Introduction

A quick glance at the headlines reveals we are in the midst of one of the worst energy crises in history. Both oil and gas prices have spiked because of the effective closure of the Strait of Hormuz. UK electricity prices have gone up too.

This has led Ember (the same people who came up with Ed Miliband’s promise to cut energy bills by £300) to claim that renewables have cut gas generation compared to March 2021 and saved us £7m per day.

Contracts for Difference (CfDs) work by paying generators the market price for the electricity they produce plus a top up to the contract strike price. With market prices rising, we might expect CfD subsidies to fall. But the record shows we paid a record £258m in CfD subsidies for the month of March in 2026 and a record for the first quarter too. What is going on?

Gas Prices

Figure 2 shows what has happened to gas prices over the past year from Trading Economics.

For most of 2025, UK gas was trading around 80p per therm. There was a short spike at the end of 2025 then prices settled back around the prior trading range until 3 March 2026, the first trading day after the start of the war in Iran, when prices immediately spiked to almost 140p/therm. Prices remained above 120p/therm for the rest of March and have started declining on hopes of a peace deal.

However, it is not just gas that drives the wholesale cost of electricity; carbon costs play their part too. Figure 3, ironically using data From Ember, shows what has happened to fuel and carbon costs since 2021.

First, we can see that the recent spike in gas prices has had a much smaller impact on fuel costs than the 2022 crisis. Second, fuel and carbon costs were £30.99/MWh and £23.46/MWh, respectively in March 2021 giving a total of £54.45/MWh. This compares to £88.90/MWh and £21.24/MWh, for a total of £110.14/MWh in March 2026, so gas-fired electricity is more expensive now than five years ago. Third, even though fuel costs spiked from £56/MWh in February 2026 to almost £89/MWh in March, carbon costs fell. Carbon costs had risen from less than £20/MWh in January 2025 to ~£32/MWh in January after Prime Minister Starmer’s announcement to align the UK and EU ETS schemes. Carbon costs then fell to ~£21/MWh in March 2026 because in January Chancellor Merz called for the scheme to be reviewed. Falling carbon costs have helped dampen the impact of rising gas prices.

Electricity Supply

To arrive at their conclusions, Ember used the period 28 February to 28 March for 2021. Figure 4 shows the sources of electricity generation for those periods in 2021 and 2026 (data from NESO).

Overall generation is up from 23.7TWh in 2021 to 24.4TWh. However, imports are counted as generation in the NESO data and if imports are excluded actual domestic generation fell from 21.3TWh to 20.4TWh. Gas generation did fall by 3.5TWh from 9.1TWh to 5.6TWh, wind and solar combined generation rose from 6.4TWh to 9.7TWh, offsetting most of the reduction in gas generation. However, the total generation from other sources (coal, biomass, nuclear, hydro and storage) also fell by 0.7TWh as imports rose 1.7TWh.

This looks like there has been a notional “saving” of gas of 7TWh used in electricity generation (assuming 50% efficiency) which at a notional cost of 130p/therm means a gross saving of about £312m.

CfD Subsidies

We can see the effect of lower carbon prices on the reference prices for offshore wind in Figure 5 (data from the Low Carbon Contract Company (LCCC)).

Although reference prices were at an elevated level, around £78/MWh in March, they were in fact slightly lower than the almost £79/MWh recorded in February and much lower than the £89/MWh recorded in January 2026. Reference prices are lower than Ember’s estimate for the cost of gas-fired generation because at times of high renewables output, less efficient gas plants are pushed off the grid.

Lower reference prices have had an impact on the subsidies paid. Record subsidies for the month of March were paid in 2026 reaching over £258m as shown in Figure 6.

Offshore wind took the lion’s share of subsidies, with over £200m paid out. The various forms of biomass took another £53m, with onshore wind taking £6.5m. Solar paid back into the system in March 2026, but the £1.3m repayment is trivial in the grand scheme of things. Even the cheapest CfD offshore windfarm on the grid, Moray East, received a subsidy of £269K in March 2026.

Record subsidies of over £796m for the first quarter were also paid out in 2026, beating the prior record of £595m recorded in 2020 as shown in Figure 7.

