Contracts for Differences
Ingmar Schlecht
Dear openmodders,
There is currently a lot of talk in Brussels about a possible greater role for CfDs (contracts for differences) in a future EU electricity market design.
Lion Hirth, Christoph Maurer and I have written down a few thoughts on this in the form of a working paper. It's still an early draft, but in the current situation, too early seemed better than too late.
URL: https://www.econstor.eu/handle/10419/267597
It has also been brought to our attention that David Newbury has recently made a similar proposal, which we will study in detail for another revision.
All the
best and (continued) happy holidays!
Lion,
Christoph, Ingmar
Robbie Morrison
Hi Ingmar
This recent work by the United Kingdom Energy Research Centre
might also be relevant (and didn't see covered in your draft):
- Gross, Rob, Callum MacIver, and Will Blyth (April 2022). Can existing renewables and nuclear help keep prices down next winter? The case for a 'pot zero' CfD auction — Discussion Paper. London, United Kingdom: UK Energy Research Centre (UKERC).
- Gross, Rob (7 September 2022). Mind the price freeze gap. UK Energy Research Centre. London, United Kingdom. Blog.
Not sure what prompted this earlier coverage by New Scientist
but they also ran a story on CfD schemes — pre‑Ukraine by 6 weeks:
-
Vaughan, Adam (14 January 2022). UK energy crisis: why renewable subsidies will help avoid price shocks. New Scientist. Web version. Paywalled.
"Rising energy costs have seen wind farms substantially refund environmental levies for the first time, showing they are likely to be the solution to, not a cause of, soaring bills"
"Under this, energy suppliers usually pay electricity generators, such as wind farm owners, the difference between wholesale power prices and a "strike price" that is a better reflection of the cost of producing renewable energy."
"For example, some older wind farms have a strike price of £114/megawatt hour. In normal times, UK wholesale prices are in the region of £50/MWh, in which case a wind farm owner gets a £64 top-up.
Perhaps those more familiar with the UK scene might be able to offer some further background.
By the way, the CfD scheme for Hinkely Point C nuclear plant will doubtless be expensive: for French taxpayers as the under‑estimated costs come through and for UK consumers to cover dispatch when this inflexible and expensive white elephant runs. The French might not mind paying because Macron recently indicated that civil nuclear capacity is necessary to circumscribe the French thermonuclear arsenal. And at some point, UK public money will no doubt be needed to decommission the facility and then monitor waste disposal.
Wikipedia reports a strike price of £89.50/MWh for Hinkely Point C, quoting a BBC News item from 2013.
good luck with your proposed hybrid instrument, Robbie
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