Executive Summary

This paper focuses on the use of two-way contracts for difference (2w-CfDs), that is, a direct price support scheme for renewable energy sources that has been gaining ground in the 2020s. In fact, the amended Electricity Market Regulation 2019/943 requires Member States to use 2w-CfDs or equivalent schemes with the same effects, if they wish to grant direct price support to renewable energy projects in the future. Soft law conditions also push towards the use of 2w-CfDs. However, the use of 2w-CfDs is not a panacea, but it also entails risks for the functioning of the electricity markets. The main risks are the impact of 2w-CfDs on different segments of the electricity market and the neutralisation of price signals. Thus, in order to increase the market-responsive character of 2w-CfDs and to ensure compliance with the relevant design principle, a more complicated type can be used, namely production-independent 2w-CfDs. The compliance of 2w-CfDs with the other principles of renewable energy support law is less complicated and it shares many similarities with the compliance assessment for other support schemes. 

This paper will be part of the OGEL Special Issue on "State Aid and Competition Rules in the Energy Sector". More information here www.ogel.org/news.asp?key=840