What is a Contract for Difference in UK electricity?
A Contract for Difference, or CfD, supports eligible low-carbon electricity generation through payments linked to an agreed strike price and a market reference price. DESNZ describes contracts lasting 15 or 20 years, depending on the award [S1]. Your business may encounter the scheme through electricity supply charges rather than as a generator receiving support. Checked October 2026.
What does a Contract for Difference mean?
A Contract for Difference (CfD) is a generation-support agreement that settles a difference between a contracted strike price and a market reference price [S1], [S2]. Why it matters for your site: the scheme can affect supply costs even when your business does not own a generating station.
DESNZ describes 15-year and 20-year contracts, with the applicable duration depending on the award [S1]. Keep that generator arrangement separate from your own electricity supply agreement.
How do strike and reference prices affect payments?
Below the strike price, the generator receives a difference payment. Above it, the generator owes the difference to Low Carbon Contracts Company (LCCC). Settlement guidance explains this two-way mechanism [S2].
This simplified illustration uses assumed prices and assumes eligible output without contract adjustments:
| Assumed strike price | Assumed reference price | Difference per megawatt-hour (MWh) |
|---|---|---|
| £100/MWh | £70/MWh | £100 − £70 = £30 to generator |
| £100/MWh | £120/MWh | £120 − £100 = £20 from generator |
These are arithmetic examples, not current scheme prices or business income forecasts. Actual settlement follows the generator’s contract, including applicable adjustments and negative-price provisions [S2].
Why might your business bill include CfD costs?
The supplier obligation funds CfD payments through licensed electricity suppliers. It also provides a route for returning generator payments to suppliers [S4]. Whether a cost is included in your unit rate or itemised is a question for your own contract: request the charging basis and reconciliation terms.
LCCC’s guidance describes specific excluded-electricity arrangements for eligible electricity-intensive industries [S3]. Do not assume a renewable purchasing label grants an exemption. Check the treatment with your accountant.
Read the business bill guide and electricity contract guide, with business electricity data for wider price context.
Next step
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Common questions
Who administers CfD difference payments?
EMR Settlement calculates the difference amount on behalf of Low Carbon Contracts Company, the counterparty. Licensed suppliers fund the arrangements through the supplier obligation [S2].
What does the reference price represent?
It is a measure of wholesale electricity prices. The applicable baseload or intermittent reference price depends on the generator's contract; it is not your site's retail unit rate [S1], [S2].
Is the strike price unchanged for the whole contract?
Not necessarily. G24 describes annual adjustments including inflation and other contract-specific adjustments. Read the relevant contract basis before interpreting a published strike price [S2].
How long does a CfD last?
DESNZ describes 15-year and 20-year contracts. Its Allocation Round 7 guidance identifies 20-year awards for specified wind technologies and solar. Do not apply one duration to every contract [S1].
Can a business claim exemption simply by using renewable electricity?
No. LCCC's excluded-electricity guidance describes specific eligibility and relevant arrangements for electricity-intensive industries. Ask for evidence of qualification; check the treatment with your accountant [S3].
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Sources
- CfD Allocation Round 7 subsidy estimates, Department for Energy Security and Net Zero,Last checked 19 October 2026
- G24 CfD generator payments, EMR Settlement acting for Low Carbon Contracts Company,Last checked 19 October 2026
- G26 EII excluded electricity relevant arrangements, Low Carbon Contracts Company and Electricity Settlements Company,Last checked 19 October 2026
- CFD Supplier Obligation, Department for Energy Security and Net Zero,Last checked 19 October 2026