Evaluating Contracts for Difference as Private Hedging Instruments: A Sensitivity Analysis for Medium-Term Price Protection

This paper investigates the role of Contracts for Difference (CfDs) as private hedging instruments in electricity markets, shifting from investment support to market-driven risk management. We analyze the financial impact of basic, one-way, and two-way CfDs using projected 2030 market data, assessing how strike price variations influence compensation payments and profit redistribution. Results show that basic CfDs provide the most balanced risk-sharing mechanism, while one-way CfDs lack provider viability, and two-way CfDs introduce higher financial exposure. These findings emphasize the need for adaptable CfD designs aligned with competitive market conditions.