Contracts for Difference (CfD) Allocation Round 4

2022Round 4Pure pricecfd two way6 winners7.0 GW6 won

Also known as: AR4, Allocation Round 4, CfD Allocation Round 4, Contracts for Difference Allocation Round 4, Contracts for Difference (CfD) Allocation Round 4, UK AR4, UK CfD AR4, AR4 2022, UK Allocation Round 4

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Framework Snapshot

AR4 opened in December 2021 as the first UK CfD round designed under the post-Brexit subsidy-control reset and the first to operate the new three-pot structure, including Pot 3 for fixed-bottom offshore wind and a ringfenced Floating Offshore Wind minimum in Pot 2. It sat under the UK's 40 GW offshore wind by 2030 target and 1 GW floating-wind ambition, with AR1-AR3 forming the declining-price backdrop that AR4 appeared to extend. Russia's invasion of Ukraine then struck during the auction period, creating the commodity-cost shock that later rendered AR4's record-low offshore clearing price difficult to sustain and set up the AR4 → AR5 → AR6/AR7 reform arc.

Competition

Bidders (preQ → bid → won)

Format

Sealed · single-round

Prize / Award

Award

Contract for Difference (CfD) Agreement

Capacity

7.0 GW

Target delivery

Technology-specific window ending on the Target Commissioning Date: 12 months for Offshore Wind, Floating Offshore Wind, Onshore Wind, Remote Island Wind, Tidal Stream and Wave; 6 months for Landfill Gas; 3 months for Solar PV.

Project stage at bidding

post permit

Commercial terms

Price

GBP 37.4–87.3/MWh (2012 real)

Payment duration

15 years

Indexation

CPI

Risk allocation

Site investigation

developer

Offshore transmission

developer

Negative prices

Intermittent Difference Amount is zero for any Settlement Unit where the Intermittent Market Reference Price is negative.

Wake-loss support

—

Curtailment policy

Standard Terms provide compensation for qualifying curtailment and qualifying partial curtailment.

Non-delivery penalties

Failure to deliver committed capacity can trigger termination and the Non-Delivery Disincentive, excluding affected capacity from subsequent CfD rounds. For SCP-related Outstanding Condition Precedent failure, the payment term is reduced from the end of the Target Commissioning Window until fulfilment; if still outstanding by Longstop, LCCC may terminate.

1Prize Composition

Award Components

Contract for Difference (CfD) Agreement(15y)— Specified Expiry Date is the 15th anniversary of the earlier of the Start Date and the last day of the Target Commissioning Window.

15-year two-way Contract for Difference awarded under the AR4 Generic Agreement and Standard Terms and Conditions.

Site Investigation: developer

State pre-investigated site: No

Transmission Build: developer

Delivery Obligations

Initial Conditions Precedent — No later than 20 Business Days after the Agreement Date.

→ CfD Counterparty may terminate before Start Date if the Initial Conditions Precedent are not fulfilled or waived within the deadline.

Milestone Requirement / Milestone Delivery Date — 18 months after CfD Agreement signing.

→ Failure to satisfy the Milestone Requirement can lead to contract termination and engages the Non-Delivery Disincentive regime for affected capacity.

Supply Chain Implementation Statement — For projects with a Supply Chain Plan obligation, application can be made after Milestone Delivery Date; the statement must be obtained and transmitted before the relevant longstop consequences bite.

→ If not fulfilled by the end of the Target Commissioning Window, the 15-year CfD payment term is reduced until fulfilled; if still unfulfilled by the Longstop Date, LCCC may terminate.

Operational Conditions Precedent — As soon as reasonably practicable and in any event before the Longstop Date.

→ CfD Counterparty may terminate before Start Date if Operational Conditions Precedent are not fulfilled or waived by the Longstop Date.

TCW: Technology-specific window ending on the Target Commissioning Date: 12 months for Offshore Wind, Floating Offshore Wind, Onshore Wind, Remote Island Wind, Tidal Stream and Wave; 6 months for Landfill Gas; 3 months for Solar PV.

