Conference Agenda

Inefficient market responses to renewable support schemes can increase costs and undermine decarbonization efforts. We study two-way Contracts for Difference (CfDs), which stabilize generator revenues but may distort generation incentives. Exploiting variation across support schemes and CfD design rules for offshore wind farms in Great Britain, we apply difference-in-differences to hourly unit-level data to provide the first ex-post evidence on CfD-induced inefficiencies in day-ahead and balancing markets. Market-based wind farms reduced output by 69-83% during negative-price hours; CfD-backed units showed a similar reduction when payments were suspended after six or more consecutive negative-price hours. The studied CfDs also distort the balancing market: generators curtail output by 28% less when they receive payments that cover the negative imbalance price; when they must repay, they curtail 19% more when the imbalance price drops below the payment. From 2019–2024, day-ahead market distortions resulted in 2.9 TWh excess generation, costing £176 million in support.

We examine the responsiveness of renewable generators to short-run electricity prices. Pairing high frequency generation data for individual renewable generators in Texas with spatially-detailed meteorological data, we find that wind-powered facilities increase their output in response to high day-ahead market prices conditional on local meteorological conditions. We find solar-powered facilities, once eliminating the possibility for price-induced curtailment (observed generation being lower than potential generation), are not price responsive. Using instrumental and time-shifted variable methods to address endogeneity concerns, we find an average short-run price elasticity for wind generators to be on the order of 0.10 for wind-powered facilities. Price-responsiveness is greatest for unsubsidized wind farms and those with more market exposure, consistent with theoretical predictions. Our estimates reveal an overlooked intensive margin of operational adjustments by renewable firms. We illustrate the quantitative importance of this margin under a shorter-term scenario where demand has accelerated rapidly but generation capacity has remained relatively fixed and under a longer-term scenario with high deployment of renewable generation capacity.

This article studies an overlooked distortion induced by two-sided sliding Feed-in-Premium contracts, the most widespread support scheme for new large-scale wind and solar projects in Europe. Under such contracts, producers sell their output on the market and bilateral transfers with the State provide some insurance against spot price variability: over a given period, if the average price stands below (above) an auction-determined strike price, the producer receives (pays) the difference for each MWh produced. During periods where the average price exceeds the strike price, the insurance payment is negative and can provide incentives to curtail output even when spot prices are positive. We first show empirically that the magnitude of such ``perverse curtailments'' can be large under extreme market conditions such as the 2022 energy crisis. We next develop a theoretical model to evaluate the equilibrium impacts of perverse curtailments, taking into account their endogenous relationship with both spot prices and insurance payments. We find that equilibrium curtailments can be larger than what our marginal empirical analysis would suggest.