Unlocking the power of contracts for difference (CfDs) to accelerate the energy transition

How should the European electricity market design evolve to be fit for net zero?

Compass Lexecon energy experts, Fabien Roques, Charles Verhaeghe and Augustin Lorne explore this question and more in a recent study they contributed as Knowledge Partner for Eurelectic. The team investigate challenges to define a market design fit for decarbonisation, and provide an analysis and guidance on the key features to efficiently design contracts-for-difference for renewable and low-carbon technologies.

This report was originally published by Eurelectric here. The views expressed in this report are the sole responsibility of the authors and cannot be attributed to Compass Lexecon or any other parties.

Introduction

To achieve EU objectives in terms of decarbonisation and low-carbon technology development, the Electricity Market Design reform highlighted the need for an appropriate investment framework to support capital-intensive, large-scale investment in clean and flexible resources and put forward contracts-for-difference (CfDs) as one of the main support mechanisms. However, the reform leaves a range of design questions open.

In the continuation of their collaboration on the Electricity Market Design Fit for Net Zero, Compass Lexecon supported Eurelectric as its knowledge partner to further explore this investment framework, focusing on the design of contracts-for-difference.

The report ‘Unlocking the power of contracts for difference (CfDs) to accelerate the energy transition’ published on Eurelectric’s website (here):

1. Highlights key challenges and trade-offs associated with design and implementation of two-way CfDs for renewable energy sources (RES) and low-carbon technologies;
2. Includes a range of alternative options for the key design features of CfDs addressing these key challenges; and
3. Identifies key trade-offs and provides guidance on best practices to design efficient CfDs.

You can find the executive summary of the report on Eurelectric’s website here.