Late delivery: Failure to deliver committed capacity can trigger termination and the Non-Delivery Disincentive, excluding affected capacity from subsequent CfD rounds. For SCP-related Outstanding Condition Precedent failure, the payment term is reduced from the end of the Target Commissioning Window until fulfilment; if still outstanding by Longstop, LCCC may terminate.

Extension grounds: Force Majeure.; Delay by a Transmission System Operator, transmission licensee, licensed distributor or OFTO in carrying out required reinforcement or connection works.; MoD non-confirmation of Radar Mitigation Scheme measures for Offshore Wind or Onshore Wind.

2Competition Mechanism

Strike Price bid(GBP/MWh in 2012 prices)↓ Lower wins

Phases: final binding (binding)

Bid Format

Single-round sealed-bid, pay-as-clear auction with separate clearing by auction segment where Minima or Maxima bind.

sealedsingle-round1 rounds

Reserve: — Administrative Strike Prices are technology-specific hard caps. Key offshore values in AR4 were Offshore Wind £46/MWh and Floating Offshore Wind £122/MWh; bids above the relevant ASP could not clear.

Cycle structure: single cycle sealed

Stop: The relevant auction segment closes when ranking and interleaving of bids under Rules 16-18 can no longer admit further successful bids without breaching the applicable hard constraints.

Selection: Bids ranked from lowest Strike Price to highest within the relevant auction segment; successful bids clear at the highest successful bid in that segment.

Selection Envelopes

Overall budget — Delivery Year 2023/24maximum · budget10 GBP million in 2011/12 prices

Overall budget — Delivery Year 2024/25maximum · budget10 GBP million in 2011/12 prices

Overall budget — Delivery Year 2025/26maximum · budget295 GBP million in 2011/12 prices

Overall budget — Delivery Year 2026/27maximum · budget295 GBP million in 2011/12 prices

Overall budget — Delivery Year 2027/28maximum · budget285 GBP million in 2011/12 prices

Overall budget — Delivery Year 2028/29maximum · budget285 GBP million in 2011/12 prices

Pot 1 budget — Delivery Year 2023/24maximum · budget10 GBP million in 2011/12 pricesown clearing price

Pot 1 budget — Delivery Year 2024/25maximum · budget10 GBP million in 2011/12 pricesown clearing price

Pot 1 budget — Delivery Year 2025/26maximum · budget10 GBP million in 2011/12 pricesown clearing price

Pot 1 budget — Delivery Year 2026/27maximum · budget10 GBP million in 2011/12 pricesown clearing price

Pot 2 budget — Delivery Year 2025/26maximum · budget75 GBP million in 2011/12 pricesown clearing price

Pot 2 budget — Delivery Year 2026/27maximum · budget75 GBP million in 2011/12 pricesown clearing price

Pot 2 budget — Delivery Year 2027/28maximum · budget75 GBP million in 2011/12 pricesown clearing price

Pot 2 budget — Delivery Year 2028/29maximum · budget75 GBP million in 2011/12 pricesown clearing price

Pot 2 Floating Offshore Wind minimum — Delivery Year 2025/26minimum · budget24 GBP million in 2011/12 pricesown clearing price

Pot 2 Floating Offshore Wind minimum — Delivery Year 2026/27minimum · budget24 GBP million in 2011/12 pricesown clearing price

Pot 2 Floating Offshore Wind minimum — Delivery Year 2027/28minimum · budget24 GBP million in 2011/12 pricesown clearing price

Pot 2 Floating Offshore Wind minimum — Delivery Year 2028/29minimum · budget24 GBP million in 2011/12 pricesown clearing price

Pot 2 Tidal Stream minimum — Delivery Year 2025/26minimum · budget20 GBP million in 2011/12 pricesown clearing price

Pot 2 Tidal Stream minimum — Delivery Year 2026/27minimum · budget20 GBP million in 2011/12 pricesown clearing price

Pot 2 Tidal Stream minimum — Delivery Year 2027/28minimum · budget20 GBP million in 2011/12 pricesown clearing price

Pot 2 Tidal Stream minimum — Delivery Year 2028/29minimum · budget20 GBP million in 2011/12 pricesown clearing price

