.jpg)
Government is signalling two possible directions for generators: a bigger Generator Levy, or a voluntary Wholesale CfD. We brought a group together to work through one question. What would the Wholesale CfD actually need to offer to be worth taking?
The short version from the room: the price would have to beat the long-term curve and the size of the stick matters as much as the shape of the carrot.
The carrot only works if the stick is credible, so the group started there. The Generator Levy currently sits at 45% and government has signalled an increase to 55% in July 2026.
It could also go after the threshold alongside the rate. Lowering the level at which the levy bites would pull more generators into scope and, in effect, nudge assets towards a Wholesale CfD without changing the headline number.
Some in the room read the recent shift from RPI to CPI indexation as a test. A way for the government to gauge how the industry responds to change, and a signal of how much further it might be willing to go.
On pricing, the group was clear that a Wholesale CfD strike price should not match the new-build CfD. That price exists to bring forward new generation. Existing assets are a different proposition and do not need to be paid as if they were new.
However, it was concluded that the strike price should be linked to the new-build CfD, set at an appropriate discount to it. How that price would actually be arrived at is still unclear. One route discussed was a bidding process, where generators bid in and government selects the assets it wants.
There was agreement on what a Wholesale CfD is not. It would not lower bills. Its real function is insurance. A way to dampen volatility and take the edge off price spikes, rather than a tool to bring prices down.
Not everyone was reaching for subsidy cover. Given recent and expected future volatility, some took a more bullish line on simply holding merchant risk over short term PPAs and riding the upside.
That view is highly specific, though. It depends on a fund's mandate and its debt position. What suits one does not suit another, and the appetite for merchant exposure is not a market-wide view.
The consensus was straightforward. To win internal buy-in, the price would need to beat long-term curves. A Wholesale CfD that merely tracks the curve asks generators to give up optionality for no real gain.
The design questions are still open. The pricing mechanism, the threshold, the level of discount to new-build, none of these are settled, and government has not committed to a direction.
That detail is what will decide whether generators treat the Wholesale CfD as a genuine option or hold out and take their chances on the curve. We will keep tracking it.
.avif)
