This episode of #FSRDebates will consider which role Contracts for Difference could play in the future market design and how they can be designed to ensure the active participation of contracted resources in the short-term markets.
Contracts for Difference (CfDs) have been used in some countries for supporting the development of renewable-based generation, but without an effort to harmonise their use.
The increasing penetration of variable renewable energy sources in the electricity system is leading to more volatile prices, which brought the policy and regulatory debate to reconsider the role of long-term instruments and markets.
The recent developments in the electricity markets, exacerbated by the impact on energy markets of the war of aggression in Ukraine, apart from creating more risk for investors and market participants in the electricity sector, have created additional attention to the issue of whether the current market design should be complemented by other instruments, addressing the longer-term timeframe and supporting resource adequacy.
A much wider role of CfDs is now being considered. The challenge is to ensure that their design does not weaken the incentives for the contracted resources actively to participate in the short-term markets.