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Contracts for Difference (CfD)
Key takeaways
Contracts for Difference (CfDs) are contracts that support low-carbon electricity generation.
The cost is funded through a compulsory levy on electricity suppliers called the Supplier Obligation.
Depending on your contract, CfD costs may be bundled into your unit rate or passed through as a separate charge.
What are Contracts for Difference?
A Contract for Difference (CfD) is a mechanism used to support low-carbon electricity generation.
The simple idea is that the generator receives a stable revenue outcome linked to a “strike price” and a reference market price, with payments flowing depending on the difference between the two.
How are CfDs paid for?
The UK government’s CfD Supplier Obligation collection describes the Supplier Obligation as a compulsory levy on electricity suppliers used to meet the cost of CfDs, collected by the Low Carbon Contracts Company (LCCC).
The LCCC also explains that suppliers fund the scheme through the Supplier Obligation Levy, set in advance based on expected payments.
What does this mean for business customers?
In practice, suppliers recover these costs from customers through electricity pricing.
So on your bill or contract, CfD-related costs might be:
- included within the unit rate (all-inclusive), or
- shown separately as part of policy costs (pass-through)
How to compare quotes when CfD is involved
- Ask whether policy costs are included or passed through
- If passed through, ask which policy costs are included in the pass-through basket
- Compare on total expected annual cost using your own kWh