Pot 3 budget — Delivery Year 2025/26maximum · budget210 GBP million in 2011/12 pricesown clearing price

Pot 3 budget — Delivery Year 2026/27maximum · budget210 GBP million in 2011/12 pricesown clearing price

Pot 3 budget — Delivery Year 2027/28maximum · budget210 GBP million in 2011/12 pricesown clearing price

Pot 3 budget — Delivery Year 2028/29maximum · budget210 GBP million in 2011/12 pricesown clearing price

Pot 1 Pot Capacity Capmaximum · capacity5,000 MW

Pot 1 Onshore Wind Maximummaximum · capacity3,500 MWown clearing price

Pot 1 Solar PV Maximummaximum · capacity3,500 MWown clearing price

3Qualifying Gates

applicable planning consentsbinary predicate

Applicant must demonstrate that applicable planning consents have been obtained, or that such consents do not apply, and that the consents enable the proposed CfD Unit to be established or altered and electricity supplied to the relevant network.

connection agreementsbinary predicate

Applicant must provide the relevant connection agreement evidence for the applicable connection route.

supply chain plan statementbinary predicate≥300 Generation capacity threshold of 300 MW for SCP Statement requirement.

A valid Supply Chain Plan Statement is required for any generating station with generation capacity of 300 MW or more.

phased offshore wind cfd unit constraintsformula based

Where the application is for a Phased Offshore Wind CfD Unit, the unit must satisfy the phased-offshore-wind constraints.

commissioned generating station exclusionbinary predicate

No application may be made for a CfD Unit that is or forms part of a Commissioned Generating Station.

floating offshore wind conditionsbinary predicate≥45 All turbines floating; all turbines in water depth of at least 45 metres; no phased CfD Unit structure.

Floating Offshore Wind applicants must show that the CfD Unit is not phased, that all turbines are on floating foundations, and that all turbines are in offshore waters of at least 45 metres depth measured from seabed to chart datum.

advanced conversion technology physical separation requirementbinary predicate

ACT applicants must demonstrate compliance with the Physical Separation Requirement between the synthesis chamber and combustion chamber.

remote island wind schematic requirementbinary predicate

Remote Island Wind applicants must submit the required schematic diagram and related technology-specific evidence.

offshore wind lease or agreement for leasebinary predicate

Offshore wind applicants must evidence a lease or agreement for lease granted by the Crown Estate or Crown Estate Scotland for the location of the relevant CfD Unit.

4Scoring Dimensions

Strike Priceprice100%lower wins

Method: quantitative formula

Unit: GBP/MWh in 2012 prices

5Tiebreak Chain

closest envelope fit — Where tied bids cannot all succeed, choose the application or combination of applications that comes closest to filling the relevant final-year monetary envelope without breaching the applicable hard constraint set.
electronic random assignment — If multiple tied combinations are equally close to the relevant envelope, resolve by electronic random assignment.

6Revenue Mechanism

Instrumentcfd two way

Directionbidirectional

Term15 years

Term StartThe CfD runs to the 15th anniversary of the earlier of the Start Date and the last day of the Target Commissioning Window.

Indexationcpi — Strike Price is CPI-indexed from a 2012 price base with annual rebasing.

Reference PriceTechnology-specific Market Reference Price: Intermittent Market Reference Price for intermittent technologies including Offshore Wind and Floating Offshore Wind; Baseload Market Reference Price for baseload technologies.

Price ComputationIntermittent technologies settle against the Intermittent Market Reference Price computed for each Settlement Unit from day-ahead power prices under the Standard Terms; baseload technologies use the Baseload Market Reference Price methodology.

Rate Cadenceper settlement unit

Payment Cadencemonthly in arrears

Negative Price RuleDeveloper not paid — Intermittent Difference Amount is zero for any Settlement Unit where the Intermittent Market Reference Price is negative.

Curtailment CompensationStandard Terms provide compensation for qualifying curtailment and qualifying partial curtailment.

7Authorities & Jurisdiction

Department for Business, Energy and Industrial Strategypolicy ownerscheme ownernational

Legal basis: Energy Act 2013 and the Contracts for Difference (Allocation) Regulations 2014, as amended for AR4.

