A Contract for Difference (CfD) is a type of agreement between the UK government and renewable energy developers. It is designed to encourage investment in low-carbon energy sources by providing financial support to offset the cost of building and operating renewable energy projects.

The UK government has committed to reducing greenhouse gas emissions by at least 80% by 2050, compared to 1990 levels. To achieve this goal, the government has introduced various policies to promote the use of renewable energy. The CfD scheme is one such policy that aims to incentivize the development of large-scale renewable energy projects.

Renewable energy developers in the UK can apply for a CfD through a competitive auction process. The auctions are held periodically, and developers bid for the right to receive a contract for a specific amount of renewable energy production over a set period of time.

The benefit of a CfD is that it provides a stable and predictable revenue stream for renewable energy developers. This makes it easier for them to secure financing for their projects and reduce their risk. In addition, the scheme helps to drive down the cost of renewable energy by providing a long-term contract that guarantees a certain price for the electricity generated.

Renewable energy projects that are eligible for a CfD include offshore and onshore wind, solar, tidal, wave, and biomass. The government sets a budget for each auction round, and the competitive bidding process ensures that the lowest cost projects win the contracts.

The UK government has set a target of generating 30% of its electricity from renewable sources by 2020. The CfD scheme is a key policy tool in achieving this target, as well as reducing greenhouse gas emissions and promoting a low-carbon economy.

In conclusion, the Contract for Difference scheme is an important policy tool for promoting renewable energy in the UK. By providing financial support to renewable energy developers, the scheme helps to reduce the cost of renewable energy and drive down emissions. As such, it is an essential tool in achieving the UK’s climate goals and transitioning to a low-carbon economy.