Hot on the heels of the record payments made under the Feed-in-Tariff scheme in the year to end March 2024, the data is now available for subsidies paid under the Contract for Difference Scheme (CfDs) in calendar year 2024. The data comes from the Low Carbon Contract Company (LCCC). The data is subject to minor revision and the data snapshot for this piece was taken on January 14th, 2025.
A record £2.4 billion was paid out in subsidies across a range of technologies, but the largest recipient was offshore wind. There are some other interesting facts buried in the data that we can now explore.
How Do CfDs Work?
I am often asked how CfDs work, so it is worth giving a brief explanation before diving into the detail of the data. I have pulled Figure 1 below from the Renewable Exchange to illustrate how they work.
The black line shows the market price (or reference price) of electricity on any given day. The red line is the CfD strike price and reflects how much the generator will get paid for its electricity, regardless of the market value. Note that in reality, as we shall see below, the average strike price for active offshore wind CfDs is over £150/MWh.
When the black line is below the red line, the generator receives the market price for the electricity generated plus a CfD top-up (subsidy) for the difference. On the rare occasions when the market price is above the strike price, the generator pays back money to the LCCC as illustrated by the blue line, so its net revenue is equal to the strike price.
Full Year Subsidies
Figure 2 shows the full year subsidies since the scheme began in late 2016, broken down by technology type.
As well as 2024 being a record year overall, offshore wind received more subsidy than in any other year with £1.9 billion paid out. Biomass conversion, a euphemism for burning trees, received £309 million and biomass with combined heat and power (CHP) received a further £90 million. Onshore wind received £73 million and the two solar farms with active CfDs received just over £1 million.
Incidentally, in December 2024, £260.3 million was paid out in subsidies, the second highest month on record, with April 2024 being the highest at £269.8 million.
Supporters of renewables often point out that when the market price of electricity is above the CfD strike price, then generators pay money back. This is true, but that was only significant in 2022 when a net £346 million was repaid and compares to the net cost of the scheme of £9.6 billion since inception.
Top-20 Subsidy Days
From the data, it is also possible to work out the Top-20 subsidy days since the scheme began. These are listed in Figure 3 below.
The top thirteen CfD subsidy days all occurred in 2024, and a total of 16 days from the same year all appear in the Top-20. The day with the highest subsidy payments was December 22nd, 2024, with over £20 million paid out in a single day. Offshore wind was the main recipient of this Government mandated largesse on that day, getting over £18.3 million and biomass receiving over £1 million.
The record subsidy days in December last year came despite elevated gas prices pushing up the reference price. The annual indexation of CfD strike prices with inflation means that as each year progresses, we are likely to see many more record subsidy days, especially if gas-prices fall back to more normal levels.
Top CfD Subsidy Recipients
We can also see the top recipients of the subsidy largesse. The all-time Top-10 list is shown in Figure 4a below with the Top-10 for 2024 shown in Figure 4b.
Six of the all-time Top-10 recipients are offshore wind farms. Walney has received the most at £1.76 billion, with Hornsea Project 1 coming in second at £1.67 billion. In third place is Drax that has been paid £1.6 billion in subsidy for burning trees. Note Drax also has another plant that is funded by Renewables Obligation Certificates, so this is only part of the story. The other offshore wind farms in the Top-10 are Dudgeon, Beatrice, Burbo Bank and East Anglia One. Lynemouth and Teesside Biomass plants also make the Top-10 along with the Dorenell onshore windfarm.
The 2024 Top-10 is dominated by offshore windfarms, with Drax coming in at number six with Lynemouth biomass plant in ninth place with Teesside Biomass and CHP plant in tenth place.
CfD Electricity Generation
We can now work to explain why the subsidy payments have been rising. To begin with, we can look at total generation as shown in Figure 5.
Generation is also hit an all-time high in 2024, with a substantial increase to offshore wind generation to another annual high due to the activation of the CfDs for Hornsea Project 2 and Moray East in March last year. Biomass and Biomass with CHP also saw considerable increase in output. There are only two active CfDs for solar power and their output is virtually undetectable.
CfD Strike Prices
As can be seen in Figure 6, in general strike prices rise over time as they get indexed up with inflation in April each year.
