Consumer electricity costs could be curbed with ‘contracts for difference’ – researchers

The German government should change the way operators of renewable energy installations are compensated to ensure a fair sharing of the burden of high electricity prices, researchers from the German Institute for Economic Research (DIW) found in an analysis. They compared the price tags of the currently applied “sliding market premium” that renewable operators receive with those of a “contracts for difference” system. In the former system, the operators of almost all subsidised wind turbines and around a third of solar installations are entitled to a minimum payment for the electricity they sell, provided for by the renewable energy account (EEG account) that is paid out of consumer subsidies for renewable energy via their power bills. When power prices on the market are high, renewable energy operators get to keep these profits, while consumers are “left out in the cold,” the DIW said. If “contracts for difference” are applied, the renewable energy operator must transfer the excess revenues back to the EEG account instead of keeping them. If such a system had been applied in 2021 – a year of skyrocketing electricity prices - electricity costs would have been nearly 1.7 billion euros lower, the DIW wrote. In December alone, the savings would have been around 750 million euros.

European households and businesses have experienced unprecedentes price rises for gas and electricity in the past year, mainly due to a gas supply crisis. While the German government is deploying short term measures to alleviate the burden on consumers, it is continuing with its carbon pricing policy on fossil fuels and in the longer term wants to establish a "climate payment" to citizens to prevent social injustice.