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Contracts for difference design to remain national – EC


19 Sept 2023 12:07




19 Sept 2023 08:07

(Montel) The design principles for two-way contracts for difference used by governments to support new renewables and nuclear generation will remain largely national, a senior European Commission official said late Monday.

Projects and locations would be different in every EU country, even around the Baltic Sea, Thor-Sten Vertmann, part of EU energy commissioner Kadri Simson’s support team, told an industry event on Baltic offshore wind investments hosted by the Polish embassy to the EU in Brussels.

These were context specific details that would need to be considered, he said.

Two-way CFDs are a key element in the EC’s electricity market design reform proposals, which are intended to help the EU mitigate price volatility and integrate very large shares of renewables.

The European Parliament last week confirmed its negotiating position agreed in July on the reforms, including that governments should be required to use two-way CFDs for any state-funded support for new investments in wind, solar, geothermal energy, hydropower without reservoirs and nuclear energy.

Such investments could be in new plants, repowering existing plants, expanding capacity at existing plants or extending their lifetimes.

Binding reforms
The parliament is now ready to open talks with the EU Council of ministers to agree the common text needed for the reforms to become binding.

But France and Germany are still locked in a dispute over using CFDs to extend nuclear power plant lifetimes and talks with the council cannot start until this is resolved.

Vertmann cited the growing number of negative price hours in the EU power market driven by renewables as well as peaks driven by fossil fuels in recent years as conditions favouring using CFDs.

“CFDs will be the best tool to address this volatility,” he said. “It’s a zero-sum game, with the public authority taking on the investment risk.”

Two-way CFDs enable governments to receive money when the market price for the power produced exceeds an agreed strike price, and only pay out to the generator if the market price falls below the strike price.

Vertmann added that CFDs needed to be well designed so that short term price signals remained important in the market.

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