CFD financing of renewables best way to pass on cost reduction to consumers – study

Contracts for difference (CFD) for renewable energy funding are the best available method to pass on cost reductions in different renewable technologies to the average power customer, the German Institute for Economic Research (DIW) says in its weekly report. The current German renewables funding model of a “flexible market premium” that guarantees a monthly minimum price for their output will lead to rising costs in the long run. “If power generation costs keep falling vis-à-vis capital costs of renewables, sticking to the current funding model of a flexible market premium will partly offset the cost reduction with higher financing costs,” the study says. A model that does without any compensation for renewable power producers whatsoever will end up having the highest cost per megawatt hour (MWh) of all, the researchers say. The DIW authors say the large-scale introduction of CFDs in Germany could lead to an annual cost reduction of more than 800 million euros by 2030 and shield customers from power-price spikes.

Find the report in German here.

See the CLEW factsheets How much does Germany’s energy transition cost? and Germany ponders how to finance renewables expansion in the future for more information.