Ah, I see, you've misunderstood what the strike price is. The electricity market isn't paying that strike price, it's just paying the market rate. The governm

Ah, I see, you've misunderstood what the strike price is. The electricity market isn't paying that strike price, it's just paying the market rate. The government (via the "Low Carbon Contracts Company" which it owns for this purpose) settles the difference (hence "Contracts for Difference") between the strike price† and the market price of electricity when you sell it. There are three prices to think about here: A. The price you are willing to sell your electricity to the market for. This is probably very low, let's say it's £1 per MWh. B: The settled price for a period, paid by the market. The market pays everybody a price determined by finding the minimum price for which it could buy enough electricity (with some margin). This will usually be higher than A, if it was lower you just won't sell electricity, for a coal or gas plant this means you needn't burn fuel to make electricity. Maybe B is £48 per MWh. C: The strike price from your government auction. This will often be higher than prevailing market prices (B) but not always. LCCC settles the difference with you, if C is higher than B (the usual case) you get enough money to make that up, if B is higher than C, you pay them the difference. C might be £67 per MWh. So in our worked example we bid A = £10, the market settled at B = £48, but our net reward is C = £67. If other people's prices were way higher maybe a major gas pipeline exploded, maybe A = £10, but B = £200, however our net reward is still C = £67. Why would anybody want a CfD? Because all the cost is in building the wind farm, whereas all the profit comes from long term energy supplying, and it's hard to predict what that'll pay. Knowing, a decade in advance, that you're getting £67 per MWh, no matter what, makes it much easier to find investors for your wind farm project.