National Grid Electricity System Operator Limiteddelivery bodynational

Legal basis: Acts as EMR Delivery Body under the CfD Allocation Regulations 2014 and the AR4 Allocation Framework.

Low Carbon Contracts Company Ltdcounterpartynational

Legal basis: CfD Counterparty under the Energy Act 2013 and Standard Terms framework.

Gas and Electricity Markets Authorityappeals authoritynational

Legal basis: Handles non-qualification review and appeal functions under the Allocation Framework and regulations.

Independent Auditorindependent auditornational

Legal basis: Regulation 36 independent audit of valuation and allocation calculations.

Crown Estate / Crown Estate Scotlandseabed lessor

8Process & Timeline

Process Stages

1. Final statutory notices and auction documents publication — Publication of the final Allocation Framework, Budget Notice, Standard Terms, Allocation Round Notice, CFD Framework Notice and related AR4 notices.2. Pre-application guidance and preparation — NG ESO guidance publication and pre-application activities before the application window opens.3. Application window — Applicants submit AR4 applications during the formal application window.4. Qualification assessment — NG ESO performs Schedule 5 checks and determines which applications are qualifying applications.5. Non-qualification review and appeals — Applicants may seek review and then appeal of adverse qualification decisions.6. Application valuation — Qualifying applications are valued under Schedule 2 to determine budget impact and whether auctions are required.7. Budget revision / Secretary of State budget review — If needed, the Secretary of State may revise the budget under Regulation 12 before the auction proceeds.8. Notice of Auction and sealed bid submission — Delivery Body issues the Notice of Auction and receives one-shot sealed bids, including any Flexible Bids.9. Auction clearing and tiebreak resolution — Auction segments clear pay-as-clear under the relevant budget, minima and maxima rules, with Rule 19 tiebreaks if required.10. Independent audit and Secretary of State confirmation — Allocation calculations are audited and the round proceeds to formal confirmation under the statutory framework.11. Results publication and applicant notification — Results are published and applicants are notified of outcomes.

Timeline Events

2 Mar 2020consultation published[Department for Business, Energy and Industrial Strategy]— Launch of the 2020 consultation on proposed amendments to the CfD scheme.

24 Nov 2020government response published[Department for Business, Energy and Industrial Strategy]— Government response confirming Pot 3 creation, Floating Offshore Wind eligibility and Supply Chain Plan reform.

18 Nov 2020policy announcement[UK Government]— Ten Point Plan announced the 40 GW offshore wind by 2030 commitment.

13 Sept 2021draft budget notice published[Department for Business, Energy and Industrial Strategy]— Draft Budget Notice, ASP methodology and draft Allocation Framework published.

4 Oct 2021consultation published[Department for Business, Energy and Industrial Strategy]— Consultation on further AR4-specific technical amendments to the CfD contract published.

31 Oct 2021consultation closed[Department for Business, Energy and Industrial Strategy]— AR4-specific contract amendment consultation closed.

25 Nov 2021government response published[Department for Business, Energy and Industrial Strategy]— Government response on AR4-specific contract amendments published.

25 Nov 2021budget notice[Department for Business, Energy and Industrial Strategy]— Final Budget Notice for AR4 published.

25 Nov 2021allocation framework publication[Department for Business, Energy and Industrial Strategy]— Final AR4 Allocation Framework published.

25 Nov 2021allocation round notice[Department for Business, Energy and Industrial Strategy]— Allocation Round Notice given establishing AR4.

25 Nov 2021standard terms notice issued[Secretary of State for Business, Energy and Industrial Strategy]— CfD Standard Terms Notice issued for AR4.

30 Nov 2021standard terms republished[Department for Business, Energy and Industrial Strategy]— Standard Terms and Conditions republished with minor amendments.

1 Dec 2021guidance published[National Grid Electricity System Operator Limited]— Allocation Guidance, Application Guidance and Pre-Application Activities Guidance published.

13 Dec 2021application window open[Department for Business, Energy and Industrial Strategy]— AR4 application window opened.

14 Jan 2022application window close[Department for Business, Energy and Industrial Strategy]— AR4 application window closed.