The strike price for Biomass has gone up each year since 2017 rising from £107/MWh to over £139/MWh last year. A similar picture emerges for onshore wind and solar. The exception is offshore wind where prices fluctuated in the £160-165/MWh range from 2017 to 2022. Then there was a big jump in 2023 to £171/MWh before falling back to £154/MWh in 2024. The drop in 2024 can be explained by Hornsea Project 2 and Moray East activating their CfDs in March 2024. The strike price for these two projects is much lower than the other projects at £78/MWh, so they brought down the average even though the strike price of the other projects indexed upwards.
CfD Reference Prices
The weighted average reference price for the year (equivalent to the black line in Figure 1) has fluctuated a lot since 2017 as shown in Figure 7.
The charts for offshore wind, onshore and solar are all very close, so for clarity this chart shows just the intermittent reference price for offshore wind. The various flavours of biomass use a different reference price called the Baseload Market Reference Price (BMRP) and we shall deal with separately. Average offshore wind reference prices were in the range £41-57/MWh from 2017 to 2019. Prices plummeted in 2020 as gas prices and demand fell due to Covid. Prices rose in 2021 to an average of £115/MWh mainly due to the energy crisis that began in the second half of that year. Prices rose again in 2022 to £177/MWh as the energy crisis continued with Russia’s invasion of Ukraine before falling back somewhat to £89/MWh in 2023. Prices have fallen further in 2024 to £67/MWh even though prices have been somewhat elevated in the latter part of the year.
CfD Subsidies Per MWh
The difference between the strike price and the reference price allows us to calculate the subsidies received per MWh of generation as shown in in Figure 8.
In 2022, all technologies paid back into the system on average, with negative subsidies per MWh generated. However, in 2023 and 2024 subsides rose back into positive territory for all three intermittent technologies.
We can see the share of market revenue and subsidy revenue for each technology in 2024 set out in Figure 9.
Offshore wind received subsides of £86/MWh, which is more than the intermittent reference price of £67/MWh, meaning that on average CfD funded offshore wind farms got more of their revenue from subsidies (56%) than they got from selling their power on the market. Onshore wind received £48/MWh (43%) and solar got £45/MWh (41%) of their revenue from subsides.
Load Factors
We can also calculate the average load factor for the main intermittent technologies funded by Contracts for Difference as shown in Figure 10.
We can see a general downtrend in the amount of electricity generated compared to nameplate capacity for all three technologies. However, offshore wind achieved a load factor of just 38.7%, the lowest on record, despite new wind farms coming online. However, the average is skewed somewhat by Moray East that had a load factor of just 21%, probably reflecting a high level of curtailment during the year. Curtailment happens when wind is producing more power than there is demand or the grid can handle, so windfarms are asked to switch off. Although Beatrice and Triton Knoll showed a big increase in load factor in 2024 compared to 2023, East Anglia 1 and Hornsea Project One both saw significant reductions.
CfD Subsidies for Biomass Plants
Moving back to biomass plants, we can see how much subsidy they received per MWh of generation and the relationship between subsidies and generation in Figure 11.
Conclusions
What conclusions can we draw from all this data? It is virtually certain that the overall subsidy payments will continue to rise in the coming years because more offshore wind farms are coming on stream that will push up the level of generation.
It is more difficult to predict strike prices. However, we know that new developments coming online such as Neart na Gaoithe (NNG) where the strike price is currently £158/MWh, coupled with a new round of indexation coming in April will have the effect of pushing up the average strike price. However, other projects with lower strike prices such as Dogger Bank and Sofia may come online and activate their CfDs too which would push strike prices in the opposite direction.
Reference prices are even harder to predict because we do not know future gas-prices which are the main driver of reference prices. Higher gas prices would tend to reduce subsidies because the reference price goes up. Gas prices are currently elevated, so provided global tensions do not escalate, we might expect gas-prices to fall and therefore reference prices would fall too and subsides would rise. Moreover, putting more offshore wind on the grid tends to reduce reference prices when it is most windy. Lower reference prices would tend to increase subsidies per MWh at the time when there is most generation.
It is sad to conclude that we are in for higher bills as the bill for Contracts for Difference continues to escalate.
David Turver writes the Eigen Values Substack, where this article first appeared. He will be giving a Sacred Cows talk on January 28th in London entitled “Net Zero: Why the cure is worse than the climate change disease”. More details and ticket details can be found here.
