility-scale capacity scales up over the rest of the decade. Every solar farm developer benchmarks against it, every grid investor models against it, and every wholesale electricity forecast incorporates it.
For homeowners, the practical implications are smaller but real. Your bill includes a CfD levy of about £39 a year, which is roughly the price of two takeaway pizzas, in exchange for which you get billions of pounds of clean generation built without taxpayer subsidy and price stability when wholesale markets go haywire. The maths of this trade has worked out well for households in three of the past five years.
If you only remember one thing: the CfD scheme is the engine room of the UK’s solar farm boom. The £65 figure shows that the engine is running well. Anyone trying to forecast where wholesale prices, SEG rates and the broader solar industry go next has to start with the most recent CfD strike prices, because almost everything else flows from them.