24 Feb 2022geopolitical shock— Russia's invasion of Ukraine began during the auction period and became a major input-cost shock for offshore wind economics.

20 May 2022budget revision notice[Department for Business, Energy and Industrial Strategy]— Budget Revision Notice issued, increasing Pot 3 by £10m per Delivery Year and revising the overall budget accordingly.

7 Jul 2022results publication[Department for Business, Energy and Industrial Strategy]— AR4 results published at 07:00 BST.

7 Jul 2022applicant notification[National Grid Electricity System Operator Limited]— Applicants notified of the round outcome.

24 Nov 2022subsidy control disclosure[UK Government]— Subsidy Control Transparency Database entries for AR4 winners published.

9Market Context

Policy Targets in Force at Open

UK offshore wind capacity target50 GWby 2030

UK floating offshore wind target5 GWby 2030

Regime Events

Feb 2022Russia invasion of Ukrainegeopolitical shock

Oct 2020UK offshore wind target increase to 40 GW by 2030policy target increase

Jan 2021UK exit from EU State Aid regimeregime change

Nov 20202020 consultation response: CfD proposed amendments to the schemeconsultation response

Nov 2021AR4-specific contract-amendments consultation responseconsultation response

Narrative ReferenceAR4 opened in December 2021 as the first UK CfD round designed under the post-Brexit subsidy-control reset and the first to operate the new three-pot structure, including Pot 3 for fixed-bottom offshore wind and a ringfenced Floating Offshore Wind minimum in Pot 2. It sat under the UK's 40 GW offshore wind by 2030 target and 1 GW floating-wind ambition, with AR1-AR3 forming the declining-price backdrop that AR4 appeared to extend. Russia's invasion of Ukraine then struck during the auction period, creating the commodity-cost shock that later rendered AR4's record-low offshore clearing price difficult to sustain and set up the AR4 → AR5 → AR6/AR7 reform arc.

Cross-Axis Structures

Financial Parameter Links

Administrative Strike Price (ASP)

Technology-specific hard bid cap in GBP/MWh at 2012 prices; AR4 used a single ASP across applicable Delivery Years for each technology, set as the maximum delivery-year-specific calculation and rounded to the nearest £1/MWh.

Axis 2 bid capBids above the relevant technology ASP could not clear; if no auction were triggered, qualifying projects would receive the ASP.

Monetary budget / pot budget / minima-maxima envelope

Applications were valued against 2011/12-price monetary envelopes rebased against 2012-price bids under the Allocation Framework and Budget Notice, with Budget Revision Notice adjustments applied mid-round.

Walk-the-stack acceptance stopped before breaching the applicable overall budget, pot budget, capacity cap, minimum or maximum.

Relationships & Sources

Followed By2 auctions

Source Documents12 documents

Auction Results (6)

Winner	Site/Lot	Category	Capacity	Price	Total Value	Delivery	Term	Mechanism	Signed	Status
WAVE HUB LIMITED	TwinHub Floating Offshore Wind Project	Floating Offshore Wind	32 MW	GBP 87.3/MWh	—	2026	—	auction clearing	—	—
INCH CAPE OFFSHORE LIMITED	Inch Cape Phase 1	Offshore Wind	1,080 MW	GBP 37.35/MWh	—	2026	—	auction clearing	—	—
EAST ANGLIA THREE LIMITED	EA3, Phase 1	Offshore Wind	1,372.34 MW	GBP 37.35/MWh	—	2026	—	auction clearing	—	—
NORFOLK BOREAS LIMITED	Norfolk Boreas (Phase 1)	Offshore Wind	1,396 MW	GBP 37.35/MWh	—	2026	—	auction clearing	—	—
ORSTED HORNSEA PROJECT THREE (UK) LIMITED	Hornsea Project Three Offshore Wind Farm	Offshore Wind	2,852 MW	GBP 37.35/MWh	—	2026	—	auction clearing	—	—
MORAY OFFSHORE WINDFARM (WEST) LIMITED	Moray West Offshore Wind Farm	Offshore Wind	294 MW	GBP 37.35/MWh	—	2026	—	auction clearing	—	—