A Study of the Two-Way CFD Mechanism in the Electricity Market Based on Renewable Energy Source: The Case of Europe

This paper examines the two-way Contracts for Difference (CfD) mechanism, a pivotal policy tool for promoting renewable energy in electricity markets, by reviewing its design and implementation in the UK, Germany, and Denmark. It identifies key success factors and challenges, emphasizing the need for appropriately set fixed performance prices, long-term contracts, and flexible payment structures to ensure CfD effectiveness. The paper also highlights the importance of policy coherence and the integration of market mechanisms to avoid distortions and achieve policy objectives. In the context of China, the paper offers policy recommendations for the successful adoption of two-way CfDs, including advancing electricity market reforms, diversifying funding sources, and strengthening legal frameworks to support China's energy transition and carbon neutrality goals.