On 8 December 2025, the Department for Energy Security and Net Zero (DESNZ) published the Contract Budget Notice for Allocation Round 7a. This round will determine the next wave of Contracts for Difference (CfDs) for all non-offshore wind technologies. The headline figure is stark. Only £15 million has been allocated to the entire Pot 2 category, covering Tidal Stream, Wave, Geothermal, Advanced Conversion Technologies (ACT), Anaerobic Digestion and Dedicated Biomass with CHP.
This is the smallest Pot 2 budget in the history of the scheme and comes with no technology-specific ringfences. For the tidal stream industry in both Wales and Scotland, the implications are immediate and significant.
The end of ringfencing and a real-terms funding drop
For the past three rounds, tidal stream benefitted from dedicated ringfenced budgets totalling £45 million. This support drove 121.86MW of contracted capacity, including 38.02MW for projects in Wales. Without that policy mechanism, tidal stream secured no capacity in AR1, AR2 or AR3.
In AR7a, the £15 million Pot 2 budget must now be shared across six competing technologies. Adjusted into 2024 prices, the £15 million tidal ringfence in AR6 would have been worth approximately £21–22 million today. This means that even if tidal stream secured the entire AR7a budget, the sector would still face a real-terms cut of around 30 percent. In practice, competition is likely to reduce the share available to tidal stream even further.
Sharper competition with geothermal
The most competitive alternative in Pot 2 is geothermal. With an Administrative Strike Price of £219/MWh compared to tidal’s £371/MWh, geothermal projects are well placed to bid lower and absorb most or all of the available budget. Active project pipelines exist in Cornwall, and their lower cost base increases the likelihood of them clearing the pot ahead of tidal stream.
Other eligible technologies either lack a visible pipeline or have poor historic delivery records. ACT and Dedicated Biomass, for example, have collectively delivered only one operational CfD project between them.
No flexibility to increase the budget
Unlike the main AR7 round for offshore wind, DESNZ cannot increase the AR7a budget in response to competitive bids. The Secretary of State will not have access to anonymised bid data for Pot 2 technologies, meaning the £15 million cap is absolute. Even if strong tidal or geothermal projects bid competitively, they cannot be accommodated above the fixed budget limit.
What this means for the tidal stream sector
This allocation comes at a critical moment. Tidal stream in Wales and Scotland is moving from demonstration into early industrialisation. Developers have invested heavily in building project pipelines, strengthening supply chain capability and progressing through planning and consenting.
CfDs awarded in AR4, AR5 and AR6 are now advancing through key milestones. Some projects have reached final investment decision or entered the construction phase. Others are working through the remaining steps required to move into build-out and operation. The pipeline is substantial but still developing, and continued progress depends on predictable opportunities for follow-on phases.
Against this backdrop, the AR7a outcome sends a challenging signal.
- Less funding means fewer contracts are likely to be awarded.
- Open competition in a small pot places tidal behind lower-cost technologies.
- A fixed budget means high-quality projects may be unable to secure support despite strong strategic value.
This combination risks slowing the momentum the sector has built over the past decade.
Is policy now out of step with strategic need.
The UK Government has repeatedly stated that early-stage renewable technologies will be essential for long-term energy security, export growth and regional economic development. Tidal stream is one of the few technologies with immediate deployment potential and a maturing pipeline in both Wales and Scotland. The AR7a budget raises a legitimate question for industry and policymakers alike.
Marine Energy Wales will continue engaging closely with our members, government partners and the wider sector to ensure these implications are clearly understood and constructively addressed. Our focus now is on maintaining momentum, supporting the delivery of the current tidal stream pipeline, helping developers navigate this allocation round and working collectively to secure a stable and strategic pathway for future deployment in Wales and across the UK.