How the UK funds big solar with CFDs
A CfD guarantees a solar farm a fixed price for its power, and it works both ways: when market prices fall, the generator is topped up; when they rise, the generator pays money back to consumers. It’s the mechanism behind most new large UK renewables, and in 2026 it awarded a record 4.9 GW of solar.
Here’s how it works.
- A CfD fixes a “strike price”. When market prices are below it, the generator is topped up; when they’re above, it pays the difference back.
- Contracts are won by auction. Developers bid competitively, and the lowest strike prices win, driving down cost.
- Solar had a record round in 2026. Allocation Round 7 awarded 4.9 GW of solar at a strike price of about £65 per MWh.
- It’s not the domestic scheme. CfDs are for utility-scale projects; homeowners use the Smart Export Guarantee instead.
What a CfD is
A Contract for Difference, or CfD, is the UK government’s main tool for supporting investment in low-carbon electricity, including solar, wind, tidal and nuclear. Introduced in 2014, it’s a long-term contract between a generator, such as a solar farm developer, and a government-owned body, the Low Carbon Contracts Company (LCCC).
The heart of it is the strike price: a fixed price per megawatt-hour, agreed for the length of the contract, now typically 20 years. The generator sells its electricity into the market as normal, but the CfD tops up or claws back the difference between that market price and the strike price, so its effective revenue stays steady. That certainty is what lets developers commit the enormous upfront capital big renewables need.
How it works: both ways
This is the part that surprises people: a CfD isn’t a one-way handout. When wholesale prices are low, the generator would otherwise struggle to cover its costs, so the LCCC pays it the shortfall up to the strike price. When they rise above the strike price, the generator pays the surplus back, and that money flows through to reduce what consumers pay.
In late 2021, with wholesale prices sitting above CfD strike prices, generators returning money actually reduced the scheme’s cost to households.
The auction: Allocation Rounds
Most CfDs aren’t handed out; they’re won in competitive auctions called Allocation Rounds. In each round, developers submit sealed bids stating the strike price they need to build their project. Contracts then go to the lowest bids first, working up until the round’s budget is used. Because developers compete on price, the process drives the cost of renewables down.
Each round has a ceiling called the Administrative Strike Price, the maximum a project can bid. It’s set deliberately above what the government expects projects to bid, to encourage participation and competition, and winning strike prices have consistently come in below it. From Allocation Round 7, prices are expressed in 2024 money rather than the old 2012 basis, making them far easier to compare with today’s costs. Technologies compete in separate pots, with established ones such as solar and onshore wind grouped together.
AR7 and solar
The most recent completed round, Allocation Round 7, opened in 2025. Its onshore results, published in February 2026, delivered a record 6.2 GW, of which solar took the lion’s share.
| Technology | Capacity awarded | Strike price |
|---|---|---|
| Solar PV | 4.9 GW | ~£65/MWh |
| Onshore wind | 1.3 GW | ~£72/MWh |
| Tidal stream | 21 MW | ~£265/MWh |
| Offshore wind (Jan 2026) | 8.4 GW | ~£91/MWh (fixed-bottom) |
Solar’s roughly £65 per megawatt-hour strike price reflects how cheap the technology has become; its bidding ceiling for the round was cut to account for falling costs, while the wind ceiling rose to reflect higher financing and grid costs. The government has since brought the next round, AR8, forward to July 2026, a sign of how central these auctions are to the Clean Power 2030 build-out. The pipeline of large solar farms these contracts help fund is covered in our guide to the biggest solar farms in the UK.
CfD vs FiT, SEG and PPAs
It’s easy to muddle the CfD with the other things that pay for solar power. The crucial distinction is scale.
| Mechanism | What it does | For whom |
|---|---|---|
| CfD | Guarantees a fixed strike price, both ways | Utility-scale generators |
| Feed-in Tariff (FiT) | Paid for generation; closed to new applicants in 2019 | Homes (legacy) |
| Smart Export Guarantee (SEG) | Pays for electricity exported to the grid | Homes and small sites |
| Power purchase agreement (PPA) | A private contract to buy a project’s output | Corporate buyers |
A power purchase agreement is increasingly used by big corporate buyers such as data centres to buy a solar farm’s output directly, as covered in our guide to solar and data centres. A large solar developer chooses between a CfD and a PPA route.
Your route to being paid for exported power is the Smart Export Guarantee. The CfD still matters to you indirectly, though, because it shapes how much clean power the grid has and what everyone pays for electricity.
Why it matters
Price certainty lowers the cost of capital for developers, which makes the clean power itself cheaper to build. None of this is to say the mechanism is beyond debate; questions about grid connection, constraint costs and market reform sit alongside it.
Frequently asked questions
Do CfDs cost consumers money?
It depends on prices. When wholesale prices are below strike prices, the scheme costs consumers via a supplier levy; when they’re above, generators pay money back, reducing the cost.
A two-way contract building Britain’s clean power
As a way to build clean power at scale, cheaply and with a consumer safeguard built in, the CfD has become the quiet backbone of the UK’s energy transition.
SOURCES: Mechanism and results per the Department for Energy Security and Net Zero, the Low Carbon Contracts Company, Energy UK, Ofgem and Parliament’s POST. AR7 onshore results published February 2026: 4.9 GW solar at a strike price of about £65/MWh (2024 prices), 6.2 GW onshore total, plus 8.4 GW offshore wind (January 2026). Figures are as reported and subject to revision.
DISCLAIMER: This guide is general information about the CfD scheme, not investment or policy advice. Scheme parameters, strike prices and auction results change with each round and over time. Confirm current details with gov.uk and the relevant bodies before relying on them.
UPDATED: 21 October 2026.
