In a new study on the financing of onshore wind energy and ground-mounted solar installations, the Berlin think tank Agora Energiewende proposes a combination of contracts for difference (CfD) with pro rata financing through long-term power purchase agreements (PPAs) to replace the current market premiums.
The market premium model, in which every kilowatt hour marketed is remunerated, regularly leads to false incentives: “The production-dependent support creates market distortions, such as renewable energy plants feeding electricity into the grid even when demand is already covered. The new German government must tackle this problem as part of the EEG reform,” explains Philipp Godron from Agora Energiewende.
In future, the basis for calculating the revenue guarantee should no longer be the electricity production of an individual plant, but the production of a so-called reference plant. According to the study, this would create incentives to pay attention not only to the amount of electricity generated, but also to the market value of the electricity, both in terms of investment and operation.
Agora Energiewende
In order to combine the instruments, the study proposes giving investors the freedom to choose the amount of the state guarantee as part of the tendering process. With the proposed instrument, investors would only benefit from additional revenues if they assume the corresponding market risks in advance and waive the state guarantee. On the other hand, any additional proceeds generated during the state guarantee phase would be subject to a skimming mechanism. The option model should be designed in such a way that market hedging phases of different lengths can be selected.
The proposed investment framework could replace the current state EEG subsidy when its approval by the European Union under state aid law expires at the end of 2026. The proposal is also in line with the EU Internal Electricity Market Directive, which stipulates a bidirectional effect of state investment instruments until 2027.
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Study “Investment instruments for wind and solar plants in the interplay between the market and subsidies”
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