Allocation Round 7 of the Contracts for Difference scheme

What this is about

DESNZ is proposing significant changes to CfD Allocation Round 7, opening summer 2025, aimed at accelerating offshore wind deployment and reducing financing costs. The consultation addresses three main issues: current planning consent requirements are creating bottlenecks in the development queue; budget-setting for offshore wind lacks visibility into actual market conditions; and 15-year contract terms may not optimise financing costs for capital-intensive projects.

The proposals represent a fundamental shift in risk allocation. Currently, developers must secure full planning consent before bidding, bearing planning risk themselves. The new approach would allow projects to bid with partial consents, transferring planning risk to consumers via the CfD scheme. Similarly, extending contract terms beyond 15 years would transfer technology and market risk from private investors to consumers, potentially reducing financing costs but increasing total support payments.

Options on the table

Relaxed planning consent requirements for offshore wind

Fixed-bottom offshore wind projects could bid in AR7 without full planning consents, requiring only Development Consent Order applications or Marine Licence applications instead of granted consents. Projects would have 18 months post-award to secure full planning permission, with contracts terminating if they fail.

This accelerates market entry by 12-18 months but fundamentally shifts planning risk. Developers benefit from earlier CfD certainty and reduced pre-bid costs. Consumers face higher risk of contract failures and potentially higher strike prices as planning risk gets priced into bids rather than filtered out through the current consent requirement. The Crown Estate and transmission system benefit from faster project flow, but NESO faces greater uncertainty in connection planning.

Enhanced budget-setting information for offshore wind

The Secretary of State would gain access to sealed bid information when setting AR7 budgets for fixed-bottom offshore wind, replacing the current system that relies only on publicly available cost data. This could include visibility of actual bid prices from previous rounds and developer cost submissions.

This improves budget calibration by using real market data rather than estimates, potentially reducing both under-budgeting (which wastes allocation rounds) and over-budgeting (which increases consumer costs). Developers lose some competitive advantage from information asymmetries but gain more predictable budget levels. The change primarily benefits consumers through more efficient budget deployment, though it requires careful handling to maintain commercial confidentiality.

Extended CfD contract terms beyond 15 years

Contract terms could extend beyond the current 15-year standard to reduce financing costs for capital-intensive projects. Longer terms reduce annual debt service costs by spreading repayment over more years, potentially lowering strike prices. The consultation doesn't specify proposed durations but considers the trade-off between reduced annual payments and increased total support.

Developers and their financiers benefit from extended revenue certainty, reducing cost of capital and improving project bankability. Consumers face higher total support payments per project but potentially lower annual CfD levy costs in early years. The option creates intergenerational transfer, with current consumers paying less while future consumers bear extended support obligations. Grid integration benefits from longer revenue certainty supporting investment, but technology risk increases as longer contracts may lock in support for technologies that become obsolete.

Routine policy updates

Various administrative changes including updates to grid connection requirements, transmission charging arrangements, and contract terms reflecting recent policy developments. These typically involve technical adjustments to maintain scheme operation rather than fundamental policy shifts.

Winners include developers facing clearer administrative processes and NESO gaining updated connection procedures. Impacts on consumers are typically neutral or marginally positive through improved scheme efficiency. Changes generally reflect lessons learned from recent allocation rounds rather than strategic policy shifts.

Questions being asked

Planning consent requirements

- Should fixed-bottom offshore wind projects be allowed to participate in AR7 without full planning consents? - What are the appropriate safeguards and timelines for securing consents post-award? (Balancing early market access against contract failure risk) - How should contract termination work for projects failing to secure consents? (Whether developers should face penalties beyond losing the contract) - What evidence requirements should projects meet to demonstrate planning progress? (Preventing speculative bids while allowing genuine projects)

Budget-setting methodology

- Should the Secretary of State have access to sealed bid information when setting offshore wind budgets? - What specific information would be most valuable for budget calibration? (Strike prices, cost breakdowns, or market intelligence) - How should commercial confidentiality be maintained while improving budget-setting? (Balancing transparency against competitive sensitivity) - What alternative approaches could improve budget accuracy? (Whether other mechanisms could achieve similar outcomes)

Contract term extensions

- Should CfD contract terms extend beyond 15 years for some technologies? - Which technologies would benefit most from longer terms? (Whether extension should apply universally or selectively) - What would be appropriate contract durations for different technology types? (Optimising the financing cost versus total support trade-off) - How should longer terms interact with technology cost reduction expectations? (Whether extended contracts should include degression mechanisms)

Implementation and delivery

- What are the appropriate timelines for implementing these changes in AR7? - How should changes affect projects already in development pipelines? (Transition arrangements for projects planning under current rules) - What additional administrative arrangements would be needed? (Implementation costs and operational changes) - How should success be measured and monitored? (Metrics for evaluating whether changes achieve intended outcomes)

Technology-specific considerations

- How should changes apply differently across CfD technology categories? - What are the grid integration implications of accelerated deployment? (Whether transmission planning can accommodate faster project flow) - How should changes interact with other government policies? (Coordination with planning reform, grid infrastructure, and industrial strategy)

How to respond

The consultation closes on 16 May 2025. Responses should be submitted via the government consultation portal or by email to cfds@energysecurity.gov.uk. Written responses can be sent to CfD Policy Team, Department for Energy Security and Net Zero, 1 Victoria Street, London SW1H 0ET.

Respondents should indicate whether their response can be published and whether they consent to being contacted for follow-up questions. The government will publish a response document summarising feedback and final policy decisions ahead of AR7 opening.