The Contract for Difference (CFD) is a private law contract between a low-carbon electricity generator and Low Carbon Contracts Company Ltd. It consists of two elements, the CFD Agreement and the Standard Terms and Conditions.
How CFDs Work
CFDs ensure generators receive a fixed, preagreed price for the low carbon electricity they produce for the duration of the contract. This is known as the 'strike price'.
Generators will recieve revenue from selling their electricity into the market as usual, independently from the CFD. However, when the market refference price is below the strike price, they will receive a top up payment to the level of the strike price. This is calculated and paid by Low Carbon Contracts Company. Conversely, if the market reference price is above the strike price, the generator must pay back the difference.
Types of CFD Contract
For offshore wind projects of up to 1,500MW, generating capacity phased CFDs are available. The CFD Terms and Conditions will apply together with any necessary phasing-specific amendments achieved through the relevant CFD Agreement. These projects can have up to 3 separate phased CFDs as appropriate. Additionally, CFDs for apportioned metering are also available.
Support through the CFD mechanism is also available for eligible low-carbon electricity generation operating on a ‘private wire’ network (Private Network). The Private Network CFD Agreement and standard Terms and Conditions are applicable.
Further information can be found here.