No Cover Image

Journal article 95 views 21 downloads

Termination amounts and the enforcement gap in the Contracts for Difference scheme: Insights from offshore wind project finance in the United Kingdom

Huanhuan Chen, Jinke Li Orcid Logo, Guy Liu, Jing Shao

Energy and Climate Management, Volume: 2, Issue: 2, Start page: 9400034

Swansea University Author: Jinke Li Orcid Logo

  • 71984.VOR.pdf

    PDF | Version of Record

    © The Author(s) 2026. This is an open access article under the terms of the Creative Commons Attribution 4.0 International License (CC BY 4.0).

    Download (1.31MB)

Check full text

DOI (Published version): 10.26599/ecm.2026.9400034

Abstract

The Contracts for Difference (CfD) scheme supports low-carbon electricity generation in the United Kingdom by stabilising revenue per unit of output at a pre-agreed strike price. When wholesale prices exceed the strike price, generators make payback payments to the Low Carbon Contracts Company (LCCC...

Full description

Published in: Energy and Climate Management
ISSN: 3006-9203 3006-8673
Published: Tsinghua University Press 2026
Online Access: Check full text

URI: https://cronfa.swan.ac.uk/Record/cronfa71984
first_indexed 2026-05-27T10:08:43Z
last_indexed 2026-06-05T10:53:22Z
id cronfa71984
recordtype SURis
fullrecord <?xml version="1.0"?><rfc1807><datestamp>2026-06-04T09:36:25.8707598</datestamp><bib-version>v2</bib-version><id>71984</id><entry>2026-05-27</entry><title>Termination amounts and the enforcement gap in the Contracts for Difference scheme: Insights from offshore wind project finance in the United Kingdom</title><swanseaauthors><author><sid>1d12dcf12aad73117a2a5f43cf233aae</sid><ORCID>0000-0001-6325-804X</ORCID><firstname>Jinke</firstname><surname>Li</surname><name>Jinke Li</name><active>true</active><ethesisStudent>false</ethesisStudent></author></swanseaauthors><date>2026-05-27</date><deptcode>SOSS</deptcode><abstract>The Contracts for Difference (CfD) scheme supports low-carbon electricity generation in the United Kingdom by stabilising revenue per unit of output at a pre-agreed strike price. When wholesale prices exceed the strike price, generators make payback payments to the Low Carbon Contracts Company (LCCC), and termination provisions are intended to deter early exit by requiring compensation for expected future paybacks. This study examines a potential enforcement gap in this mechanism. Offshore wind CfDs are commonly held by highly leveraged, non-recourse special purpose vehicles, whose assets and cash flows may be pledged to secured lenders. If a project company enters financial distress or insolvency, the termination amount may be large, but the LCCC&#x2019;s claim for that amount may be weakly recoverable. The study develops a stylised quantitative framework calibrated to publicly available information on large UK offshore wind projects. It distinguishes financial resilience, measured by the debt service coverage ratio, from the termination amount, measured as the present value of expected future paybacks. The analysis identifies two linking channels. The volume channel shows that lower eligible generation can weaken debt-servicing capacity and reduce the termination amount. By contrast, the price channel shows that high wholesale prices can increase the termination amount without directly improving financial resilience. The enforcement gap is most relevant when a large termination amount coincides with financial distress. Although no such generator insolvency cases have been documented under the CfD regime to date, the study highlights the need to strengthen recoverability while preserving project bankability.</abstract><type>Journal Article</type><journal>Energy and Climate Management</journal><volume>2</volume><journalNumber>2</journalNumber><paginationStart>9400034</paginationStart><paginationEnd/><publisher>Tsinghua University Press</publisher><placeOfPublication/><isbnPrint/><isbnElectronic/><issnPrint>3006-9203</issnPrint><issnElectronic>3006-8673</issnElectronic><keywords>Contracts for Difference, offshore wind, termination amount, enforcement gap, project finance, creditor priority</keywords><publishedDay>30</publishedDay><publishedMonth>6</publishedMonth><publishedYear>2026</publishedYear><publishedDate>2026-06-30</publishedDate><doi>10.26599/ecm.2026.9400034</doi><url/><notes/><college>COLLEGE NANME</college><department>Social Sciences School</department><CollegeCode>COLLEGE CODE</CollegeCode><DepartmentCode>SOSS</DepartmentCode><institution>Swansea University</institution><apcterm>Not Required</apcterm><funders>Soft Science Research Project of Henan Province (CN, Project No. 262400410054).