The Contracts for Difference levy, explained.

What the levy pays for, and under what instrument

A Contract for Difference is a contract between a low carbon generator and the Low Carbon Contracts Company, a government owned counterparty, fixing a strike price for that generator. Where the market reference price is below the strike price, LCCC pays the difference. Where it is above, the generator pays money back. It is a two way settlement, a net credit to consumers in a high price year and a net cost in a low price one.

LCCC has no money of its own. The Contracts for Difference (Electricity Supplier Obligations) Regulations 2014, SI 2014/2014, oblige every licensed electricity supplier in Great Britain to fund those payments in proportion to the electricity it supplies, and that obligation is what reaches your bill. LCCC reports CfD costs of £2,216.5 million for financial year 2024/25 and £1,882.9 million for 2023/24.

Three things follow from the instrument. The rate is national, so unlike distribution charges or transmission charges it does not vary by where a site sits. It is charged on volume rather than on demand in a window, so unlike the Capacity Market charge you cannot move load to avoid it. And your supplier neither sets it nor keeps it, which puts it with the balancing charge and AAHEDC rather than with anything a contract negotiates. The guide to a business electricity bill maps where all of them sit, and the glossary has the short definition of this one.

Interim in advance, reconciled for years after

Nobody knows in July what CfD generators will be owed in July, because that depends on wholesale prices and on how much wind blew. So the regulations collect an estimate first and correct it later.

Regulation 6 requires LCCC to determine an interim levy rate for every quarterly obligation period, before the commencement of the quarterly obligation period which immediately precedes the rate period. A full quarter of notice: the rate for 1 October 2026 was determined on 16 June. Regulation 2 fixes such a period as a period of 3 months commencing after 31st March 2015 on 1st April, 1st July, 1st October or 1st January.

Alongside the rate LCCC determines a Total Reserve Amount, the reserve that lets generators be paid if the levy under collects. It is £178,346,116.46 for the current quarter, and the 12 August adjustment left it untouched while cutting the rate.

1. A quarter aheadThe rate is determined

   LCCC sets the rate and the Total Reserve Amount before the previous quarter starts, and notifies every supplier with a registered BM Unit.

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2. During the periodSuppliers pre-pay it

   Regulation 8 charges the volume from a Balancing and Settlement Code allocation run at that rate, payable by the fifth working day after the notice.

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3. Mid-quarter, if neededIt can be adjusted

   An in-period adjustment changes the rate part way through the period rather than creating a new one. It happened on 17 August 2026.

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4. For ten quartersThen it is reconciled

   Regulation 15 requires a determination in the quarter after the period, and once in every quarter after that. The tenth is final.

Ten quarterly determinations is two and a half years. That single fact answers the most common complaint about this line: a CfD adjustment for a period you settled long ago is the scheme working as written, not a supplier error. It also means changing supplier does not end your exposure to periods the old one supplied.

Who pays it, and what comes off

Everyone supplied with electricity in Great Britain pays it, at one national rate, half-hourly meter or not. What can come off is narrower than people hope.

The exemption is the only route that removes a material amount. An Energy Intensive Industries certificate makes a certified share of a meter into EII excluded electricity, taken out of the calculation entirely rather than discounted, so a meter certified at 85.3 per cent pays 14.7 per cent of the levy. The EII exemption guide covers how one is obtained and why it so often fails to reach the invoice.

How the charge is calculated

At supplier level, regulation 8 makes the payment the amount of electricity supplied multiplied by the interim levy rate, on volume from a Balancing and Settlement Code allocation run. At customer level it is one of the few charges on a business invoice you can reproduce with a calculator.

The reconciled half replaces one rate with a series: LCCC publishes a rate for every settlement day, and the true-up is each day of consumption priced at that day rate and summed. There is no shortcut through an average.

A month at the published rates

Two examples, because the levy has two halves. Both assume a flat 10,000 kWh a day, the only figure below that is not published.

