CfD Auctions to Be the Key Driver of Low Carbon
Electricity Generation
CfD auctions remain the UK government’s primary mechanism for delivering large-scale low carbon electricity generation across multiple technologies in pursuit of the 2030 targets.
Recent reforms have been designed to restore investor confidence, improve cost-reflective pricing, and accelerate deployment.
The latest auction, Allocation Round 6 (“AR6”)—the first since the new government took office—marked a significant recovery from the underwhelming outcome of Allocation Round 5 (“AR5”).
DESNZ boosted budgets and adjusted auction parameters, including higher Administrative Strike Prices (ASPs), clearer pot structures, and the reopening of the offshore wind category, which restored the commercial case for large offshore projects and unlocked more solar and onshore wind capacity.
Crucially, AR6 reaffirmed the value of reopening CfD eligibility to solar PV and onshore wind in AR4, technologies that had previously been excluded in AR2 and AR3 due to a temporary policy shift favouring less-established options and local concerns about landscape and community impacts, especially for onshore wind. Their reintroduction in AR4 marked a strategic reset to accelerate deployment of proven, low-cost renewables aligned with the UK’s net-zero goals, a momentum that AR6 has now expanded significantly.
Key Facts — Awarded Capacity
Policy and Drivers Behind AR6’s Success
Big Budget Uplift
The AR6 budget increased from £1.0 bn to £1.6 bn (~50% uplift), with major boosts to the offshore
pot (£800 mn → £1.1 bn), emerging technologies, and established technologies, directly enabling
more projects to clear.
Significant Rise in ASPs
DESNZ raised ASPs for key technologies, particularly offshore wind (fixed-bottom and floating),
making more projects viable and re-attracting offshore bids after AR5’s gap.
Return of Offshore Wind
Offshore wind, absent from AR5 due to uneconomic ASPs, returned in AR6 with ~5.3GW (fixed +
floating) awarded—a major contributor to the capacity jump.
Pot Restructuring and Targeted Ring-fences
Clearer pot allocations and dedicated funding for emerging technologies such as floating wind and
tidal improved the chances of these projects securing contracts.
Political Reset
Following AR5’s industry backlash, the government acted decisively, raising budgets and
recalibrating parameters, signalling strong political will and restoring developer appetite.
Co-location and Storage Uptake
AR6 saw increased interest in battery co-location (up to 1.4GW), improving project economics and
competitive positioning.
Strengthening the Future CfD Framework through Targeted
Reforms
Building on AR6’s momentum, the government is introducing reforms for AR7—with the application window open in August 2025—to enhance investor certainty, reduce delivery risk, and align with updated cost realities.
AR6’s success, particularly the return
of offshore wind and strong performance
in solar PV and onshore wind, underlined
the importance of clear pricing, sufficient
budget, and credible timelines.
Proposed Reforms for AR7 (Offshore and Floating Offshore Wind) /
AR7a (All Other Eligible Technologies)
Extension of Contract Term
The CfD contract duration will be extended from 15 to 20 years for fixed bottom offshore wind, floating offshore wind, onshore wind, and solar technologies.
This change is expected to lower the cost of capital, offer greater revenue certainty, and enhance the bankability of projects, thereby encouraging a broader pool of investors.
Higher ASPs
ASPs have been raised for onshore wind, offshore wind, and floating wind to reflect 2024 cost benchmarks, factoring in inflation, supply chain constraints, and financing costs.
Solar PV ASPs have been slightly reduced in real terms, reflecting ongoing cost competitiveness.
The price base shifts from 2012 to 2024, improving transparency and aligning with current market conditions.
Longer Commissioning Window
The Target Commissioning Window for solar PV projects over 5 MW has been extended from 3 months to 12 months, accommodating grid and planning delays and reducing attrition risk.
This added flexibility gives developers more certainty in meeting delivery milestones, helping to safeguard awarded capacity and reduce the likelihood of contract terminations.
Repowered onshore wind projects are now eligible to participate in the auctions. By including fully repowered onshore wind, the government enables developers to upgrade existing sites with modern, higher-capacity turbines, which can significantly increase energy output without the need for new land.
