Without the hype
Updated October 2026. The December 2024 text below is unchanged except for two figures under “What The Data Reveals”, which now match its charts, redrawn with the latest data. An update using LCCC data to 11 October 2026, including every contract signed since (Allocation Rounds 6 and 7, and Hinkley Point C), is at the end.
The narrative surrounding renewable energy costs has become increasingly important as we transition toward a low-carbon future. Many sources, including respected energy analysts1, suggest that renewables are now the cheapest form of electricity generation. This would be excellent news if true – affordable clean energy could accelerate industrial electrification and help maintain the UK’s competitive position in energy-intensive industries.
However, to make informed policy decisions and ensure a sustainable energy future, we need to carefully examine the actual costs based on existing contracts and commitments. The discussion around renewable costs often focuses on Levelised Cost of Electricity (LCOE) calculations, which while useful, involve numerous assumptions and don’t necessarily reflect what consumers will actually pay.
Instead, this analysis looks at something more concrete: the UK’s Contracts for Difference (CfD) scheme. These contracts specify exactly what generators will be paid for their electricity over the next 15 years. Unlike LCOE calculations, these are binding commitments that will directly affect consumer electricity prices.
The cost of electricity isn’t just an academic concern. It directly affects:
While the public discourse often focuses on whether renewables are “cheap” or “expensive,” the reality lies in the details of how we actually pay for this electricity. By examining the CfD contracts, we can understand the real financial commitments we’ve made and their implications for future electricity costs.
This examination focuses on three key renewable technologies that have CfD contracts:
To keep the analysis focused and manageable, I’ve deliberately excluded several important but separate considerations:
Each of these excluded elements deserves its own analysis, and I may examine them in future pieces. For now, focusing on these three main renewable technologies allows us to understand a crucial part of our electricity system’s costs.
The data for this analysis comes from the Low Carbon Contracts Company (LCCC), the government body responsible for managing electricity contracts. You can find all of this data yourself at : https://register.lowcarboncontracts.uk/downloadfiles
The key information in these contracts includes:
One aspect of these contracts that often gets overlooked in public discussion is that they’re linked to inflation. The strike prices increase each year with the Consumer Price Index (CPI). This might seem like a technical detail, but it has enormous implications for the final cost to consumers.
To understand how sensitive these costs are to inflation, I’ve analysed several scenarios with different annual inflation rates:
High inflation in the early years of a contract has a particularly significant impact due to compounding effects. For example, 5% inflation in year one affects all subsequent payments for the entire 15-year contract term.
To understand the true costs embedded in these contracts, I followed several steps:
Redrawn in October 2026 with LCCC data to 11 October 2026 and every contract signed since, using the same three technologies, with offshore wind now split into fixed-bottom and floating. The original December 2024 charts are still available.
Choose an inflation rate with the buttons; they apply to the three cost charts. Strike prices rise with CPI, so the rate changes what the same contracts cost in cash terms. The charts open at 0%, which shows future years in today’s money.
Total yearly payments by technology (£bn, cash)
Average price paid per MWh generated (£/MWh, cash)
Cumulative cost by technology (£bn, cash)
Capacity with a CfD by technology (GW, middle of each year)
Average generation by technology (GW)
Why offshore wind gets dearer again after 2041. At 0% inflation, fixed offshore wind’s price bottoms out at £75/MWh in 2041, then climbs to about £98/MWh by the late 2040s. That rise is not inflation. The cheapest offshore contracts, from Allocation Rounds 3 and 4 (9.7 GW at £56–61/MWh in today’s money), end between 2041 and 2046. That leaves Allocation Round 7’s at £98/MWh, on 20-year contracts that run to 2052. With inflation, the climb looks steeper because the cash price also grows with CPI. Floating offshore wind costs £210–233/MWh, more than twice as much as fixed-bottom, but it is never more than 6% of offshore output.
The data shows a complex picture of future electricity costs from renewables. While headlines often focus on falling costs, the reality embedded in these contracts tells a different story:
You can verify the wholesale price trends through Ofgem’s data portal: https://www.ofgem.gov.uk/energy-data-and-research/data-portal/wholesale-market-indicators
The Government is expected to tender significantly more renewable contracts over the coming years. However, several factors suggest that strike prices are unlikely to decrease further:
These structural costs, combined with other development expenses, suggest that strike prices will likely stabilise or potentially increase rather than continue falling. This challenges the common narrative about continuously declining renewable energy costs.
The strike price and cost of the CfD is primarily determined by two factors: the upfront cost of development and the length of return on investment. Both need to be addressed to achieve meaningful cost reductions. Here are some potential solutions:
The most straightforward solution would be a complete structural change:
This approach would significantly reduce costs by:
The key insight is that current high costs aren’t inevitable – they’re a product of our chosen financing and ownership structures. A simpler, publicly-owned model could deliver the same infrastructure at substantially lower cost to consumers.
Since this post, LCCC has published almost two more years of settlement data, and Allocation Rounds 6 and 7 have added new contracts. 38.9 GW of signed capacity is not yet generating.
This update handles inflation differently. Instead of the scenarios above, everything is in today’s money (CPI to September 2026). Strike prices rise with CPI, so in real terms the projection doesn’t depend on what inflation turns out to be. It is the 0% scenario above, expressed in today’s pounds.
For every contract, the cost is its generation multiplied by its strike price, to the end of its term:
No wholesale price forecast is involved. This is the gross cost of the power bought at strike prices, not the subsidy on top of the market price.
All figures are in September 2026 pounds.
Cost of CfD power at strike prices each year: actual, then projected (£bn, real)
The biomass contracts end in March 2027. The next few years are dominated by the AR4 to AR7 pipeline coming online, then Hinkley Point C from 2030. The early, expensive contracts expire through the 2030s.
Average price per MWh of CfD power, by year (£/MWh, real)
Technology lines are drawn only for years in which that technology generated at least 1 TWh, so the start and end of each contract wave don’t swamp the picture. “Other” (energy from waste, tidal, geothermal and the like) is left out of this chart for the same reason, but it is in the black all-CfD line.
In today’s money, the cheapest year in the projection averages £88/MWh, in 2041. That is the 0% inflation case, for every CfD technology. For comparison, the three-technology charts above bottom out at £97/MWh in 2036 at 2% inflation, in cash terms; the December 2024 version of this post put that floor at £85/MWh.
Lifetime cost of each allocation round, by technology (£bn, real)
Average lifetime price per MWh, by allocation round (£/MWh, real)
| Round | GW signed | Paid £bn | To pay £bn | Lifetime TWh | £/MWh |
|---|---|---|---|---|---|
| Investment contracts | 4.4 | 28.6 | 23.2 | 259 | 200 |
| AR1 | 1.9 | 5.1 | 10.1 | 94 | 162 |
| AR2 | 3.1 | 2.7 | 11.2 | 150 | 93 |
| AR3 | 5.5 | 0.0 | 25.3 | 417 | 61 |
| AR4 | 6.9 | 0.1 | 25.5 | 432 | 59 |
| AR5 | 3.3 | 0.0 | 9.8 | 118 | 83 |
| AR6 | 7.0 | 0.0 | 31.1 | 337 | 92 |
| AR7 | 14.3 | 0.0 | 74.6 | 783 | 95 |
| Hinkley Point C | 3.3 | 0.0 | 118.7 | 884 | 134 |
The data comes from LCCC’s settlement, contract portfolio and auction results datasets, with CPI from the ONS.
This link shows the installed capacity by generating source, and the projected capacity from the LCCC. My numbers match theirs. So I’m fairly confident in my analysis.2