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

DIW Weekly Report 35/36 / 2022, S. 205-213

Mats Kröger, Karsten Neuhoff, Jörn C. Richstein

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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.

Mats Kröger

Research Associate in the Climate Policy Department

Jörn C. Richstein

Senior Research Associate / Thematic Lead Electricity Markets in the Climate Policy Department

Karsten Neuhoff

Head of Department in the Climate Policy Department

JEL-Classification: Q40;Q41;Q42;Q48;D44;G32
Keywords: Contracts for Differences, Renewable Energy, Support Mechanisms
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