</funders><projectreference/><lastEdited>2026-06-04T09:36:25.8707598</lastEdited><Created>2026-05-27T10:54:38.5030647</Created><path><level id="1">Faculty of Humanities and Social Sciences</level><level id="2">School of Social Sciences - Economics</level></path><authors><author><firstname>Huanhuan</firstname><surname>Chen</surname><order>1</order></author><author><firstname>Jinke</firstname><surname>Li</surname><orcid>0000-0001-6325-804X</orcid><order>2</order></author><author><firstname>Guy</firstname><surname>Liu</surname><order>3</order></author><author><firstname>Jing</firstname><surname>Shao</surname><order>4</order></author></authors><documents><document><filename>71984__36856__e96a8b2665754362a1b207ed713660c2.pdf</filename><originalFilename>71984.VOR.pdf</originalFilename><uploaded>2026-06-04T09:24:16.1129270</uploaded><type>Output</type><contentLength>1373121</contentLength><contentType>application/pdf</contentType><version>Version of Record</version><cronfaStatus>true</cronfaStatus><documentNotes>&#xA9; The Author(s) 2026. This is an open access article under the terms of the Creative Commons Attribution 4.0 International License (CC BY 4.0).</documentNotes><copyrightCorrect>true</copyrightCorrect><language>eng</language><licence>http://creativecommons.org/licenses/by/4.0/</licence></document></documents><OutputDurs/></rfc1807>
spelling 2026-06-04T09:36:25.8707598 v2 71984 2026-05-27 Termination amounts and the enforcement gap in the Contracts for Difference scheme: Insights from offshore wind project finance in the United Kingdom 1d12dcf12aad73117a2a5f43cf233aae 0000-0001-6325-804X Jinke Li Jinke Li true false 2026-05-27 SOSS The Contracts for Difference (CfD) scheme supports low-carbon electricity generation in the United Kingdom by stabilising revenue per unit of output at a pre-agreed strike price. When wholesale prices exceed the strike price, generators make payback payments to the Low Carbon Contracts Company (LCCC), and termination provisions are intended to deter early exit by requiring compensation for expected future paybacks. This study examines a potential enforcement gap in this mechanism. Offshore wind CfDs are commonly held by highly leveraged, non-recourse special purpose vehicles, whose assets and cash flows may be pledged to secured lenders. If a project company enters financial distress or insolvency, the termination amount may be large, but the LCCC’s claim for that amount may be weakly recoverable. The study develops a stylised quantitative framework calibrated to publicly available information on large UK offshore wind projects. It distinguishes financial resilience, measured by the debt service coverage ratio, from the termination amount, measured as the present value of expected future paybacks. The analysis identifies two linking channels. The volume channel shows that lower eligible generation can weaken debt-servicing capacity and reduce the termination amount. By contrast, the price channel shows that high wholesale prices can increase the termination amount without directly improving financial resilience. The enforcement gap is most relevant when a large termination amount coincides with financial distress. Although no such generator insolvency cases have been documented under the CfD regime to date, the study highlights the need to strengthen recoverability while preserving project bankability. Journal Article Energy and Climate Management 2 2 9400034 Tsinghua University Press 3006-9203 3006-8673 Contracts for Difference, offshore wind, termination amount, enforcement gap, project finance, creditor priority 30 6 2026 2026-06-30 10.26599/ecm.2026.9400034 COLLEGE NANME Social Sciences School COLLEGE CODE SOSS Swansea University Not Required Soft Science Research Project of Henan Province (CN, Project No. 262400410054). 2026-06-04T09:36:25.8707598 2026-05-27T10:54:38.5030647 Faculty of Humanities and Social Sciences School of Social Sciences - Economics Huanhuan Chen 1 Jinke Li 0000-0001-6325-804X 2 Guy Liu 3 Jing Shao 4 71984__36856__e96a8b2665754362a1b207ed713660c2.pdf 71984.VOR.pdf 2026-06-04T09:24:16.1129270 Output 1373121 application/pdf Version of Record true © The Author(s) 2026. This is an open access article under the terms of the Creative Commons Attribution 4.0 International License (CC BY 4.0). true eng http://creativecommons.org/licenses/by/4.0/
