Contracts for Difference Subsidies on The Rise Again


By Paul Homewood

The renewable lobby were quick to brag that the Contracts for Difference scheme was paying back money to energy users last year, when market prices of electricity spiked. But they have remained strangely silent since, now that market prices have fallen back, with the result that the subsidy conveyor belt is now running again.

In Q1 this year, subsidies for wind and solar power via CfDs totted up to £222 million, which will filter through on to our bills in months to come. Although onshore wind and solar still show negative subsidies of £9 million, offshore wind, which makes up 92% of the generation, gobbled up a subsidy of £231 million, with an average strike price of £166/MWh, compared to a market price of £120/MWh.

In reality, the subsidy is much bigger than the official figures say. The Emissions Trading Scheme adds £31/MWh to market prices, by artificially increasing the cost of gas generation. The real, underlying market price is therefore about £89/MWh, meaning that the real subsidy under CfD is £167 million higher than shown.

CfDs of course are just the tip of the iceberg, as far as subsidies go. The Renewable Obligation scheme will hand renewable generators about £6.8 billion this year, about 12% higher than last year thanks to indexation.

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April 15, 2023 2:20 am

Daily Telegraph is reporting:
Teenager took his own life after ‘losing hope over climate change’
His is thought to be one of the first deaths linked by loved ones to concern over climate change.
What are next steps for the scaremonger ayatollahs of so called ‘climate science’ now they have a martyr for brainwashed kids to venerate?

Reply to  vuk
April 15, 2023 3:34 am

In a way, the teen is a candidate for the Darwin Award.

Reply to  vuk
April 15, 2023 3:35 am
AGW is Not Science
Reply to  observa
April 17, 2023 7:27 am

In a time where building MORE nuclear power would be intelligent thing to do, they do…this.

I thought the Germans were smarter than this. Shame on them. Herr Merkel kicked off this insanity, using the Japanese fiasco at Fukushima as the excuse to shut down German nuclear power, because, you know, GERMANY has so much exposure to TSUNAMIS.


AGW is Not Science
Reply to  vuk
April 17, 2023 7:22 am

If only all the young and foolish clamoring about the climate would follow his example. Then they wouldn’t be voting any more and we’d have a chance to right the ship.

Pat from Kerbob
Reply to  vuk
April 17, 2023 9:31 am

Alarmists should be charged with his murder

Talking someone off a cliff is the same as pushing them yourself.
I think there was a recent case in America where a girl was charged with convincing a boy to off himself.

Ron Long
April 15, 2023 3:10 am

Remember when the rules were simple: if you subsidize something you get more of it, if you penalize something you get less of it, if you leave it alone it reaches a natural level? Now it’s: if you subsidize something the pigs at the trough get more to gorge themselves on and are more certain to support you, if you penalize something you are racist/homophobic/etc, if you leave something alone you need to WOKE up! The downward spiral continues.

April 15, 2023 3:15 am

Contracts for Fleecing the Public

April 15, 2023 3:42 am

Off Topic, but really worth a look – assuming you like a laugh. BBC journalist, James Clayton, proves that when you’re pushing a narrative facts don’t come into it. It’s an article of faith.


Joseph Zorzin
Reply to  strativarius
April 15, 2023 5:35 am

Another off topic- yesterday’s NYT had a story about “flash droughts”. What will they dream up next?

As World Warms, Droughts Come On Faster, Study Finds

Reply to  Joseph Zorzin
April 15, 2023 5:46 am


They’re as daft as the Grauniad

Reply to  Joseph Zorzin
April 15, 2023 8:48 am

Recall the “butterfly effect”. Eradicate all butterflys and weather will return to normal. /s

April 15, 2023 6:24 am

Before CfD were rising, they were falling, in response to the perceived winter shortage. Not long ago:

… that three factors may explain falling CfD prices: the dominance of large, often state-controlled companies in the off-shore wind sector that can deploy large cash flows from existing businesses, and which are under little pressure to return cash to either customers or shareholders; the operators may expect to be able to sell a large portion of their shares in the projects to over-optimistic investors while projects also rely heavily on debt provided by equally naïve lenders; and operators / financial investors may expect to be bailed out, since once the financial consequences of the underlying economics become undeniable there will be pressure to pass the full costs of these projects to either electricity consumers or taxpayers.

