On 6 May 2025, the Department for Energy Security & Net Zero (“DESNZ” or the “Government”) published its initial response to the legislative amendments proposed in the consultation on Allocation Round 7 (“AR7”) and the broader Contracts for Difference (“CfD”) scheme (the “Response”). The consultation ran from 21 February to 21 March 2025 (the “Consultation”).
The Response addresses five key elements of the CfD scheme requiring legislative change:
- Contract Budget Notices;
- Removal of restrictions on access to auction information;
- Amendments to the Contract Allocation Framework – particularly the treatment of flexible bids;
- Streamlining the allocation round process for fixed-bottom offshore wind; and
- The introduction of new regulations to implement the Clean Industry Bonus.
On 27 May 2025, the UK Government launched a further consultation (the “Fixed-bottom Offshore Wind Consultation”) regarding potential technical amendments to the CfD scheme, focusing on relaxing the eligibility criteria for fixed-bottom offshore wind projects that do not yet have planning consent.
Our previous commentaries on reforms to the CfD scheme can be found here and here.
Contract Budget Notices
The Response confirms that, instead of the current requirement to publish the Contract Budget Notice at least 10 working days before the application window opens, the Government intends to publish the Contract Budget Notice later in the allocation round process. Instead of a traditional budget, the Government will publish a “Capacity Ambition” for AR7, alongside a forward-looking schedule for upcoming allocation rounds.
The Consultation feedback on this proposal was divided: 50% of respondents believed that a monetary budget was not necessary before bidding, while the other half considered it crucial. However, the majority agreed that substituting it with a Capacity Ambition would not impede participation in the CfD allocation round.
The Government will offer additional clarity on how the Capacity Ambition will interact with other auction parameters ahead of AR7, following requests for further details.
On 29 May, the Government published an indicative timeline for AR7 (the “Indicative Timeline”). It shows the earliest anticipated publication of the Contract Budget Notice between 19 and 20 November 2025, with the latest date (depending on appeals from non-qualifying projects) between 21 and 22 January 2026. The Indicative Timeline also indicates that the Contract Allocation Framework is expected to be published in July 2025.
Removing restrictions on access to auction information
The Government also intends to amend regulations to allow the Secretary of State to request anonymised bid information, such as bid prices, from the National Energy System Operator (“NESO”) before setting the budget in its role as the CfD Delivery Body.
The Government maintains that this would maximise capacity procured in each allocation round, and limit previous situations of underspent budget set pre-auction, as well as manage consumer costs when setting the budget.
Most consultation respondents supported the proposed change, although many raised concerns about potential political interference, which could influence bidder behaviour and undermine investor confidence. To address these concerns, the final Contract Allocation Framework will specify which technologies are subject to this information-sharing regime and outline how the data will be utilised.
Amendments to the Contract Allocation Framework
The Response states that flexible bids will no longer be permitted for fixed-bottom offshore wind applications. Although many respondents to the Consultation opposed this proposal, the Government has concluded that the ability to set the budget after reviewing anonymised bid information makes bid flexibility unnecessary. It considers that the benefits of more accurate budget-setting outweigh the potential drawbacks of reduced flexibility. The final Contract Allocation Framework will confirm which technologies are excluded from submitting flexible bids.
Expediting the allocation round process for fixed-bottom offshore wind
The Government will not proceed with the proposal to allow the Secretary of State to direct NESO to run part of the AR7 allocation process ahead of other parts, including running the fixed-bottom offshore wind auction if there are no Tier 1 appeals. The Government holds that legislation to achieve this change is not feasible before AR7.
However, the Government is reviewing the allocation round timeline and exploring whether there are non-legislative routes to allow the fixed-bottom offshore wind auction to proceed early if there are no Tier 1 appeals, although the recently published Indicative Timeline does not provide for this yet. The Government will inform stakeholders ahead of AR7 opening if any options will be implemented.
Changes to regulations relating to the Clean Industry Bonus
The current price cap methodology from Ofgem does not yet include future Clean Industry Bonus (“CIB”) costs as part of CfD costs. To ensure that the price cap is accurate, the Government will make amendments to Regulations 2, 4 and 7 of the Contracts for Difference (Electricity Supplier Obligations) Regulations 2014 to enable CIB costs to be included in the price cap methodology.
This means that CIB payments are to be explicitly captured in daily and quarterly settlements between the Low Carbon Contracts Company (“LCCC”) and the generator. This will allow CIB costs to be factored into the Supplier Obligation. The Government ultimately seeks to ensure that CIB costs, carried by the Supplier Obligation Levy, are reflected in the total price cap and to ensure that the price cap is accurate.