title Termination amounts and the enforcement gap in the Contracts for Difference scheme: Insights from offshore wind project finance in the United Kingdom
spellingShingle Termination amounts and the enforcement gap in the Contracts for Difference scheme: Insights from offshore wind project finance in the United Kingdom
Jinke Li
title_short Termination amounts and the enforcement gap in the Contracts for Difference scheme: Insights from offshore wind project finance in the United Kingdom
title_full Termination amounts and the enforcement gap in the Contracts for Difference scheme: Insights from offshore wind project finance in the United Kingdom
title_fullStr Termination amounts and the enforcement gap in the Contracts for Difference scheme: Insights from offshore wind project finance in the United Kingdom
title_full_unstemmed Termination amounts and the enforcement gap in the Contracts for Difference scheme: Insights from offshore wind project finance in the United Kingdom
title_sort Termination amounts and the enforcement gap in the Contracts for Difference scheme: Insights from offshore wind project finance in the United Kingdom
author_id_str_mv 1d12dcf12aad73117a2a5f43cf233aae
author_id_fullname_str_mv 1d12dcf12aad73117a2a5f43cf233aae_***_Jinke Li
author Jinke Li
author2 Huanhuan Chen
Jinke Li
Guy Liu
Jing Shao
format Journal article
container_title Energy and Climate Management
container_volume 2
container_issue 2
container_start_page 9400034
publishDate 2026
institution Swansea University
issn 3006-9203
3006-8673
doi_str_mv 10.26599/ecm.2026.9400034
publisher Tsinghua University Press
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Social Sciences - Economics{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Social Sciences - Economics
document_store_str 1
active_str 0
description The Contracts for Difference (CfD) scheme supports low-carbon electricity generation in the United Kingdom by stabilising revenue per unit of output at a pre-agreed strike price. When wholesale prices exceed the strike price, generators make payback payments to the Low Carbon Contracts Company (LCCC), and termination provisions are intended to deter early exit by requiring compensation for expected future paybacks. This study examines a potential enforcement gap in this mechanism. Offshore wind CfDs are commonly held by highly leveraged, non-recourse special purpose vehicles, whose assets and cash flows may be pledged to secured lenders. If a project company enters financial distress or insolvency, the termination amount may be large, but the LCCC’s claim for that amount may be weakly recoverable. The study develops a stylised quantitative framework calibrated to publicly available information on large UK offshore wind projects. It distinguishes financial resilience, measured by the debt service coverage ratio, from the termination amount, measured as the present value of expected future paybacks. The analysis identifies two linking channels. The volume channel shows that lower eligible generation can weaken debt-servicing capacity and reduce the termination amount. By contrast, the price channel shows that high wholesale prices can increase the termination amount without directly improving financial resilience. The enforcement gap is most relevant when a large termination amount coincides with financial distress. Although no such generator insolvency cases have been documented under the CfD regime to date, the study highlights the need to strengthen recoverability while preserving project bankability.
published_date 2026-06-30T06:02:43Z
_version_ 1868490881048248320
score 11.109323

Similar Items