CfD Interim Levy Rate: What the Winter 2026/27 Quarters Mean for Your SME Quotes

Of all the non-commodity costs sitting inside a small business electricity price, the Contracts for Difference (CfD) Supplier Obligation is the one brokers explain worst. It moves every quarter, it is rarely printed on a bill, and it is the line most likely to turn a "fixed" quote into something that is only partly fixed. With the October to December 2026 and January to March 2027 quarters now in play, it is worth getting the mechanics straight before you send out another renewal pack.

A note on the numbers before we start. The Interim Levy Rate (ILR) and Total Reserve Amount (TRA) are set and published by the Low Carbon Contracts Company (LCCC), and they change every quarter. I have not been able to verify the currently published figures for the two winter quarters from the primary source at the time of writing, so I am not going to print a £/MWh number that you might paste into a client email. Take the live values from LCCC's Supplier Obligation pages at lowcarboncontracts.uk and check the date stamp on the notice. Everything below tells you what to do with those figures once you have them.

What the Supplier Obligation actually is

CfDs pay generators the difference between a strike price and a reference price. When wholesale prices sit below the strike price, generators are paid; when wholesale sits above, they pay money back. LCCC handles that settlement and recovers the net cost from licensed electricity suppliers in Great Britain under the Contracts for Difference (Electricity Supplier Obligations) Regulations 2014, available at legislation.gov.uk.

Suppliers are charged on their metered volume in £/MWh, settled through data that ultimately comes out of the Elexon settlement process. That charge lands on every unit your client consumes, which is why it behaves like a commodity adder even though it is a policy cost.

How the ILR is calculated, and how it is reconciled

The rate is a forecast, not a bill. Ahead of each quarter, LCCC models expected CfD generation, expected reference prices against contracted strike prices and expected supplier demand, then divides the forecast net cost by forecast volume to get a rate per megawatt hour. Suppliers pay that rate daily through the quarter.

Alongside it sits the Total Reserve Amount, also expressed in £/MWh. The TRA is collateral, not a charge. It is the buffer LCCC holds so that a shortfall between forecast and actual can be covered without a mutualisation event. Suppliers must lodge it as cash or as an acceptable letter of credit, and financing that collateral is real money to them even though it is eventually released.

Reconciliation happens after the fact. Once actual generation and actual reference prices are known, LCCC works out what the quarter should have cost and settles the difference with each supplier, up or down. There is also an annual reconciliation run and, separately, a small Operational Cost Levy covering LCCC's own running costs. The practical consequence for your clients: the number their supplier ultimately pays for a given quarter is not known until months after they have consumed the electricity.

Direction of travel matters more than any single quarter. The ILR rises when wholesale prices fall and when more CfD capacity reaches commercial operation; it falls when wholesale prices are high. Through the 2022 price spike, several quarters saw the rate collapse towards zero with money flowing back to suppliers. Since then, as wholesale has normalised and further allocation round capacity has energised, the rate has trended upwards again. Assume that trend continues while new offshore wind connects, unless wholesale spikes.

Why Ofgem's domestic cap work matters to non-domestic pricing

Ofgem sets a CfD cost allowance inside the domestic default tariff cap and updates the methodology periodically. A consultation dated 30 July 2026 covers that allowance; read it directly on Ofgem's site rather than relying on second-hand summaries, because the detail sits in the annexes.

The read-across is straightforward. Non-domestic supply is not price capped, but the cap's cost allowances are the closest thing the market has to a published, audited view of what a policy cost really costs to serve. When Ofgem revises how the CfD allowance is forecast or lagged, non-domestic pricing teams tend to follow within a cycle or two, because the same forecasting problem applies. A move towards a more forward-looking allowance with tighter true-up would push suppliers to shorten the lag on their own pass-through and to be less willing to fix the charge for long periods.

Separate line, or buried in non-commodity?

On an SME bill, almost never a separate line. A handful of suppliers itemise "CfD" or "FiT/CfD/RO" on half-hourly invoices. Most bundle it into a single p/kWh unit rate, a "non-commodity" or "third party costs" block, or a line labelled "environmental and social obligation costs".

The label is not the point. What matters is the contract clause behind it. Look for wording on change in law, pass-through of third party costs or specified charges. If CfD appears in a pass-through schedule, the client carries the risk of every quarterly ILR change for the life of the contract.

What allowance to assume when quoting 12, 24 and 36 months

Take the current published ILR as your base, then build in headroom by term:

• 12 months: base rate plus a modest uplift. You are exposed to four ILR settings, two of which are usually visible or close to visible when you quote.
• 24 months: base rate plus a larger uplift, reflecting new CfD capacity energising and reconciliation risk.
• 36 months: either take a fully fixed price and accept the supplier's risk premium, or quote pass-through openly and tell the client in writing that this element will move.

Never quote a fixed CfD figure three years out without stating the assumption in the covering note. If a supplier's fully fixed price looks suspiciously close to a pass-through price, the fix is thin and there is probably a reopener clause.

EII exemption and partial relief

Energy Intensive Industries holding a valid certificate receive an exemption from a defined share of CfD, Renewables Obligation and Feed-in Tariff costs. The scheme is run by DESNZ and the exemption level has been increased in stages under the British Industry Supercharger. Guidance sits on gov.uk. Key points for brokers:

• Exemption is partial and certificate-based, applied per eligible site, and the supplier must pass it through.
• Certificates expire and require quarterly data returns; a lapsed certificate means full charges resume.
• Most SMEs are not eligible. Eligibility is defined by sector code and electricity intensity, so a manufacturer with heavy load may qualify while a retailer with the same bill will not.

Where a client might qualify, check the sector list before writing it off. The value of even partial relief on a 5 GWh site is material.

How to check whether CfD is fixed or floating

• Open the contract, not the quote summary. Find the charges schedule and see whether CfD is listed under fixed elements or pass-through.
• Search the terms for "third party charges", "specified charges", "pass through" and "change in law".
• Ask the supplier, in writing, for the £/MWh CfD assumption baked into the price and the date of the ILR they used.
• Compare two suppliers only after normalising for that assumption. A 0.3 p/kWh difference in CfD treatment can flip which quote is cheaper.

What to do this week

Pull the current LCCC notice and record the ILR, the TRA and the effective dates in your pricing sheet. Re-run any live quotes older than a month against the newer rate. For every renewal you send between now and spring, add a single sentence stating which policy costs are fixed and which float, and name CfD explicitly. Then flag any client above roughly 1 GWh in a manufacturing sector for an EII eligibility check. Clients rarely argue about a charge they were told about in advance; they always argue about one that appears without warning.