Contracts for Difference AR7 budget 36% lower than AR6

Comparison with AR6 budgets

The AR7 Pot 1 budget is the only pot to receive an increase compared to AR6. It’s risen by 14% from £259m (adjusted from £185m to 2024 prices) in AR6 to £295m. Over half (£160m) of the Pot 1 funding available will be awarded to onshore wind and remote island wind, through the application of a minima. This outlines the minimum amount of the budget to be spent on the technology, and provides a ringfenced budget for it.

Source:DESNZ

At £1,080m (in 2024 prices), the offshore wind budget is a 41% reduction on AR6’s £1,537m (adjusted from £1,100m 2011 prices to 2024 prices).

For AR7, DESNZ separated floating offshore wind from Pot 2 into its own Pot 4. To compare the prices, we’ve combined Pot 2 and 4 in our analysis. The budget for Pots 2 and 4 combined has decreased by 48% compared to AR6.

Source: DESNZ

However, AR7 is the first allocation round to receive a Clean Industry Bonus allocation. This pot offers additional support for offshore wind projects that invest in a shorter, UK-based or more sustainable, supply chain. The total budget available under the CIB amounts to £544m (not included in the above graph).

Implications for potential capacity awarded

While a reduction in the budget alone doesn’t mean that less generating capacity will be awarded CfDs, it is a significant factor. As CfDs are awarded for assets that will be built in the future, the budget is assessed using a wide range of assumptions. The amount of budget that each project is calculated to use is based on a formula. This comprises the difference between the strike price (established via auction) and market reference price (a forecast of power prices), multiplied by the asset’s forecast annual generation. A smaller budget, all other things being equal, will lead to a lower capacity procurement. However, the valuation formula shifts between auctions, including changes to load factor assumptions and reference prices.

The majority of offshore wind, which is seen as a key technology to support delivery of the Clean Power 2030 (CP30) pledge, has historically been supported by CfD contracts. Previous Governments recognised they needed to secure more than 12GW of offshore wind across AR7, AR8 and potentially AR9 to meet CP30. Therefore, the next two ARs will play a crucial role in achieving CP30. However, with a reduction in budgetary ambition for AR7, there’s an increased risk that the UK could miss its CP30 offshore wind target of 43-50GW.

AR7 timeline and next steps

The allocation process for offshore and floating offshore wind will run from 5-9 January 2026, and the Delivery Body plans to notify participants of the auction results on 14 January. Following this, DESNZ plans to publish the outcome of the auction. For all other technologies, DESNZ should publish results for all auctions following the first week of February. After this, we’ll know the cleared strike prices and auction outcomes for each technology pot.

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