3 May 2024
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How the second GB REMA consultation will change the CFD

To The Point
(5 min read)

In the third of our series of Insights on the GB Review of Electricity Market Arrangements (REMA) second consultation, we examine the impact on current and future Contracts for Difference (CfD). To meet the "net zero" target, GB's electricity system needs a huge increase in renewable power generation, but this needs to be managed so that the appropriate level of risk is passed on to investors. The consultation proposes various ways to reform the CfD, the current main subsidy for renewables, including a "deemed CfD", a capacity-based CfD and a partial CfD. We look at what this means for current CfD contracts and the likely new risks that those considering investing in future renewables projects will have to price in.

What do we need to do to meet "net zero"?
What's the problem with the current CfD?
What are the options for reform?
How will this affect existing CfDs?


The aim of these reforms is to put more volume risk and operational risk onto investors. The trick will be to do this in such a way that it does not increase overall costs. Any increase in subsidy (as investors are going to price in these risks into what they bid) ought to be offset by a reduction in system costs, as the renewable assets are operated in a way that benefits the electricity system as a whole.

Investors should see this as an opportunity as well as a threat. A deemed CfD or a capacity CfD would enable an asset to operate more on a merchant basis and be structured to take advantage of ancillary service payments in a way that they cannot do at present. We expect to see more co-location of storage with generation; and some of these reforms (e.g. the capacity-based CfD) will benefit assets that have lower capital costs, even if they cannot deliver as much power as comparable projects that cost more to build.

Key contacts

Head of IPE and Co-head of Energy and Utilities
United Kingdom

Partner, Infrastructure Projects & Energy

Partner, Infrastructure Projects & Energy
London, UK

Partner, Infrastructure Projects & Energy
Leeds, UK

Managing Associate, Infrastructure Projects & Energy

Managing Associate, Infrastructure Projects & Energy

To the Point 

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