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The Impact of Two-Sided Contracts for Difference on Debt Sizing for Offshore Wind Farms

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  • Mak Ä ukan
  • Dogan Keles
  • Lena Kitzing

Abstract

Two-sided Contracts for Difference (CfD) are a remuneration mechanism that stabilizes revenues and leads to better financing conditions for offshore wind farms. Despite the EU Commission’s efforts to make two-sided CfDs a mandatory remuneration scheme, many leading offshore wind markets in Europe still apply one-sided CfDs, which, combined with competitive auctions, often result in zero bids and merchant risk exposure. We contribute to the debate on the two-sided CfD effect on financing by quantifying their impact on debt size. Our approach combines a stochastic power price and wind-power feed-in model with cash flow liquidity management in a project financing setting. We show that offshore wind farms with two-sided CfDs experience less financial distress, increasing debt size between 15 and 27 percentage points compared to a project with merchant revenues. The leverage increase could save consumers between 12 and 19 EUR/MWh in electricity generation costs. This emphasizes the importance of continuing revenue stabilization measures to ensure a cost-effective mobilization of investments for financing Europe’s energy transition. JEL Classification: G32, G38, Q48, Q42

Suggested Citation

  • Mak Ä ukan & Dogan Keles & Lena Kitzing, 2025. "The Impact of Two-Sided Contracts for Difference on Debt Sizing for Offshore Wind Farms," The Energy Journal, , vol. 46(5), pages 145-188, September.
    • Handle: RePEc:sae:enejou:v:46:y:2025:i:5:p:145-188
    DOI: 10.1177/01956574251331942
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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