[emphasis added-dk_]

Of course, not long ago, most European countries and UK were panicked into bidding up the price of natural gas. At the same time, those governments were under pressure to curb the resulting sharp rise in customer payments. Now that the price of gas is dropping and the supply growing, the cost of subsidized bills and overpriced CNG has to be recovered.

Probably this has nothing to do with it. Nothing to see here, folks, move along.

…doubtful that operators or investors are thinking that deeply… suspect that as long as they can get deals done they are happy to buy into the falling costs narrative, particularly since the day of reckoning when the subsidy schemes expire is 15 years away at which point the individuals concerned will most likely have moved on….

same link

It doesnot add up
Reply to  dk_
April 15, 2023 9:07 am

CFD bids may have been falling – at least if you ignore the fact that the CFDs issued so far are essentially options to take market price instead. The low CFD bids guarantee the project goes ahead, while the government stance on racking up carbon taxes puts a high floor under market prices, at least while the wind isn’t blowing too strongly to create a curtailment surplus.

It doesnot add up
April 15, 2023 6:47 am

Here’s a chart of average CFD strike prices weighted by actual production for various technologies, and overall, in comparison with day ahead prices. Where the stike prices are higher than the market prices subsidy is being paid. Where there is a gap in the data it is because there was no production of that kind. The recent gaps in biomass (Drax, Lynemouth) arise because their CFDs are benchmarked on a different basis. The data for April only reflect the first few days, so are subject to change, but they give a good indication of the effect of indexation on strike prices. There is no sign of newer cheaper wind farms lowering average strike prices significantly. The extreme market volatility over the winter shows up in the day ahead prices. It should be remembered that most renewables are still on the ROC scheme, which pays a premium to market price ranging from about £60/MWh for onshore wind to £210/MWh for floating offshore wind. Data on production and subsidy levels for these elements is only made available somewhat in arrears, and so is not included in this chart.

CFD Average Strike vs Market.png
Reply to  It doesnot add up
April 15, 2023 2:30 pm

I cannot read the key.
Do you have a better image?

The data the government gives is only about £50 /mwh, for the AR5 2022 strike price. That is much less than you are apparently showing.

Government data – see Table 1.


It doesnot add up
Reply to  ralfellis
April 15, 2023 3:40 pm

Click on the image and you will get an enlarged version that is much more legible.Right click on that and you will be able to get the full size version that occupies a good chunk of my laptop screen at 100%. Or do the same with this which is derived directly from clicking on the previously posted image:

comment image

The prices in the chart are money of the day – i.e. what is really paid, and relate to production that is operating now. The administrative prices you link to are the maximum permitted bids for the next round of CFD contracts to be auctioned later this year. They are quoted in 2012 money: indexation adds roughly a third to those values at present. So offshore wind at a maximum of £44/MWh in 2012 money is about £60/MWh today, and will be further indexed for inflation. AR5 projects won’t be coming on stream until 2027/28. The real difference for AR5 is that the contracts now give the government the option to enforce the CFD once the project is operational. Previously, CFD holders have had the option not to start the CFD but accept market prices instead. That is exactly what has been happening with the projects that bid aggressive prices in earlier rounds that have started up over the past year or so, and will likely continue to happen with AR4 projects as they come on stream. With the change in terms it will be interesting to see how many bidders there are, especially since turbine manufacturers are saying they need to increase prices. The whole point is that the fiction of 2012 prices that aren’t even being implemented as indexed prices is completely undermined by the reality. The cheapest CFD for offshore wind in operation currently is for Triton Knoll, valued at £107.14/MWh, which is about where the market price is. By taking on the CFD they are no longer subject to the Generator Levy windfall tax, and that would improve their after tax return so long as market prices average below about £140/MWh. Windfarms on CFDs worth under £50/MWh have no such incentive.