The interim charge, across an in-period adjustment

August 2026 is the interesting month, because the rate changed inside it: £10.559 per MWh as determined on 17 March 2026, then £2.068 per MWh from 17 August. A bill for the whole month has to be split at that date.

1 to 16 August, 16 days at 10,000 kWh

160,000 kWh

Priced at £10.559 per MWh

£1,689.44

17 to 31 August, 15 days at 10,000 kWh

150,000 kWh

Priced at £2.068 per MWh

£310.20

CfD line for August 2026

£1,999.64

The same month had the rate not been adjusted

£3,273.29

One announcement, five days before it took effect, took £1,273.65 off one month on one site. September comes to £620.40 on the same consumption, entirely at the lower rate: about eighty per cent below July, with nothing changed at the meter.

The reconciliation, at the final daily rates

December 2024 has run its course, so final settlement run rates are published for all 31 days. The interim rate charged at the time was £8.750 per MWh. The reconciled dailies for that month run from £0.2466 on 12 December to £25.5938 on 22 December, a spread of more than a hundred times inside four weeks.

Consumption, 31 days at 10,000 kWh

310,000 kWh

Interim, at the £8.750 per MWh rate for the quarter

£2,712.50

Sum of the 31 final daily rates

£322.8593

Reconciled, each day priced at its own rate

£3,228.59

Effective rate over the month, derived

£10.414816 per MWh

Owed on reconciliation

£516.09

The interim rate collected 84 per cent of what that month cost, and the correction arrived in instalments over the following two years. The effective rate is shown to six decimal places rather than four because it is a weighted mean of figures published at four, and such a mean is not itself known to four.

Where it appears on your invoice

There is no standard line name, and this is one of the most commonly bundled charges on a business bill. These are the forms it takes.

On a pass-through contract the levy arrives at cost and moves whenever LCCC moves it. On a fully fixed contract it sits inside the unit rate at a level the supplier guessed at, plus a premium for having guessed. Neither shape removes the cost, and only the first lets you see it.

How to check it, and what goes wrong

The CfD line is unusually checkable: the rate is national, published in advance, and applied to a volume already on the invoice. Four things go wrong often enough to name.

• The rate is the quarter, not the days. A bill spanning a change point has to be split at it. August 2026 is the live case: £10.559 to 16 August and £2.068 from 17 August. One rate across the whole month is wrong in one direction or the other.
• The volume was grossed up for losses. Several charges on the same invoice apply to loss-adjusted volume. This one does not. A line rebuilt from grossed-up kWh comes out a few per cent high, which looks like a supplier overcharge and is not.
• A certificate was missed, or over-applied. An EII exemption is applied meter by meter at the certified proportion. Under-exemption is relief paid for and not received; over-exemption is a liability to repay. Both are visible in the line.
• A reconciliation with no period on it. A true-up is only checkable if it says which obligation period it corrects. Where it does not, ask which period and which settlement run, because a reconciliation against a provisional run will itself be revised.

What is changing

The rate rises again on 1 October 2026

LCCC determined £8.176 per MWh for the quarter beginning 1 October 2026 on 16 June, then adjusted it to £5.529 per MWh on 12 August. Either way the levy more than doubles from its current level on that date, and anyone on a pass-through contract should expect the line to move on the October invoice.

A consultation on funding the obligation differently

On 13 August 2026 government opened a consultation on amending the supplier obligation so that Exchequer funding to LCCC can be reflected in the calculation, to support the British Industrial Competitiveness Scheme without raising bills for households and other non-exempt consumers. If it proceeds, the arithmetic above is unchanged and the number it runs on is not.

The exemption ceiling has already moved

The Electricity Supplier Obligations (Excluded Electricity) (Amendment) Regulations 2024 raised the exemption for EII excluded electricity from 85 per cent of the electricity measured by the meter to 100 per cent. A certificate is worth more against this levy than it was, so any invoice still applying the older ceiling is worth a look.

Deep dives and edge cases

The main path covers the levy as it reaches most bills. These come up often enough to answer, and not often enough to interrupt it.

Questions