Fit is dead, long live the CfD?

January 2018

CfD, one year on, reflecting on the switch.

To kick-off 2018, Everoze chose to reflect on last year’s hot topic for the French renewable industry: the new Contract-for-Difference mechanism. As technical and commercial advisors, we also thought it would be interesting to consider it within the larger and more fundamental landscape of the market entry of renewable projects. This article is the first of a series of three in which we will try to clearly describe what has changed for renewables last year, and share what are, in our view, the main associated risks for French projects. This first entry is setting the scene, so if you are already familiar with CfD, check back next week for part two.

So, the moment has finally come: French “new” renewables enter the electricity market. In other words, set apart a few exceptions [1], after December 2018, all new renewable power projects installed in mainland France will no longer be entitled to receive a Feed-in-Tariff (FiT). They will have to sell their produced electricity on wholesale markets.

Sure enough, the consecutive revenue shortfall [2] from a pure merchant model would have been far too brutal, therefore two additional revenue

streams will be made available for producers:

  • Capacity certificates sales
  • Contract-for-Difference (CfD)

The legislation

All the information of this article is available within the official decrees published in the French Official Journal. In particular, the following references focus on the new mechanisms for renewable electricity:

  • Arrété 6 décembre 2016. NOR: DEVR1636694A – conditions for wind farms applying for support in 2016
  • Arrété 10 mai 2017. NOR: DEVR1708388A – conditions for wind farms of 6 turbines or less applying for support in 2017 or after
  • Cahier des charges de l’appel d’offres version du 8 novembre 2017 – specifications for the November 2017 wind power auction
  • Cahier des charges de l’appel d’offres publiée le 11 décembre 2017 –specifications for the 2018 utility scale solar photovoltaic power auctions

The Capacity market

With the aim to strengthen the national grid’s stability, in particular when responding the winter consumption peaks, a capacity certification and market mechanism entered into force in 2017.


  • Retailers / demand-side players (typically energy utilities) have the obligation to cover their power needs during peak hours [3] through the acquisition of capacity certificates. These needs depend on the total consumption and thermosensibility of their clients.
  • Producers have the obligation to certify their capacities and to make them available during peak hours. Each technology has a specific calculation method to determine which amount is to be certified.
  • Capacity market: producers can market their certificates either on the EpexSpot stock exchange, either through bilateral contracts.

Specificities for non-dispatchable renewable power technologies:

Since stand-alone wind and solar plants cannot be dispatched, certification and availability verifications are specific compared to dispatchable generation.

The Contract for Difference

The CfD mechanism aims to protect renewable power projects from wholesale market price variations over the course of a 20-year contract.

In concrete terms, each project will receive, or pay, the difference between a reference tariff and a reference market price [4]. Schematically:

If we focus on onshore wind farms and utility-scale photovoltaic plants (> 500kW), three situations need to be considered as for the reference tariff definition:

1. Wind farms with 6 turbines or less

Will go through an “Open Gate” process for CfD obtention. The reference tariff will be revised annually by public authorities in order to match cost evolutions of the industry [5]. Three specificities should also be appreciated for these projects:

  • Their CfD will be cut down by a standardised value corresponding to the revenue obtained through the capacity market
  • They will benefit from a “trading premium” (2.8€/MWh) aiming to cover trading costs [4]
  • The CfD is capped for a volume of produced electricity [5]

2. Wind farms with either more than 6 turbines or at least one turbine rated over 3MW

Will compete over the reference tariff through auctions.

3. Photovoltaic plants

Will compete over the reference tariff through auctions organised following project types (utility scale, rooftops, …). CfD is capped for a number of annual full load hours.

For a given project, the reference tariff of the CfD is concluded for a 20-year period, only adjusted annually for inflation.

Important to point out that wind projects (regardless of size) who applied for support in 2016 benefit from specific conditions that are available in the official decree of December 6th, 2016. The below does not cover these.

It is important to note that the CfD scheme will not apply during negative price hours (day-ahead market). More precisely, a project will get some compensation back only if the following conditions are met [6]:

  • Wind farms: if the project successfully stops during 20 hours of negative prices of the year, the compensation will be paid for all the following ones (during which the plant is stops as well). The project will receive 35% of its rated power at the reference tariff.
  • Photovoltaic plants: the principle is the same, set apart (i) the count runs for 15 hours, only between 8:00 and 20:00, (ii) the number of compensated hours is capped [7] and (iii) the project receives 50% of its rated power at the reference tariff.

Example: 40 negative price hours during the year. A wind project fails to turn off for the 5 first hours, then correctly stops for the following 35. The project therefore starts getting a compensation at the 26th negative price hour.

The immediate consequences

As a result of the 2017 changes, new renewable power projects will have to manage 3 main revenue streams (compare to one with the former system).

3 revenue streams also mean at least 2 different contracts, adding a dose of complexity to plant management and operation. Indeed, projects companies will have to sign agreements with aggregators (either in-house or third party) for both their electricity sales and their capacity certificates.

The risks

On the face of it, this “market entry” may seem quite comfortable, especially for open gate projects (which represent a significant proportion of French onshore wind farms). After all, market price fluctuations are backed thanks to the CfD mechanism. Are there any real reasons to be worried?

At Everoze, as technical advisors, we decided we might also take a closer look to these novelties to help our clients through to a smooth transition.

Eventually we ended up identifying two main risks that, in our opinion, deserve specific attention when it comes to project assessment:

  1. Captured price deviation – Seems like CfD projects will always receive the reference tariff. Can we be sure of this? Where is the trap?
  2. Market access risk – What it involves and who is involved. Could this change in the future? How will this impact technical or commercial aspects of a project?

We will detail our view on both of these risks within our two upcoming blogs. So make sure you keep tuned if you want to safely pass the baton between FiT and CfD!


[1] According to European exclusions, very small projects (< 500 kW) and emerging technologies (such as tidal and high-altitude wind energies) may benefit from specific support mechanisms

[2] 2017 average day-ahead market price ended up at 45€/MWh to be compared to the last FiT contracts above 80€/MWh

[3] Determined by the national grid operator (RTE) which will give a one-day notice to producers. Only between November and March

[4] Details in our upcoming blogs

[5] As an indication: the base reference tariff for 2017 for open gate wind projects spreads between 72 and 74 €/MWh inversely related to rotor diameter

[6] These conditions may be subject to revisions on the occasion of each auction

[7] (N° negative price hours) < 1600 – (Full Load Hours)