CfD rule changes

The government ran an extensive consultation aimed at improving the attractiveness of its CfD scheme, building on the success of the AR6 auction last year. The changes will come into effect with the AR7 auction which is planned to open for applications on 7 August 2025.

The recently approved changes include, among others:

increasing the current 15-year CfD term to 20 years for solar, onshore wind, fixed bottom and floating offshore wind projects to reduce overall project costs;

increasing the Administrative Strike Prices (ASP) for onshore wind, offshore wind, and tidal stream but decreasing it for solar;

setting a separate clearing price and an additional delivery year for Scottish fixed‑bottom offshore wind projects to account for higher transmission charges and to avoid having to uplift strike prices for all projects;

allowing fixed-bottom offshore wind projects bid in the CfD auction prior to obtaining full planning consent (NB certain planning milestones need to be achieved 12 months before the CfD application deadline, restricting speculative projects);

publishing Contract Budget Notices for all technologies before the sealed bid window;

potential to adjust upwards the budget for fixed‑bottom offshore wind projects if anonymised bids which exceed the budget are deemed value-for-money for the end consumer;

increasing the length of the target commissioning window for solar PV from three to 12 months;

allowing repowered onshore wind project to participate in CfD auctions;

setting a budget for Test & Demonstration scale floating offshore wind projects in AR7;

removing the ability to apply surrendered capacity from previous allocation rounds into AR7;

The government decided against moving from budget-based to capacity-based allocation for the upcoming allocation round. Full auction parameters, including the planned approach to separate clearing prices, will be published ahead of time.

Scrapping zonal split plan

After almost three years of uncertainty under the Review of Electricity Market Arrangements (REMA) process, the UK government decided against a proposal to split the country’s wholesale market.

Initially, proposals for either a nodal or zonal pricing system were being discussed. The former was dismissed after the consultation phase in 2024, while the latter was ultimately rejected in July 2025 in favor of retaining a reformed national pricing approach. The single national wholesale price will remain, while reforming and optimising the current system.

Later in 2025, the government plans to publish:

A Reformed National Pricing Delivery Plan, setting out the next steps on the new design to address the historic mismatch between transmission and generation build;

The final REMA analysis, including a full cost benefit analysis of the different wholesale market reform options;

Consultations on reforming the balancing market and the capacity market;

A call for evidence to explore how the PPA market can be further developed to enable strategic investments such as data centres.

The government will also explore participation in the EU’s electricity trading platforms in all trading timeframes to optimise interconnector flows. This opens the door to the UK re-joining the European market coupling scheme.

A Strategic Spatial Energy Plan (SSEP) aiming to set up a more efficient siting of new assets is planned by the end of 2026. This plan combined with reforms to Transmission Network Use of System (TNUoS) charges aims to send stronger and more predictable locational investment signals.

The location-specific resource potential, capture rates and balancing needs are already providing investment signals. As Veyt has shown in a previous analysis,  expected revenues for RES projects can differ significantly depending on asset location.

For onshore wind the fair value of each MWh of generated electricity over 10 years can differ by as much as +/- 8 %. For solar, siting can impact the fair value by +/- 3 %.

To ensure new projects benefit not just the investors, but also the broader system and the end consumers, signals need to also reflect grid constraints and system needs.

PPA market impact

The UK has set up highly ambitious renewables targets for 2030 and beyond which can only be achieved by accelerating new deployments via both CfDs and PPAs. Both the decision against zonal pricing and the overhaul of the CfD auctions are designed to boost investor confidence and planning certainty which in turn should see more renewables projects reaching completion faster.

At the same time, reducing energy costs and improving price predictability for consumers are a priority.

The AR7 is likely to attract strong bidding interest across all technologies, given the extended contract duration and improved conditions for solar, repowered onshore wind as well as fixed-bottom offshore wind projects.

The increased ASPs for onshore wind (+3 %) and offshore wind (+10 %) reflect inflation and cost increase considerations, while at the same time aim to rebuild confidence in the sector. However, higher competition is likely to push awarded strike prices down. For example, the strike prices in the highly competitive AR6 auction were around 20 % below ASP.

Reducing the solar ASP on the other hand, would improve the balance between technologies since solar has consistently seen most awarded capacity. Solar projects are also more likely to be built outside the subsidy scheme – 87 % of the 436 MW total contracted PPA capacity in the UK in H1’25 was solar, according to Veyt’s PPA transactions database.

Interest in signing physical PPAs may slump until results of the AR7 auction become available as CfDs are likely to become a preferred option, especially for offshore wind. RenewableUK estimates that over 20GW of offshore wind projects would be eligible to bid into this year’s auction.

On the other hand, we expect the growing interest in route-to-market PPAs to continue as CfD-awarded projects seek ways to optimise their activities in the wholesale market.

Veyt has recorded four route-to-market deals in H1’25, with at least two more signed so far in July 2025. Of these, three PPAs were linked to assets with secured CfDs. Solar as well as hybrid projects combining solar and battery storage have been the preferred technologies for route to market PPAs this year (see table).

These compare to three such deals recorded in 2024 as a whole – one each for onshore wind, offshore wind and a combined solar-storage project, all with secured CfDs.

REGO market impact

Medium- to long-term REGO prices could face renewed downward pressure if AR7 results in a record-breaking award volume, especially if most capacity is awarded to wind projects with high load factors.

As most projects, save for solar, would target commissioning between 2028 and 2030, the resulting growth in renewable capacity would hit an already oversupplied market.

Since January 2025, CP27 dark green REGO prices – linked to electricity generated between April 2028 and March 2029 – have fallen from GBP 3.00/MWh to GBP 2.20/MWh, a 27 % drop, driven in part by expectations of a future increase in REGO issuance.

However, rising corporate demand may soften the impact in the long run. As businesses work toward net-zero targets and align with evolving climate regulations, REGO demand is expected to grow. The current contango structure – where forward vintages are priced above near-term ones – indicates market expectations that demand could absorb future supply increases.