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A simple guide to Contracts for Difference (and why they matter)

The UK’s Contracts for Difference (CfD) scheme is the government’s main way of supporting new low‑carbon electricity generation. Each year, renewable energy projects compete in a national auction – called an Allocation Round – for long‑term contracts that guarantee a stable price for the electricity they produce. This reduces financial risk, encourages investment, and accelerates the shift to home‑grown clean power.

In 2025/26, the government has introduced one of the most significant updates to the system so far: Allocation Round 7 (AR7) and its companion auction AR7a. 

What is a Contract for Difference?

A Contract for Difference is a kind of long‑term agreement between the government and a renewable energy project. 

It works a bit like a price guarantee: 

  • If the market price for electricity drops, the government tops up the difference so the project can stay financially stable. 
  • If electricity prices rise, the project pays money back to the government – which ultimately benefits billpayers. 

This helps keep prices steadier for everyone. It also gives renewable companies like ourselves the confidence to build brand‑new projects like onshore wind, solar, and so on.

What is Allocation Round 7a (AR7a)?

Every year, the government holds a national “auction” where renewable projects compete for these contracts. 

This year’s auction is split into two parts: 

  • AR7 – for offshore wind (already completed in January 2026, which represented a record-breaking auction, securing 8.4GW of offshore wind capacity – enough to power 12 million homes and attract £22 billion of private investment.) 
  • AR7a – for everything else, including onshore wind, solar, tidal and repowering older wind turbines 

Several projects across Wales and the rest of the UK were eligible to complete in the AR7a auction. 

What is new in the AR7/AR7a process?

The 2025–26 allocation round introduces several major reforms: 

  1. Split auctions for faster progress 

Separating offshore wind (AR7) from all other technologies (AR7a) helps reduce congestion and speeds up project delivery. 

  1. Longer contract lengths – now 20 years 

Instead of the previous 15‑year contracts, eligible technologies (onshore wind, solar, offshore wind) are now offered 20‑year Contract for Differences, reducing investor risk and contributing to lower bid prices. 

  1. Updated price base (2024 prices) 

For the first time, bids are set in 2024 price levels, reflecting modern supply chain and inflation realities. 

  1. Repowering eligible for support 

Older turbines replaced with modern, more efficient models can now receive Contracts for Difference support – a significant step for maintaining and improving renewable output. 

Why is the auction important for Wales?

Wales has huge potential for wind and solar energy. Several Welsh projects – including ours at Twyn Hywel Energy Park in Caerphilly – were eligible for the Allocation Round 7a.   Our project is the largest onshore wind project to have won a contract in 2026, playing a major role in helping Wales produce more of its own clean energy. 

Winning a contract means more certainty, more investment, and more long‑term benefits for the local area. 

Why does the Allocation Round for renewable energy matter to the public?

Because it means: 

  • More clean power on the grid 
  • Greater energy independence for the UK 
  • More stable and affordable bills over time 
  • New jobs and investment in local communities 
  • Less reliance on fossil fuels, which are affected by global events and price shocks 

Quick fire questions about the upcoming CfD 2026 allocation round

What is AR7a?

It’s the part of the UK’s Contracts for Difference (CfD) auction that covers all renewable technologies except offshore wind – like onshore wind, solar, tidal, hydro, biomass, etc. 

Why does AR7a matter?

  • Longer contracts and clear budgets give investors more confidence

What is a Contract for Difference (CfD)?

A CfD is a 15-year (now 20-year in AR7) contract between a renewable energy project and the Low Carbon Contracts Company (LCCC). It guarantees a fixed “strike price” for electricity. If market prices fall below that, the generator gets topped up; if prices rise above, they pay back the difference – protecting both investors and consumers.

How often are these auctions held?

Since March 2023, CfD auctions (called “Allocation Rounds”) have been held annually. Before that, they were every two years. 

Who runs and decides the results?

  • The Low Carbon Contracts Company (LCCC) issues and manages the contracts. 
  • National Grid ESO runs the auction process. 
  • Ofgem handles appeals. 
  • The Department for Energy Security & Net Zero (DESNZ) publishes official results.  

What happened in the last auction?

  • AR6 (2024): awarded 9.65 GW across 131 projects – including solar, onshore wind, marine, and offshore wind. That added ~9.6 GW of new capacity.  
  • AR7 (offshore wind): announced 14 Jan 2026, secured a record 8.4 GW of offshore wind (6.9 GW fixed-bottom, 0.19 GW floating). Strike prices were ~£91/MWh for fixed and £216/MWh for floating.  
  • AR7a (other tech): bidding closed 12 Jan 2026; results (onshore wind, solar, tidal, etc.) expected Feb 2026.  

What is the Low Carbon Contracts Company?

The Low Carbon Contracts Company (LCCC) is a government‑owned company that plays a central role in the UK’s clean energy system. 

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