Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/181032
Authors: 
Neuhoff, Karsten
May, Nils
Richstein, Jörn C.
Year of Publication: 
2018
Series/Report no.: 
DIW Discussion Papers 1746
Abstract: 
Cost of renewable energies have dropped, approaching wholesale power price levels. As a result, the role of renewable energy policy design is shifting - from covering incremental costs towards facilitating risk-hedging. An analytical model of the financing structure of renewable investment projects is developed to assess this effect und used to compare different policy design choices: contracts for differences, sliding premia, fixed premia and a setting without dedicated remuneration mechanism. The expected benefit for electricity consumers from reduced risk and financing costs is approximated at the example of a 2030 scenario for Germany. Policies like sliding premia, previously evaluated as providing low-risk investment environments, provide for less risks hedging, when technology costs approach wholesale power prices. Contracts for differences provide in all scenarios the most effective hedge for investors against power prices uncertainty, enabling low-cost financing and reducing costs for consumers, while also hedging electricity consumers against high power prices.
Subjects: 
Investments under uncertainty
Financing costs
Renewable energy policy
Contracts for difference
JEL: 
Q42
Q55
O38
Document Type: 
Working Paper
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