Consultation on Eligibility relaxation for fixed-bottom offshore wind CfD
Currently, only projects with planning consent can enter a CfD allocation round. In the Consultation earlier this year, the Government proposed allowing offshore wind projects that have submitted a planning application and reached a certain stage in the planning process to participate, subject to evidence of progress. Most respondents supported introducing flexibility for unconsented projects in the application process until a planning decision is issued. Accordingly, the Fixed-bottom Offshore Wind Consultation seeks views on proposed amendments to the CfD Standard Terms and Conditions to accommodate the participation of unconsented fixed-bottom offshore wind projects in AR7.
Key Areas of Amendment to the CfD Standard Terms and Conditions
- Eligibility and Initial Condition Precedent
- A new “Initial Condition Precedent” would be introduced, requiring unconsented projects to confirm their planning status shortly after contract signature. This includes providing evidence that no planning consents have been refused, or if refused, that the judicial review window remains open or that a judicial review is ongoing.
- Milestone Delivery Date and Other Key Milestones
- The definition of the “Milestone Delivery Date” would be amended to allow extensions for unconsented projects facing planning-related delays, such as delayed consent decisions or ongoing judicial reviews.
- The Government is also considering whether similar flexibility should apply to the Target Commissioning Window and Longstop Date, allowing extensions where delays to the Milestone Delivery Date are caused by planning issues. However, the Government clarified that a delay to the Milestone Delivery Date, even where relief is granted, does not imply a corresponding delay to the Target Commissioning Date, which is a fixed date and cannot be extended.
- Termination Rights
- A new right would be introduced for the LCCC to terminate contracts if planning consent is refused and not successfully challenged, or if a legal challenge to a refusal is unsuccessful.
- Milestone Requirement for Planning Consent
- A new milestone requirement would require unconsented projects to provide evidence that all necessary planning consents have been obtained, and that any judicial review period has expired or been resolved in favour of the project.
- Information Requirements
- Additional obligations would be placed on unconsented projects to notify the LCCC of any grant, refusal, or variation of planning consent, as well as any judicial review applications and their outcomes.
- Exclusion of Compensation for Foreseeable Planning Risks
- The definition of “Foreseeable Change in Law” would be amended to exclude compensation for unconsented projects in cases where planning consent is granted, refused, or varied, treating these as foreseeable development risks.
- Capacity Adjustments for Planning Conditions
- Provisions would be introduced to allow unconsented projects to adjust their contracted capacity, if required to comply with planning conditions, through mechanisms such as the “Relevant Planning Restriction” process.
The Government is also reviewing whether unconsented projects should be penalised for non-delivery if delays are due to planning issues. However, any changes would not be in place before AR7, so the current rules will remain in place. Applicants should note that the “Non-Delivery Disincentive” will continue to apply, which means that termination of a contract for any reason prior to the Milestone Delivery Date will still be treated as ‘non-delivery’ under the CfD regulations.
Next Steps
The Government will now move to implement the proposed reforms as set out in the Response. Secondary legislation will be introduced where required to give effect to the changes set out in this response. Further detail on budget setting, as well as on the remaining policy proposals consulted on, will be published in due course - prior to the opening of the AR7 application window. The publication of the Indicative Timeline provides an indication of when each stage of AR7 will commence, with the proposed application window running from 7 August to 27 August 2025. The earliest date on which successful applicants will be notified of their successful projects is expected to be between 7 and 10 November 2025.
With regard to the Fixed-bottom Offshore Wind Consultation, the Government will be seeking stakeholder views until 16 June 2024. Responses should be submitted online using the dedicated portal or by email to [email protected]. Feedback received will inform final policy decisions, which are expected to be announced before the AR7 application window opens.
Commentary
By shifting away from the requirement to publish the Contract Budget Notice before the allocation application window opens and instead introducing a Capacity Ambition, the Government is signalling a more dynamic approach to capacity procurement and a move away from lower costs being the key parameter. This is further reinforced by the new power for the Secretary of State to access anonymised bid data before setting the auction budget. This should, in theory, allow for more informed procurement decisions that better reflect market conditions.
One of the more significant and potentially contentious changes is the removal of flexible bids for fixed-bottom offshore wind projects. While the Government argues that improved budget-setting based on bid data reduces the need for flexibility, concerns have been raised by developers that this could constrain the ability to optimise the mix of projects. The full implications of this shift will likely only become clear as AR7 progresses and stakeholders adjust to the revised framework.
The Fixed-bottom Offshore Wind Consultation seeks views on proposed amendments to the CfD regime to allow participation in AR7 by projects that have not yet secured planning consent. While this may help accelerate development and provide earlier revenue certainty, applicants should remain mindful that the Non-Delivery Disincentive will still apply for unconsented fixed-bottom offshore wind projects in AR7. Termination of a contract prior to the Milestone Delivery Date, regardless of the reason, will be treated as non-delivery and may affect eligibility for future allocation rounds.
Ultimately, the effectiveness of the CfD scheme will be critical to delivering the scale and pace of low-carbon generation needed to meet the UK’s Clean Power 2030 targets.
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