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Contracts for Difference Support the Expansion of Renewable Energy Sources while Reducing Electricity Price Risks

Author

Listed:
  • Mats Kröger
  • Karsten Neuhoff
  • Jörn C. Richstein

Abstract

The German Federal Government passed the “Easter Package” in July 2022, which envisages a number of measures for the expansion of renewable energy sources. The package retains sliding market premiums as a remuneration mechanism, which protect electricity producers unilaterally, while contracts for difference (CfDs), which also protect electricity customers, are only used in the offshore wind sector. However, CfDs could lead to a reduction in financing costs and reduce electricity price risks for producers as well as households and companies. The decline in financing costs would strengthen the expansion of renewable energy sources. In this context, a simplified market value model and further developing the reference yield model could ensure a system-friendly expansion of renewable energy sources.

Suggested Citation

  • Mats Kröger & Karsten Neuhoff & Jörn C. Richstein, 2022. "Contracts for Difference Support the Expansion of Renewable Energy Sources while Reducing Electricity Price Risks," DIW Weekly Report, DIW Berlin, German Institute for Economic Research, vol. 12(35/36), pages 205-213.
    • Handle: RePEc:diw:diwdwr:dwr12-35-1
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.852061.de/dwr-22-35-1.pdf
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    Citations

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    Cited by:

    1. Neuhoff, Karsten & Richstein, Jörn C. & Kröger, Mats, 2023. "Reacting to changing paradigms: How and why to reform electricity markets," Energy Policy, Elsevier, vol. 180(C).
    2. Karsten Neuhoff & Fernanda Ballesteros & Mats Kröger & Jörn C. Richstein, 2023. "Contracting Matters: Hedging Producers and Consumers with a Renewable Energy Pool," Discussion Papers of DIW Berlin 2035, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

    Contracts for Differences; Renewable Energy; Support Mechanisms;
    All these keywords.

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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