CurveBlock
Contracts for Difference (CfDs) are a government‑run mechanism designed to provide price stability and support for low‑carbon generation by guaranteeing a strike price for eligible projects. CfDs have predominately supported large-scale projects through competitive allocation rounds. Smaller generators more commonly rely on Power Purchase Agreements (PPAs) with corporate or utility buyers, or on merchant exposure selling into wholesale markets.
A PPA can provide predictable revenue and transfer of offtake credit risk to a counterparty, but terms vary widely: fixed or indexed pricing, duration, credit requirements and indexing to wholesale or renewables certificates. Merchant sales, conversely, expose developers to spot price volatility and settlement arrangements, which can be attractive when power prices are high but risky in low-price periods. Retail fractional investors should therefore assess the nature and credit quality of revenue contracts behind a project.
Costs beyond wholesale price—balancing charges, local network charges and constraint-related curtailment—also shape net returns. Project economics depend on the interaction between contracted revenue, merchant exposure and grid-related costs. Developers and investors must also contend with grid access and constraint risks that can affect production profiles.
For retail investors seeking fractional exposure to renewables, understanding whether a project is supported by a CfD, a long-term PPA, or merchant sales clarifies the revenue volatility, counterparty risk and exposure to system balancing costs that will drive income and capital outcomes.