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 in 2022 shifted the energy policy debate toward the question of how consumers can better benefit from the low and stable generation costs of renewable electricity. Long-term contracts for renewable energy to link producers and consumers are an option to address these concerns. Various market failures limit the potential for bilateral contract structures between power producers and consumers. Hence, we assess the option of a government-backed Renewable Energy Pool which tenders long-term contracts with new renewable projects and passes the pooled contracts on to consumers who thereby benefit from reliably lower-cost electricity supply. We assess the effect of the measure on producers and consumers of clean electricity, as well as the incentives for investing in flexibility options.