Contract for Difference (CfD)

In Article 19d of the Electricity Internal Market Regulation^[1] It is stipulated that direct price support schemes for investment in new power generation facilities using (among other things) renewable energy sources must take the form of bilateral spread contracts. The design principles for these spread contracts include the following:

• incentives for the efficient operation of electricity generation facilities and their efficient participation in the electricity markets must continue to exist,
• any distorting effect of the support scheme on operational, dispatch and maintenance decisions relating to the electricity generation facility, or on bidding behaviour in the day-ahead, intraday, system services and balancing reserve markets, should be avoided, and
• the guaranteed minimum remuneration and the cap on excessive remuneration must be aligned with the costs of the new investment and market revenues in order to ensure the long-term economic viability of the power-generating facility, whilst avoiding excessive compensation.

Why is it called a Contract for Difference?

The Contracts for Difference to be introduced are described as two-sided because, on the one hand, they guarantee plant operators a fixed price (‘protected minimum remuneration’) and, on the other hand, they cap potential revenue (‘cap on excessive remuneration’). If the revenue generated by a renewable energy plant falls below the guaranteed fixed price, the state pays the difference up to the fixed price. If the revenue exceeds the guaranteed fixed price, the difference above the fixed price is repaid to the state.

The structure of these differential contracts can take many forms as determined by the legislator:

• with regard to the volume framework used for the calculation (production-dependent, i.e. actual feed-in volumes compared with theoretically possible or production-independent volumes),
• the time basis of the financial compensation (on an hourly, monthly or annual basis) or
• the introduction of additional floors and caps, i.e. the price ranges within which payment entitlements apply.

The market premium was the previous ‘one-sided difference contract’

Until now, renewable energy projects have been subsidised via a floating market premium – effectively a unilateral difference contract – under which the state compensates for the difference between the guaranteed fixed price (the reference value) and the wholesale price during periods of low wholesale prices, but receives no repayments when wholesale prices are higher. Following the energy crisis in 2022, the EU decided to introduce a mandatory ‘clawback’ for state-auctioned projects, in order to ensure a financial return during periods of high prices in future, thereby helping to keep consumer prices in check.

The EEG 2027 is now set to introduce two-way contracts for difference. The draft bill for the EEG 2027, adopted by the Federal Cabinet on 29 July 2026, stipulates in Section 21d of the EEG 2027-E that a clawback mechanism will be introduced for all new installations with an installed capacity of 100 kW or more that are subsidised under the EEG 2027. The draft builds on the existing system and retains the system of subsidised direct marketing with production-based support in the form of the market premium. However, this is supplemented by a refinancing contribution for situations in which the annual market value exceeds the plant-specific applicable value (AW). The draft bill is due to be finally adopted by the Bundestag and Bundesrat by the end of the year.

What were the annual market values for onshore wind and solar in the past?

According to information from the transparency platform of the German transmission system operators^[2] In 2025, the annual market values for onshore wind turbines stood at 74.41 euros/MWh (2024: 62.93 euros/MWh) and for solar power plants at 45.08 euros/MWh (2024: 46.24 euros/MWh). Assuming that the levy scheme had already been in place last year and a wind farm had come into operation in 2025 with a reference value of 73.50 euros/MWh (corresponding to the highest successful bid in the May 2023 tender and a quality factor of 1.0), the plant operator would have had to repay a refinancing contribution of 0.91 euro/MWh to the distribution system operator in 2025.

Wind farms in particularly windy areas with a quality factor of less than 1.0 – i.e. a low applicable value – would have repaid correspondingly more; conversely, wind farms in less windy areas with a higher quality factor would have repaid less or nothing at all.

The above analysis is theoretical, as the levy scheme, as mentioned above, will only apply to new installations. It remains to be seen whether the new regulations on difference contracts under the EEG 2027-E will influence the bidding behaviour of investors and project developers in future tenders organised by the Federal Network Agency.

The distribution system operator is to calculate the refinancing contribution annually – that is, once the relevant annual market value has been determined – on a retrospective basis, and offset it against the monthly (reasonably high) instalments paid in advance by the plant operator.

Are Power Purchase Agreements (PPAs) also affected by the refinancing contribution?

A lawyer would say: “It depends…” – depending on whether a PPA for an EEG-eligible installation is entitled to a subsidy or not. PPAs for EEG-eligible installations that are not entitled to a subsidy (e.g. post-EEG installations or on-site installations) are also not subject to the obligation to pay the refinancing contribution.

If, on the other hand, an EEG plant does receive a subsidy, as explained above for the direct marketing model, the PPA is also subject to the obligation to pay the refinancing contribution (Section 21a(2) EEG 2027-E). Under the aforementioned draft EEG, plant operators must declare to the grid operator within six months of commissioning whether they wish to claim the subsidy (Section 19(2) EEG 2027-E). A subsequent withdrawal from the system of feed-in tariffs and levies would only be possible on a one-off basis and only within the first ten years following commissioning (Section 20b EEG 2027-E). This is intended to prevent operators from frequently switching from one form of marketing to another, depending on price developments on the wholesale market.

The draft of the EEG 2027 and the structure of the bilateral difference contracts will undoubtedly be the subject of intense debate in the coming weeks, both within the industry and in the committees involved in the legislative process. It is to be hoped that the first-ever introduction of bilateral difference contracts under the EEG will be approved as soon as possible, so that investors and project developers can take the new framework conditions into account.

Do you have any questions about Contracts for Difference? Please feel free to get in touch with us!

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^[1] https://eur-lex.europa.eu/legal-content/DE/TXT/HTML/?uri=CELEX:02019R0943-20240716

^[2] https://www.netztransparenz.de/de-de/Erneuerbare-Energien-und-Umlagen/EEG/Transparenzanforderungen/Marktprämie/Marktwertübersicht