Pricing risk into a CfD bid when uncertainty is the new reality

Following the announcement of the Allocation Round 8 framework last week, we've been reflecting on how developers can think about pricing risk into a CfD bid when uncertainty itself has become one of the biggest project risks.

Pricing a CfD bid has always required judgement as much as precision. Traditionally, the focus has been on developing the strongest possible view of project costs, energy yield and delivery timelines. That remains essential, but the conversation has evolved to include a more challenging variable: uncertainty itself.

Over recent years, the operating environment has become significantly less predictable. Inflation reached levels few business cases anticipated. Interest rates rose sharply. Geopolitical events have disrupted supply chains, commodity markets and financing conditions in ways that are difficult to forecast or quantify.

At the same time, several structural uncertainties continue to shape the offshore wind sector. Transmission charging arrangements, grid connection timescales, market design and supply chain pricing remain in flux, often across timeframes that extend well beyond initial investment decisions.

The result is that many projects are now preparing CfD bids against a much wider range of possible outcomes than was typical only a few years ago.

The instinctive response is to build greater contingency into assumptions. Yet contingency is not without consequence. Every additional allowance feeds directly into strike price, influencing both competitiveness and the likelihood of securing a contract.

The challenge is finding the right balance: providing sufficient resilience against downside risks without pricing a project out of the auction.

Ultimately, the question is no longer simply what will costs be? It's also how should uncertainty itself be valued?

As project development cycles continue to lengthen, the ability to understand, quantify and price uncertainty may become just as important as forecasting costs, energy production or programme delivery.