The Impact of Two-Sided Contracts for Difference on Debt Sizing for Offshore Wind Farms
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Date
2025-09
Publication Type
Journal Article
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yes
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Abstract
Two-sided Contracts for Difference (CfD) are a remuneration mechanism that stabilizes revenues and leads to better financing conditions for offshore wind farms. Despite the EU Commission’s efforts to make two-sided CfDs a mandatory remuneration scheme, many leading offshore wind markets in Europe still apply one-sided CfDs, which, combined with competitive auctions, often result in zero bids and merchant risk exposure. We contribute to the debate on the two-sided CfD effect on financing by quantifying their impact on debt size. Our approach combines a stochastic power price and wind-power feed-in model with cash flow liquidity management in a project financing setting. We show that offshore wind farms with two-sided CfDs experience less financial distress, increasing debt size between 15 and 27 percentage points compared to a project with merchant revenues. The leverage increase could save consumers between 12 and 19 EUR/MWh in electricity generation costs. This emphasizes the importance of continuing revenue stabilization measures to ensure a cost-effective mobilization of investments for financing Europe’s energy transition.
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published
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Book title
Journal / series
Volume
46 (5)
Pages / Article No.
145 - 188
Publisher
SAGE
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Edition / version
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Software
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Date collected
Date created
Subject
power price risk; debt size; project financing; financial distress; Monte-Carlo simulation; offshore wind
Organisational unit
09550 - Schmidt, Tobias / Schmidt, Tobias