Why all EU Member States should have put two-way CfD schemes in place by today

Today is Friday, 17 January 2025, and this date is particularly important for renewable energy projects in Europe. Why? Because it has now been exactly six months since the EU’s latest electricity market reform (“EMR”) package entered into force. Among other things, the EMR will make two-way contracts for difference (or “CfDs” for short) mandatory for renewable energy projects latest by July 2027 for most technologies (and latest by July 2029 for “offshore hybrid assets”, i.e. cross-border offshore wind projects).

So, what’s so important about today’s date? It is only two-and-a-half years to go before all EU Member States must introduce two-way CfDs (or “equivalent schemes with the same effects”, whatever that is…) – except those that already have them, of course. Since such schemes must be in place for all projects starting commercial operation from that date on, market participants (i.e. project developers, investors, suppliers and regulators) will need to know much sooner how the change in existing support systems for renewables built around market premiums (or one-sided CfDs) will affect them and their projects.

Typical project development cycles in the renewables industry range from 1 to 5 years from the start of project development to the start of commercial operation (depending on the technology and location). This means that in many cases, e.g. on- and offshore wind, projects that are expected to enter into operation in the year 2027 are already being developed today – and their developers, suppliers and financiers will need to know well in advance on what kind of support scheme (exactly…, as details matter a lot) the projects’ revenues will rely. Thus, there is precious little time left for policymakers to make up their minds on how to design their two-way CfD schemes – and for legislators to implement them!

What’s more, I believe there was a legal obligation for EU Member States to put the laws, regulations and administrative provisions for two-way CfDs in place by today. I have to be a bit careful here, as I am wading into the territory of lawyers and legal experts (and I am neither!), but my thinking is as follows:

1)????? Article 3 of Directive (EU) 2024/1711, which amends Directive (EU) 2018/2001 (the EU's Renewable Energy Directive, or “RED”), stipulates that “Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 17 January 2025.” While they are not explicitly mentioned here, I would argue that this requirement includes the legal measures necessary for the introduction of two-way CfD schemes, which are referred to in Article 1 of the amending Directive.

2)????? While this might seem a stretch, it is worth noting that the European Commission ’s original legislative proposal (published on 14 March 2023) explicitly included the following wording: “Article 36 [of the RED], paragraph 1 is replaced by the following: ‘1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with Articles 2 […] by 30 June 2021. However, Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with Article 4(3), second subparagraph, by [six months after entry into force of this Regulation].”

3)???? Since the only change of substance in Article 4(3) of the amended RED is the introduction of two-way CfDs for certain technologies (referred to and further specified in Article 19d of amended Regulation (EU) 2019/943), clearly this transposition deadline can only apply to the laws, regulations and administrative provisions necessary to introduce such two-way CfDs (or equivalent schemes). Nothing else would make sense, and when re-reading its initial proposal it seems clear that the Commission had the technical, economic and legal requirements of project developers in mind when it wanted to oblige EU Member States to put their revamped support schemes in place well in advance.

Since I wasn’t party to the trilogue between the European Commission, the European Parliament and the Council of the European Union , I cannot say for sure why the Commission’s proposed wording did not make its way into the legislative texts finally published in the Official Journal of the EU. What my research shows, though, is that while the European Parliament seemingly went along with the Commission’s proposal, the final wording (as now found in the amended RED) came from the Council.

Unfortunately, only the trilogue participants can tell whether the reduced clarity on EU Member States’ obligations was more than an editorial matter (i.e. streamlining and rearranging wording) and reflects a desire by EU Member States to not have their hands forced through tight transposition and implementation deadlines. I attempted to shed further light on this question by asking the European Commission about it, but haven’t received an answer, unfortunately.

So what do you think? Am I correct in my legal reasoning that policymakers in EU Member States, such as Germany’s Bundesministerium für Wirtschaft und Klimaschutz , should have introduced the necessary laws for the implementation of two-way CfDs already? Or is mine a minority opinion that stretches the legal argument too far, while being right on the commercial and technical need for clarity on the support schemes of the future for renewable energy projects, such as Germany's Renewable Energy Act (EEG)?

I look forward to your comments and feedback!

P.S.: In case you’ve missed it, you can read the previous post on my economic and legal analysis of two-way CfDs here: https://www.dhirubhai.net/posts/janoschondraczek_europe-cfds-leuphana-activity-7249013742502338560-3E6F. You can find references to the main EU laws cited above in my comment below.

Disclaimer: Needless to say that the views expressed here are my own, not those of my employer (or anyone else).