What’s next for the UK’s CfD? Looking ahead to AR8

The results of the seventh renewable contract for difference auction round (AR7) in January 2026 delivered the biggest single procurement of offshore wind energy in British and European history, according to government figures. 8.4GW of offshore wind capacity was secured at a strike price of just below an average of £91/MWh for fixed-bottom projects and £216/MWh for floating projects, in each case indexed over the 20-year life of the contract. The success of AR7 represents a hugely positive milestone for the UK’s offshore wind industry, which is rejuvenating. With three times the secured capacity eligible to enter AR7, the sector has also demonstrated its competitive strength and attractiveness for investors. 

As the primary means by which the UK secures clean power and with the government aiming for 95% clean power generation by 2030, AR7, and AR8 which will follow in 2027, are crucial to securing sufficient renewable capacity. Although four out of the 12 winning projects are due for delivery in 2030/31, with the rest due prior to the 2030 deadline, the 2030 goal remains achievable.

Looking ahead to AR8, the government is consulting on proposals to shore up investor confidence as the CfD adapts to increasingly large and complex clean energy projects. The proposals focus on changes to improve the efficiency of the scheme, further enable innovative technologies and provide increased clarity on obligations and enforcement mechanisms in the CfD Standard T&Cs. 

The reforms set out in the consultation include:

1. Surrendered CfD capacity: making permanent the restriction introduced in AR7 on bidding previously surrendered capacity (being capacity surrendered through the use of the Permitted Reduction and/or Final Installed Capacity CfD contractual flexibilities) into future rounds to protect auction integrity and deployment timelines. The consultation proposes maintaining this restriction by retaining the existing Rule 5 ('Excluded Applications') restriction and Schedule 5 eligibility checks within the Contract Allocation Framework.

2. Hybrid metering for single technology/multiple commercial arrangements: the consultation proposes enabling CfD and merchant assets of the same technology to share metering infrastructure. Under the current CfD Standard T&Cs, each generator must be metered as a separate Balancing Mechanism Unit (“BMU") to ensure that CfD payments are settled accurately. Metered output is currently measured at the asset boundary point whereas the proposal would see metered output measured at sub-BMU level i.e. the point of generation. For the purposes of the balancing system, however, assets would still settle at the BMU boundary point. This proposal would allow generators to save costs on site design and development while facilitating incorporation of merchant arrangements. This change would be introduced retrospectively, allowing generators who already have a CfD to introduce hybrid metering for single technology/multiple commercial arrangements. A separate consultation will be published in due course to consider the suite of CfD T&C amendments needed to implement this proposed change. NESO has also recently issued a report assessing the impact of different types of hybrid metering structures.

3. Changes to contractual parameters for floating offshore wind (“FLOW"): the consultation proposes extending the CfD Longstop Period for FLOW to 24 months (from 12 months) and reducing the Required Installed Capacity threshold to 85% (from 95%) in line with fixed-bottom OSW. The changes reflect the scale and complexity of future FLOW projects expected to bid for CfDs in AR8 and beyond. 

4. Introducing a new technology category for Other Deepwater Offshore Wind (“ODOW"): as the availability of suitable shallow water sites declines, further rapid expansion of deepwater deployment throughout the 2030s is anticipated. The current CfD eligibility criteria supports fixed-bottom OSW and FLOW with the relevant definitions in Regulation 27ZA(4)(b) of the Contracts for Difference (Allocation) Regulations 2014) (the “Allocation Regulations") potentially excluding other novel, hybrid foundation designs (to be known as “Other Deepwater Offshore Wind" or “ODOW") which may be suitable for deepwater deployment. The consultation contains a proposed definition for ODOW for eligibility purposes, with ODOW being a subset of Offshore Wind for the purposes of the CfD contract itself, save for a few narrow carve outs.

5. Legislative changes to improve scheme efficiency: the consultation proposes amendments to the Allocation Regulations and Contract Allocation Framework to allow NESO to correct non-material errors made during the assessment of CfD applications and consider new documentary evidence to clarify non-material errors and omissions in applications.  

6. Excluding applications with Gate 1 connection offers: a CfD applicant's connection agreement must stipulate a connection date which occurs either on or before the Target Commissioning Date specified in the application. Following NESO's reform of the connections queue, projects assigned a Gate 1 connection offer are those which do not meet the required readiness or strategic alignment criteria; such projects are assigned an indicative connection date only. Accordingly, the consultation proposes that all applicants must have a Gate 2 connection agreement, with a firm connection date, to be eligible to apply for a CfD. This change would be effected through an amendment to schedule 5 of the Contract Allocation Framework. 

7. Visibility of sealed bids: the consultation seeks views on the merits of a) retaining the policy introduced for AR7 which enables the Secretary of State to view anonymised sealed bids for fixed bottom offshore wind, and b) expanding visibility of bids to other technologies. 

8. Minor and Technical changes: further changes proposed to the CfD contract terms include updating the CPI inflation factor and amending the definition of Inside Information. In addition, the consultation proposes the strengthening of Unilateral Commercial Operations Notice provisions which allow the LCCC to increase visibility on metering information for distribution-connected generators (in order to prevent such projects from delaying CfD start dates and operating on a merchant basis at elevated wholesale prices.) 

Further consultation on elements of the areas covered in the consultation may be required and the government response may be published in stages. Some of the proposed drafting changes to the CfD T&Cs have been published alongside the consultation and are available here. The consultation closes on 30 January 2026.

If you are interested in any more detail on the proposals set out above or would like to discuss their impact, please get in touch with our experts.