The design of government-driven renewable energy contracts for difference in the UK electricity market and their implications for China

With the simultaneous advancement of new power systems and electricity spot markets, a critical challenge lies in ensuring the secure and orderly integration of new energy into the electricity market while establishing mechanisms that underpin its sustainable development. The UK's experience with contracts for difference (CfD) offers valuable insights in this context. This paper elucidates the key participants, primary processes, and fundamental concepts of the UK's CfD mechanism. Methodologies related to unit classification, administrative strike price calculation, contract allocation, and reference price determination are systematically summarized and analyzed. Building on this analysis, a government-driven CfD framework tailored to China's new energy development is proposed. Key recommendations emphasize the categorization of contracts into two types based on policy objectives, including transitional contracts to align with existing new energy support policies and proactive contracts to address new energy externalities. The objectives of contracts should focus on market power mitigation and the coordination of diverse market modes during the settlement trial phase. Reference price design is recommended to account for China's spot market structure and regulatory realities in medium and long-term transaction, while contract volumes are suggested to adopt ex-ante allocation modes.