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Brilliant article, and great analogy about the hot air balloon.
Which reminds me of a thought which crossed my mind a while back, after happening upon this column by Freeland in the Guardian:
https://www.theguardian.com/commentisfree/2020/apr/17/political-imagination-end-lockdown-mass-testing-contact-tracing
…in which he used the quite inappropriate (though superficially plausible) analogy of the public being a family hiding in a cabin whilst a wild bear prowled outside, and needing to make a decision on when it was safe to come out (ie. when the bear had gone away).
For starters, I found this troubling because if the bear just stayed outside indefinitely the family would eventually starve.
But the point is, the analogy was wrong. Under lockdown, we are not sitting in a cabin which is safe and stable for the foreseeable future. Instead we are taking huge risks with the entire functioning of society.
The better analogy which then crossed my mind was we are all in a submarine. The virus was some unknown fault which sounded an alarm in the engine room. Under those circumstances it might be sensible to temporarily shut down the engines whilst the fault was investigated.
However what has happened with lockdown is the engines have just been left switched off and the powers that be are saying “let’s stay here until we can be perfectly sure they are safe to start up again. After all, we are all still breathing and everything is perfectly comfortable, isn’t it?”
Whilst all the time the ship sinks nearer to the bottom, the hull pressure increases and the remaining air decreases. We can only hope someone shouts the order to surface before the entire ship implodes.
Yes, the “bear” scenario really annoys me. Most people – apparently including almost all politicians and other “decision makers” – have no idea at all what viruses are, how small they are, or how ubiquitous they are.
The world is thought to contain about 10 to the power 33 viruses – more than stars in the universe, more than grains of sand in the world. Much of our human DNA consists of old viral genes from invaders that burst in, were assimilated, and joined the host genome. (Karin Moelling, a leading virologist, states that the human immune system was created by viruses trying to defend the cells they had conquered from other viruses).
Every human body is full of viruses, bacteria, fungi, archaea, amoebae and other microorganisms – a total of 2-3 kilos for an average adult. Only about 10% of our cells are human; the other 90% belong to our tiny symbiotes.
Thus, as Moelling explains, our immune system is not so much “at war” with viruses as “playing ping pong with them”. Health consists of keeping the balance between all the myriad elements of the human body.
To say that someone has “been infected” with Covid-19 is misleading. I am sure we all have a few billion of the little buggers somewhere in our bodies. It’s only when the number of billions ramps up sharply that we start to feel off-colour – and only then that tests can detect the virus. (Both the PCR and the antibody tests are extremely unreliable, giving both false positives and false negatives – not least because trying to confine a virus or keep it out is like, in the words of Abraham Lincoln, “shovelling flies across a room”).
The virus does not really exist, in active form, anywhere except in human cells. It may lie around dormant on surfaces for a while, but eventually it degrades. And it probably gets into the body only through the nose, mouth and eyes. It gets the upper hand whenever the body is weakened – the immune system is inadequate, or there is some powerful stress. (Such as being locked down). Both stress and immune deficiency can be caused by a bad diet, such as Western governments have been recommending for the past 50 years, by vitamin and mineral deficiencies, and by lack of sunlight and fresh air (the best disinfectants).
So locking yourself in your house until the virus “goes away” is as ludicrous as the frantic attempts of a horror film victim to barricade the doors and windows – only to find the monster is already in the house. As Pogo said, “we have met the enemy and it is us”.
The virus will never go away. The best we can hope for is that, in time, almost everyone’s immune system will have encountered it and created sufficient defences to hold the balance – to maintain the ping-pong rally indefinitely. That is how human beings have been coping with viruses for the few million years humans have existed, and there is nothing else. Clever drugs and vaccines do no more than clumsily try to provoke the immune system into premature action – which may not end well even when it appears to succeed.
This is brilliant. This is what I have been trying to explain, but Tom Welsh has it well and truly nailed. Thank you!
What i find strange in this analogy you mention is what Roy Aitken, former Celtic FC and Scotland defender / midfielder would be doing outside a cabin terrorising a family.
