Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/267597
Authors: 
Schlecht, Ingmar
Hirth, Lion
Maurer, Christoph
Year of Publication: 
2022
Publisher: 
ZBW – Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
Contracts for differences are widely discussed as a cornerstone of Europe’s future electricity market design. In this paper, we make three contributions to the debate. First, we summarize the dispatch and investment distortions that traditional CfDs cause. Second, we propose an alternative CfD specification that we dub "financial wind CfDs". It is a hybrid between CfDs and forward contracts that aims at being superior to conventional CfDs both in terms of risk mitigation and incentives. Third, we point out that "the other side of the contract", the government’s financial position resulting from any long-term contract with generators, must be carefully handled to avoid muting consumers' flexibility incentives or depleting forward markets.
Subjects: 
electricity market
market design
contracts for differences
energy economics
JEL: 
Q4
Q42
more recent Version: 
Document Type: 
Working Paper

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