Total subsidies for the financial year-ended 31 March 2026 were £2.96bn, another record. Total CfD subsidies since inception have now reached almost £13bn.

At first glance, it looks like renewables saved money, because we “saved” £312m of gas compared to paying out only £258m in renewables subsidies. We paid about £186m in subsidies in March 2021, so subsidies have gone up by only £72m. But this masks the fact that we also paid the market price for the electricity in addition to the subsidies. We paid a weighted average strike price for wind and solar of £153/MWh in March 2026 compared to a weighted average reference price of £77/MWh. This explains the record subsidies. Even if we compare the strike price to Ember’s calculation of the cost of gas-fired electricity in March 2026 of £110/MWh (including carbon costs), renewables were more expensive than gas. Contrary to Ember’s claim, we were paying more for renewables under the CfD scheme than we would have paid had it all been produced by gas. Remember, that is with carbon taxes on gas and before all the additional on-costs of renewables for backup, grid balancing and expansion.

As an aside, the subsidies for renewables subsidised by Renewables Obligation Certificates (ROCs) have also gone up since 2021. ROCs are awarded in addition to the market price, so ROC-subsidised generators are always more expensive than gas. In 2020/21 the buyout value of certificates was £50.07 and in 2025/26 the buyout value had gone up 34% to £67.06. This shows we are paying more subsidies for ROC-funded renewables too.

It is not just more generation that is driving the additional subsidies. Subsidies per MWh generated also rose in March 2026 compared to February 2026 and March 2025 (see Figure 8).

We paid £81/MWh in subsidies for offshore wind in March 2026 (more than half the strike price) compared to £75/MWh in February 2026 and £64/MWh in March 2025. Onshore wind received £38/MWh in March 2026 and solar paid back £17/MWh.

Incidentally, the offshore wind subsidy in March 2021 was £103/MWh. So, the rate of subsidy has come down as cheaper generators have come online, but we are still paying subsidies, so as a whole, the offshore wind fleet is still much more expensive than gas.

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Looking to Future

In the near term, the older offshore windfarms have also seen a big increase in the strike price for this financial year. We will now pay almost £221/MWh for Walney Extension, Burbo Bank and Dudgeon, about £206/MWh for Beatrice and Hornsea 1 and £176/MWh for East Anglia 1. The strike price for Drax biomass plant is £147/MWh in 2025/26, Lynemouth is £154/MWh and Teesside is £183/MWh. So we can expect burning trees to attract more subsidy this year too.

There are some new projects from AR3 and AR4 due to come online in the near future with much lower strike prices which ought to reduce subsidies per MWh. However, the newer contracts from AR6 and AR7 have much higher strike prices for offshore wind. More offshore wind on the grid is likely to drive down reference prices so, they will have the impact of pushing up the absolute levels of subsidy.

The LCCC has released the new strike prices for 2026/27 and we can compare them to the average reference prices for 2025/26 and to March 2026, when gas prices were elevated as shown in Figure 9.

Offshore wind provides the bulk of electricity generation under the CfD scheme. Even with today’s elevated gas prices, the reference prices in March 2026 (£77/MWh) were much lower than the current strike prices of projects awarded contracts in AR6 (£88/MWh) and AR7 (£97/MWh). Onshore wind strike prices are slightly lower and those for solar much lower. But these projects produce trivial amounts of electricity compared to offshore wind, so we can expect subsidies to keep rising and bills to go ever higher.

Labour’s announcement that it will scrap the Carbon Price Support mechanism in April 2028 is a welcome, if tardy, intervention that will reduce wholesale electricity prices and hence reference prices. However, this means that CfD-funded generators will simply collect more of their revenue from subsidies rather than the market.

Conclusions

Even with elevated gas prices, CfD subsidies are soaring and the outlook is that Miliband’s AR6 and AR7 auctions are going to send bills even higher. This has not stopped Ember putting out another shonky report that tortures the data to produce the result they want.

It should be obvious, even to them, if subsidies are being paid to renewables then they are more expensive than gas. With this level of desperation from Ember, we really must be witnessing the dying embers of Net Zero propaganda.

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