I agree with the analysis. I think there is also a compounding problem of the “safe space” culture that has been propogated in the last 30 years. The BBC and the Guardian are guilty here but so is most of the rest of the press and now our politicians have succumbed. The Andrew Marr interview with Michael Gove last week is a prime example. The idea one can negate all risk is absurd. Gove rightly asserted one cannot avoid all risk but it is unfortunately a brave politician in this time of panic who actually speaks sense. And it pains me to write this as someone on the left who feels his world is crumbling before his eyes both figuratively, legally and economically.
“A courageous decision, Minister…”
Hmm, this psychological aspect is perhaps even scarier than the state to which governments have brought their economies. We have finally been allowed to go on the beach, but I keep wondering if we are actually about to go ‘On The Beach’ (a la Neville Shute).
That book has been on my mind a lot over the past few weeks.
Don’t think it’s just individuals, institutions are finding it hard as well. A week after the lockdown was eased here all the park car parks are still locked up, I think the local authorities are finding it easier not having to deal with the public
But how will they manage without the income? Not to mention deferring two months of council tax…
They won’t understand that bit until it’s much too late (and then they’ll blame the government anyway).
Taxpayers are no longer needed. We print money now.
Brilliant.
(When there’s a Guy article to read, I always pause, set myself up with a coffee, and then settle down for a real treat).
Hear, hear! It’s quite unusual to find opinion that is so well written, well argued, and well researched.
I think you mean E.M. Forster, not C.S.
Please don’t get the little things wrong, because it’ll give the malicious the chance to claim that all the big things are wrong too.
Excellent piece. I have another analogy – that blissful moment when road runner is off the cliff and in mid air, still running. Or the whale in Douglas Adam’s story becoming conscious for a few seconds as it plummets to earth. This situation is as darkly comical and as tragic.
A common theme in the comments of this website is the notion is that people enjoy being on forlough as furlough is a dream situation is that you are paid not to work. They get only get 80% of their wage but this is compensated by no travel costs.
The lockdown is going to have a major economic impact and one cause is large sections of the population not working even if this is only temporary. Let’s say a company is unable to operate during the lockdown and the workers are all off. If no one is working, things like toilet paper, soap, stationary etc are not needed which will have a knock on effect on suppliers. There is a convenience store near the company which receives a lot of trade from the workers eg buying coffee for breaks, newspapers. The convenience store looses this trade when the workers are not there. A fair number of workers travel by bus and bus companies loose this trade when the workers are away. Many of the workers are worried if they will have jobs to go back to and are reluctant to spend money.
When my younger son was at collège, as the French say, he went through a bad patch. I’ve never been able to find out precisely what happened, but I think his so-called friends stopped speaking to him. One evening he even cried. Then he learned to cope. He hung about with a new boy, observed the others, joined in the conversation when he could, was gradually re-accepted by the group. The whole experience was unpleasant, but made him more resilient. It occurred to me that if covid19 had happened when he was thirteen he would have liked nothing better than to be allowed – forced – to stay at home where his family was nice to him and he didn’t have to meet these nasty friends. He would probably have dreaded going back to school. His character would have developed in a different way. It is not good to be too safe at an impressionable age.
Tom Welsh is spot on. The worst thing to do for one’s health is to stay at home, out of the sun. This is especially so at mid to high lattigudes. The lunatic advice to stay at home, enforced by police state behaviour, has taken the last remaining elements of self-sufficiency from most people. I am also seeing a nastiness develop in formerly decent people who gave been in isolated lockdown. Having no face to face contact with colleagues for a few months is causing personality shifts towards dictatorial and repressive behaviour, or maybe exacerbating these traits.
Reminds me of
Klaatu, Everybody Took a Holiday
https://www.youtube.com/watch?v=l_O0ltzBlLs
Great article. But I keep asking the reasons for many of the measures in the emergency act and how was it drafted and agreed so smoothly and quickly. I’ve used https://www.instituteforgovernment.org.uk/explainers/coronavirus-act
as a decent summary and believe that the sections on death certification, post mortems and inquests and the removal of liability for indemnity from health services probably make the primary statistics of death wholly suspect. Most of the Act has a shelf life of two years, but not this last section. Our health services may be exempt from liability for some time.
One question remains. I’ve heard talk of health workers being subject to the Official Secrets Act. Is this true and where are the references?
We are being scammed.