Contracts for difference (CfD) are expected to turn negative and start reducing consumer energy costs from October, as low-carbon generators pay money back when wholesale electricity prices are very high1.
The mechanism sits alongside the energy price cap, which Ofgem announced would increase to £3,549 per year for dual fuel for an average household from 1 October1. The cap is set separately from the CfD arrangements, and the two work in different ways: the cap limits what suppliers can charge per unit, while CfD payments flow between generators and suppliers.
Under the Contracts for Difference scheme, generators agree a strike price for their output. When wholesale prices sit below that level, they receive a top-up; when prices run above it, the payment reverses and they return money. The point at which that reversal begins has now been reached, according to the analysis.
"They will turn negative and start reducing consumer energy costs from October"
The same analysis set out the wider pressure on bills. It found that an 11-fold increase in UK wholesale gas prices since 2019 explained 96% of the increase in household energy bills, and that green levies would fall from 5% of bills to less than 3% of the total in October1. It also estimated that rising bills would push two-thirds of UK households into fuel poverty by January 20231.
The scale of the CfD payback has not been reported in the material available. Nor has the amount by which an individual household bill might fall as a result, or how the payments are passed through by suppliers.
Why it matters for households
The CfD reversal is one of the few mechanisms in the current market that pushes in the opposite direction to wholesale gas prices. Because the UK depends heavily on gas for both heating and electricity generation, high gas prices feed almost directly into bills, and the analysis attributes 96% of the increase to that single cause1. A scheme that pays money back when prices are very high acts as a partial counterweight, though the material does not quantify how much of the £3,549 cap it offsets1.
For a household, the practical effect is indirect. The payment is made by generators, not to householders, and reaches bills only through whatever adjustment suppliers make. The national supply picture, including how often wholesale prices go negative and what that means for the system, is covered in the site's guide to negative electricity prices. The wider question of how global events move UK prices is set out in the guide to global events and UK energy prices.
Energy independence for a home rests on how much of its heat and power it can source or store itself, and on the price it pays for the rest. The CfD change affects the second part only, and only to the extent that suppliers pass it on.
What happens next
The price cap rise to £3,549 per year for dual fuel for an average household takes effect from 1 October1. The CfD payments are described as starting to reduce consumer energy costs from October1. No further dated steps are given in the material available.