Investment contracts—early contracts for difference (CfD) [Archived]

Copyright © 2025 LexisNexis
Published by a LexisNexis Energy expert
Practice notes

Investment contracts—early contracts for difference (CfD) [Archived]

Copyright © 2025 LexisNexis

Published by a LexisNexis Energy expert

Practice notes
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ARCHIVED: This Practice Note has been archived and is not maintained.

Investment contracts

An investment contract is an early form of contract for difference (CfD), provided for by the Energy Act 2013 (EA 2013) as a transition arrangement to avoid an investment hiatus while the CfD programme arrangements were finalised. The investment contracts work like CfD do, by paying the electricity generator party to the contract 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. As such, it is a form of hedge against electricity price volatility, and so these contracts have been created to provide long-term price stabilisation to low carbon plant, and to enable investment to come forward at lower capital costs.

See Practice Notes: contracts for difference (CfD)—key features and Contracts for Difference (CfD) tracker, which displays the current status and most recent developments in relation to the scheme, covering consultations,

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Jurisdiction(s):
United Kingdom
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Key definition:
Contracts for Difference definition
What does Contracts for Difference mean?

The Contracts for Difference (CfD) scheme is the primary mechanism for supporting low-carbon electricity generation in the UK, via a private law contract between a low carbon electricity generator and the Low Carbon Contracts Company (LCCC), which provides long term revenue stabilisation for low carbon generation.

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