Calculate the minimum Contract for Difference strike price required for your UK renewable project to achieve a target equity IRR.
£44–62
AR6 Offshore Wind (£/MWh)
£47–53
AR6 Onshore Wind (£/MWh)
8–12%
Typical Equity IRR Target
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CfD Break-Even Strike Price
Based on WACC-adjusted LCOE and target equity return
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Minimum CfD Strike Price (£/MWh, current real prices)
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Annual Generation (GWh)
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Annual Revenue Required (£M)
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WACC (%)
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Capital Recovery Factor
Simplified model - excludes construction-period interest, tax shields, CPI indexation and merchant tail. For indicative purposes only.
Understanding CfD Strike Prices
What is a CfD?
A Contract for Difference (CfD) is the UK Government's main support mechanism for new renewable energy projects. Think of it as a price guarantee. The Government agrees to pay the developer a fixed "strike price" per unit of electricity. When wholesale market prices are lower than the strike price, the Government tops up the difference. When prices are higher, the developer pays back the excess. This gives developers stable, predictable income regardless of volatile market prices.
Why Does the Strike Price Matter?
Building a wind farm or solar park costs hundreds of millions of pounds. Banks and investors need certainty they will get their money back before they lend. The CfD strike price provides that certainty. If it is too low, the project will not be profitable enough to attract investment. This calculator finds the minimum price that makes a project financially worthwhile.
What is a Load Factor?
No wind turbine generates at full power all the time. The load factor is the percentage of maximum output a project actually achieves on average. Offshore wind typically achieves 40-50%, meaning a 100 MW farm produces as much electricity as a 40-50 MW conventional plant running continuously.
The UK Government holds CfD Allocation Rounds (AR) every one to two years. Projects bid competitively - those submitting the lowest strike prices win contracts. Understanding your break-even price helps you bid strategically without underselling.
Methodology
The minimum strike price is the Levelised Revenue Requirement (LRR) - the revenue per MWh needed to service debt, cover opex, and deliver the target equity IRR over the project life, using a WACC-based Capital Recovery Factor (CRF):
WACC = Equity% x Equity IRR + Debt% x Debt Rate x (1 - Tax Rate)
Annual Generation = Capacity (MW) x Load Factor x 8,760 hours/year
Key Omissions
This simplified model excludes: construction-period interest (IDC), detailed tax/depreciation waterfall, CPI indexation (UK CfDs are quoted in 2012 real prices), decommissioning provisions, grid connection costs, and the merchant tail (revenue post-CfD). A full project finance model would use period-by-period DCF with separate equity and debt waterfalls.
To compare output with published AR results, divide by the cumulative CPI deflator since 2012 (approximately 1.25-1.30 as of 2024) to convert to 2012 real prices used in DESNZ/LCCC publications.
Frequently Asked Questions
What is the difference between LCOE and CfD strike price? +
LCOE (Levelised Cost of Energy) is a cost measure - all costs divided by all generation over the lifetime, discounted to today. The CfD strike price is a revenue requirement - it must cover LCOE plus deliver a sufficient return on equity to attract investors. A project will only proceed if the strike price is at least equal to the LCOE plus the required equity premium.
How does gearing affect the required strike price? +
Higher debt gearing typically reduces the blended WACC because debt is cheaper than equity, which reduces the required strike price. However, lenders impose strict gearing limits (typically 60-75% for renewables) and higher gearing increases financial risk, which is reflected in tighter covenants and debt service cover requirements (DSCR typically 1.3-1.5x).
Are CfD Allocation Round results public? +
Yes - DESNZ and the Low Carbon Contracts Company (LCCC) publish clearing prices after each round. AR5 (2023) cleared no offshore wind contracts because administrative strike prices were set too low. AR6 (2024) successfully cleared offshore wind at approximately 44-62 GBP/MWh in 2012 real prices.
What happens after the 15-year CfD period? +
After the CfD contract expires, the project sells electricity at wholesale market prices - the merchant tail. This can be very valuable if wholesale prices remain elevated. Many project finance models include optimistic, base and downside scenarios for the merchant tail, which can significantly affect equity IRR modelling.
Does this calculator account for CPI indexation? +
No - this is a simplified real-terms model. UK CfD contracts are quoted in 2012 real prices and escalate annually with CPI. To convert this calculator's output to 2012 real prices for comparison with published AR results, divide by the cumulative CPI deflator since 2012 (approximately 1.25-1.30 as of 2024).