Contracts for difference (CfD)—key features of the supplier obligation
Contracts for difference (CfD)—key features of the supplier obligation

The following Environment guidance note provides comprehensive and up to date legal information covering:

  • Contracts for difference (CfD)—key features of the supplier obligation
  • Electricity market reform and contracts for difference
  • Supplier obligation
  • Key features of the supplier obligation
  • Exemptions
  • Brexit and the supplier obligation

Electricity market reform and contracts for difference

The Electricity Market Reform (EMR) programme was developed by government to make changes to the Great Britain electricity system, in order to promote investment in secure and affordable low carbon energy. This was necessary due to pressure on the existing fossil fuel dependent system and because the focus is shifting to a cleaner and more diverse mix of energy generation (including renewables, nuclear and carbon capture and storage).

The key EMR mechanism in respect of encouraging low carbon generation is the contracts for difference (CfD) mechanism. CfDs provide long-term price stabilisation to low carbon plants, enabling investment to come forward at lower capital costs, which means lower costs for consumers.

A CfD is a private law contract between a low carbon electricity generator and the Low Carbon Contracts Company (LCCC). The LCCC is a government owned company (often referred to as the ‘CfD Counterparty’).

The electricity generator party to the CfD is paid the difference between the 'strike price' and the 'reference price'. The 'strike price' is the price for electricity reflecting the cost of investing in a particular low carbon technology, while the 'reference price' is the measure of the average market price for electricity in the market. When payment flows are reversed and the reference price is higher than the strike price, generators make payments to the LCCC.

For more information,