The UK needs to mobilise substantial investment in low-carbon infrastructure.
Contracts for Difference (CfDs) will play a central role, but the price consumers ultimately pay depends on more than technology and financing costs. Tax policy can also materially affect the strike prices developers need to bid.
There is an obvious trade-off. While more favourable tax treatment can reduce CfD strike prices, it can also reduce or delay tax receipts for the Exchequer. However, the two effects do not necessarily offset each other pound for pound. Our analysis suggests that tax reforms which provide relief early in a project's life can reduce CfD support costs by more than the associated cost to the Treasury.
The reason is timing. Investors place a particularly high value on cashflows received early in a project. Bringing tax relief forward can therefore have a substantial effect on the strike price required to make an investment viable. By contrast, tax relief that is only realised decades later may still have a cost to the Treasury, while doing relatively little to reduce the project's bid.
Our latest report explores this relationship using Frontier’s CfD strike price model and an illustrative offshore wind project. It examines how alternative tax policies affect CfD strike prices, consumer support costs and tax receipts.
This work was commissioned by a group of leading energy companies (EDF, Equinor, Ørsted, Ocean Winds, RWE, SSE and Vattenfall), formed part of the cost reduction work being developed by the Offshore Wind Industry Council (OWIC) and was reflected in RenewableUK’s submission to His Majesty’s Treasury ahead of the Autumn 2026 budget.
How we analysed the impact of tax policy
We estimated the strike price required for a representative offshore wind project to meet investors' required returns under different tax regimes. We then compare the resulting change in CfD support costs with the change in tax receipts, both in net present value terms.
We compare the current UK tax regime against a set of policy scenarios reflecting possible reforms. These include:
100% full expensing (allowing the full value of all capex to be deducted from taxable profit in the first year of the asset’s operation);
inclusion of development costs (Devex) in capital allowances,
removal of restrictions on the use of carried-forward losses;
accelerated capital allowances (increasing the rate at which investment can be deducted over time); and
allowing projects to fully monetise tax losses.
To help form a deliverable policy package we have also explored the impact of combining the inclusion of development costs, accelerated capital allowances and removal of restrictions on the use of carried-forward losses.
The analysis is based on a standard project finance structure using a single-asset special purpose vehicle (SPV). We take project characteristics and market assumptions from public data and our baseline strike price is similar to that observed in Allocation Round 7 CfD auction.
A full description of the modelling framework, assumptions, and detailed results is provided in the accompanying report.
Earlier tax relief has a much bigger effect on strike prices
Not all tax changes are equal. The central finding of the analysis is that the timing of tax relief is the main driver of outcomes.
Early tax relief (e.g. faster use of losses or accelerated allowances) has a strong impact on strike prices because investors value near-term increases in cashflows highly.
Late tax relief (e.g. benefits realised decades into the project) has a much smaller effect, as those cashflows are heavily discounted.
Simply increasing the rate of capital allowances in isolation does not translate into early tax relief.
What policies make the biggest difference?
Across the policies we modelled, reductions in the required strike prices range from negligible to around £3.9/MWh.
Removing loss restrictions and accelerating allowances generate more immediate tax relief and therefore more meaningful reductions in strike prices.
Monetisation of tax losses has the largest effect by unlocking value immediately - although achieving this would require a mechanism that allows projects to realise the full value of those tax assets.
In isolation, full expensing and Devex inclusion have limited impact because their benefits are back-loaded.
However, reform packages that include Devex inclusion alongside other measures can deliver value.
Our analysis suggests that where tax relief is brought forward, the fiscal cost is outweighed by the reduction in the CfD payments needed to support investment. For example, for the illustrative project accelerated writing-down allowances produce around £111 million of consumer savings against a £72 million reduction in tax receipts in present-value terms. Removing loss capping produces around £64 million of consumer savings against £29 million of lower tax receipts. The largest effect comes from monetising tax losses, where modelled consumer savings of £238 million compare with a £99 million reduction in tax receipts.
Why this matters now
With upcoming CfD allocation rounds, policymakers face choices that will shape both investment incentives and public finances. This analysis provides a quantitative framework to assess those trade-offs, and consider where reforms to tax policy can deliver the greatest value for consumers and taxpayers.
While based on a representative offshore wind project and subject to specific assumptions, the findings could also apply more broadly across low-carbon infrastructure.
Author
Director
Senior Principal
Consultant
12 October 2026
