Details
- Identification
- Discussion Paper 236
- Publication date
- 2 December 2025
- Authors
- Derck Koolen | Arnaud Mercier | Gonçalo Terça | Marija Miletic | Rafael Finck | Andreas Zucker | Directorate-General for Economic and Financial Affairs
Description
This paper examines the cost-competitiveness of various low-carbon technologies and the role of public support in different market environments.
Highlights:
- Overall, the market-based cost-competitiveness of low-carbon electricity generation is possible but is sensitive to the cost of capital and commodity costs of price-setting technologies.
- Flexibility has in general a positive effect on the profitability of low-carbon technologies and reduces price volatility. The analysis highlights however the need to ensure coherence across policies supporting the integration of renewable energy and flexibility.
- Contracts for Difference (CfDs) are long-term contracts between an electricity generator and a public entity, providing a stable revenue for the generator and protection for consumers from volatile and extreme prices.
- The strike price of a CfD contract is a key parameter determining the profitability for producers and the cost-effectiveness of the instrument for the public counterparty.
- The analysis shows that CfD revenues and cash flows depend on the level of the agreed strike prices per technology with the analysed market-based cost-competitiveness indicating the importance of competitive auctions to allocate these CfDs.
Information and identifiers
Discussion Paper 236. December 2025. Brussels. PDF. 52pp. Tab. Graph. Bibliogr. Free.
KC-01-25-066-EN-N (online)
ISBN 978-92-68-31837-9 (online)
ISSN 2443-8022 (online)
doi:10.2765/96834077 (online)
JEL classification: Q40, Q42, Q47, Q48.
Disclaimer
European Economy Discussion Papers are written by the staff of the European Commission’s Directorate-General for Economic and Financial Affairs, or by experts working in association with them, to inform discussion on economic policy and to stimulate debate. The views expressed in this document are solely those of the author(s) and do not necessarily represent the official views of the European Commission.
