CfD Stakeholder Bulletin — 16 November 2023

What changed

DESNZ published the core parameters for CfD Allocation Round 6 on 16 November 2023, confirming two significant shifts. First, administrative strike prices were raised across technologies, most notably for offshore wind — a direct response to the AR5 failure in September 2023 where zero offshore wind capacity was awarded because the ASP ceiling sat below developers' actual cost of capital. Second, offshore wind was separated into its own allocation pot, ending the arrangement where it competed alongside other less mature technologies.

Alongside the AR6 parameters, DESNZ launched a consultation on "sustainable industry rewards" — previously called non-price factors — proposing that from AR7 onwards, CfD projects could receive additional revenue support for demonstrating supply chain sustainability. The consultation closed on 11 January 2024.

What this means in practice

The ASP increase is an admission that administered pricing failed. The AR5 result was not a market signal — it was the sound of a price cap set below clearing price. No offshore wind developer could make the economics work at the AR5 ceiling, so none bid. DESNZ responded by raising the ceiling, which is the only move available when you administer prices rather than discover them. The mechanism remains unchanged: government sets a maximum price, developers bid at or below it, consumers pay the difference between strike price and reference price through the CfD levy. Higher ASPs mean higher maximum consumer exposure per megawatt-hour for every project that clears.

Pot separation protects offshore wind from being outbid by cheaper technologies — but it also removes the competitive discipline that pot sharing imposed. In previous rounds, offshore wind had to compete on price against onshore wind and solar, which drove strike prices down dramatically between AR1 and AR4. A dedicated pot means offshore wind projects compete only against each other, reducing the pressure to bid aggressively. The justification is that offshore wind has different cost structures and delivery timelines, but the practical effect is to insulate a politically favoured technology from price competition.

The sustainable industry rewards proposal introduces non-price allocation criteria into what was designed as a price-only auction. Projects that can demonstrate supply chain commitments — UK content, investment in port infrastructure, skills development — would receive additional CfD revenue on top of their strike price. This is industrial policy bolted onto an energy procurement mechanism. The consultation framed this as rewarding "sustainability," but the structural effect is to favour developers with established UK supply chains and the scale to make credible commitments. New entrants, smaller developers, and foreign suppliers without existing UK operations face a disadvantage that has nothing to do with the cost of the electricity they would generate.

The timing matters: this consultation launched eight weeks after an allocation round that awarded zero offshore wind capacity. The political pressure to ensure AR6 delivered results — and to be seen supporting domestic manufacturing — shaped both interventions. The ASP increase addressed the immediate problem (projects couldn't bid). The supply chain rewards addressed the political problem (projects that did bid weren't required to invest domestically).

What happens next

AR6 was expected to open in 2024 with the revised parameters. The ASP methodology note published alongside these parameters set out the cost assumptions underpinning the new ceilings — these would be scrutinised by developers to assess whether the new ASPs left sufficient headroom for viable bids.

The sustainable industry rewards consultation closed on 11 January 2024, with any resulting mechanism to be implemented from AR7 — meaning AR6 would still operate as a price-only auction. The design choices in this consultation are consequential: how supply chain commitments are measured, how much additional revenue they unlock, and whether the assessment is binary or graduated will determine whether this becomes a meaningful allocation criterion or a compliance exercise. The risk is that it becomes both — expensive to demonstrate, modest in reward, but compulsory in practice because non-participating projects look politically exposed.

The broader trajectory is clear. The CfD scheme is moving from a mechanism that discovered prices through competition toward one that administers prices and allocates capacity based on criteria set by government. Each intervention — higher ASPs, pot separation, non-price factors — individually has a defensible rationale. Collectively, they represent a shift from market procurement to industrial planning, with electricity consumers bearing both the direct cost (higher strike prices) and the indirect cost (reduced competitive pressure on developers to minimise costs). The question is not whether any single change is justified, but whether the cumulative effect produces a mechanism that still functions as an auction in any economically meaningful sense.