Contracting Matters: Hedging Producers and Consumers with a Renewable Energy Pool

Abstract

Renewable energy installations are rapidly gaining market share due to falling technology costs and supportive policies. Meanwhile, the energy price crisis resulting from the Russian-Ukrainian war has shifted the energy policy debate toward the question of how consumers can benefit more from the low and stable generation costs of renewable electricity. Here we suggest a Renewable Pool (“RE-Pool”) under which the government passes the conditions of Contracts-for-Difference on to consumers who thereby benefit from reliably low-cost electricity supply. We assess the effect on financing costs, scale, and system friendliness of wind investments, as well risk hedging for consumers’ volume risks and hedging incentives.