Reply to  It doesnot add up
April 16, 2023 12:37 am

Thanks, but I still don’t understand your graph.

You say the strike-price for offshore wind adjusted for inflation is about £60, but your graph is showing about £160. Why the difference?

Previous strike-prices, coming on stream now, were even cheaper.

And if a company refuses the strike price and accepts a market price, surely they cannot immediately go back to strike price when the market price drops. And that perversion of the scheme would still not raise the quoted strike price, from £60 to £160.


It doesnot add up
Reply to  ralfellis
April 16, 2023 3:57 am

The graph shows the actual price history for different kinds of generation operating and producing electricity under CFDs. When a new wind farm starts to operate under its CFD it is included in the average along with all the other wind farms already operating. So if its strike price is lower, that should help to lower the averages. Offsetting that is the fact that all the contracts are inflation indexed, so they get a higher price every April. The end result (blue dotted line) us that the average price payed to CFD generators in total has been rising.

Once a generator has opted to start the CFD fixed price with indexation terms they must stick with that until 15 years after commissioning date. But they have the option to delay or ultimately abandon starting to operate on those terms. Then they will get market prices instead. Wind farms that have done this include Hornsea 2 whose indexed price is now £83.94/MWh and Moray East on £74.49/MWh. Both are clearly much better off taking market prices. Seagreen is in the process of construction, but it is very unlikely it will take up its CFD which is only worth £52.24/MWh currently.

The result is that a tiny amount of very expensive tidal energy aside, the pool of generators actually operating under CFDs is now fixed, and the average price they get will carry on rising with inflation. The rest will go to market pricing. At low strike prices wind farms are unprofitable. They will not get financed and built unless they can be profitable. That is why I think that AR5 will be a failure : the terms do not allow profitable operation at market prices. We should get first indications at the end of the month when there will be some information about how much interest there has been in pre-qualifying for the AR5 auction for rights to build more capacity that is due to take place in the summer.

Paul Hurley
April 15, 2023 7:35 am
John Oliver
April 15, 2023 8:09 am

I don’t think we are going to be able to bring society back to some degree of sanity at this point. It is going to have to be correction through failure of all their big green transition plans. And that goes for the preserving the civil society too. History repeats.

It doesnot add up
April 15, 2023 9:02 am

Here’s the story on the biomass plants (Drax, Lynemmouth). They are benchmarked against a Baseload Market Reference Price which is calculated for 6 month winter and summer seasons on the basis of quotations for baseload supply for the period made in the previous 6 months. The result has been to set the price index way above day ahead market levels now that the extreme price spikes of last summer and autumn are history. The effect is that these plants have been facing a huge tax on every MWh they generate – and in consequence they have been shut down. There were just a few operational hours in the winter when prices spiked to extreme levels in the face of capacity shortages. Drax has 3 biomass units that are subsidised by ROCs, and these have kept operating throughout, getting market prices plus the ROCs.

Biomass CFD Gen.png
April 15, 2023 2:25 pm

Do you have more complete figures.?

The CFD Strike Price for AR5 in 2022 was only:
… Onshore wind – £44 /mwh
… Offshore wind £53. /mwh
… While biomass got a massive £160 /mwh
And those prices are locked in for 15 years, from the contract date.

That is still lower that the current price for electricity, is it not?
Do you have a graph of the data?

Government document.
See Table 1.


Last edited 1 month ago by ralfellis
It doesnot add up
Reply to  ralfellis
April 15, 2023 3:45 pm

Please see my post above, which explains the AR5 prices and more detail behind what we are actually paying now for electricity.
Incidentally the $163/MWh price is for biomass integrated with a CHP plant to provide district or industrial heating, which is not the same thing as Drax burning wood pellets just to make electricity. In fact, the government isn’t offering anyone the chance to build more plants like Drax. They’ve quietly realised it doesn’t really make environmental sense, having been previously hoodwinked by the Climate Change Committee which used to have a (now former) Drax director as a member: Rebecca “BECCS” Heaton.

Last edited 1 month ago by It doesnot add up
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