This approach accelerates deployment timelines, reduces costs compared to greenfield developments, and supports the UK’s net-zero targets by maximizing the potential of established wind farm locations.
Targeted Support for Fixed-bottom and Floating Offshore Wind Projects
Fixed-bottom offshore wind projects that have reached the Development Consent Order (DCO) examination stage at least 12 months before the CfD application deadline are now eligible to apply, even if full planning consent has not yet been granted.
This change enables earlier participation in the auction process, helping to accelerate project pipelines and bring new capacity online sooner.
Additionally, the government will introduce specific budget and auction parameters to support multiple Test & Demonstration–scale floating offshore wind projects in Allocation Round 7 (AR7), striking a balance between experimental and commercially scaled developments.
This initiative will provide a structured route to market for nascent floating offshore technologies, helping to drive innovation, cost reduction, and progression towards commercially viable deployments.
Boosting Local Supply Chains through the Clean Industry Bonus in AR7
The UK government has boosted the Clean Industry Bonus budget from the originally planned £200 million to £544 million, significantly strengthening incentives for offshore wind developers to deliver greater local and low-carbon economic benefits.
For every £1 of public funding awarded, the scheme is expected to leverage around £17 in private investment, significantly amplifying its economic impact.
The bonus rewards projects that commit to investing in economically disadvantaged regions or in cleaner, more sustainable UK supply chains, including traditional oil and gas communities, ex-industrial areas, ports, and coastal towns, helping to ensure that the offshore wind boom supports regional regeneration.
Payments start at £20.1 million per gigawatt of committed capacity, with a particular emphasis on advancing the floating offshore wind sector. This approach encourages developers to shop local and directly back domestic manufacturing, port upgrades, and supply-chain resilience.
From Fixed Budgets to Capacity Ambition
One of Allocation Round 7 (AR7)’s most notable shifts is the move away from fixed, pre-auction budget caps towards capacity ambition, using deployment targets in gigawatts for each technology pot.
Monetary allocations will now be confirmed later in the round via the Contract Budget Notice, after the application window closes but before sealed bids are submitted.
This approach provides flexibility to review anonymized bid data, optimize value for money, avoid Allocation Round 5–style undersubscription, and better match budgets to prevailing market conditions.
While no AR7-specific capacity goal has been published, the UK government targets at least 12 GW of offshore wind capacity across AR7, AR8, and potentially AR9.
The UK Government’s updated AR7 parameters are expected to draw as much as £53 billion in private investment, driving the delivery of critical new offshore wind capacity.
Key Differences Between AR6 and AR7/AR7a
Key Parameters
AR6
AR7/AR7a
Contract Length
15 Years
Extended to 20 Years
Commissioning Window
3 months
Expanded to 12 months
Budget Allocations
£1.6bn
Capacity-focused — no pre-allotted budget caps
Comparison of ASPs – AR6 vs AR7/AR7a* (£/MWh, 2024 Prices)
Technology Type
AR6
AR7/AR7a
Advanced Conversion Technology
293
307
Anaerobic Digestion (>5MW)
201
195
Dedicated Biomass with CHP
249
238
Energy from Waste with CHP
262
287
Floating Offshore Wine
245
271
Geothermal
219
219
Hydro (>5MW and <50MW)
142
168
Landfill Gas
96
94
Offshore Wind
102
113
Onshore Wind (>5MW)
89
92
Remote Island Wind (>5MW)
89
92
Sewage Gas
226
228
Solar PV (>5MW)
85
75
Tidal Stream
364
371
Wave
358
386
Beyond CfDs: Diversifying Routes to Market
Not all future capacity will rely on CfDs. A growing share of projects is expected to proceed outside the scheme, with some developers advancing final investment decisions using alternative financing models.
Additional capacity will also be driven by corporate Power Purchase Agreements (“PPA”) and merchant projects selling directly into the grid, diversifying revenue sources and reducing reliance on government-backed contracts.
