From one-Sided to two-Sided CfD: Germany’s EEG Draft brings new momentum to the support mechanism

Starting point: the previous market premium

In the previous EEG system, the well-known market premium functionally corresponded to a one-sided CfD:

If the market value was below the reference value, plant operators received a compensation payment (market premium).

If the market value was above it, there was no obligation for repayment by the operator, and “excess revenues” could be retained.

However, even here there is already a special rule for newer plants under Section 51 EEG: the market premium is not paid (or falls to zero) for generation during (quarter-) hours with negative spot prices.

Thus, the core formula for calculating the market premium was:

Market premium (MP) = Reference Value (RV) – Yearly Market value (MV)

Payment only occurred if MV < RV

No repayment if MV > RV

The result was effectively a one-sided downside protection in the market i.e., the state compensated plant operators.

From a one-sided support system to a two-sided CfD

With the new system, the former one-sided (asymmetric) CfD becomes a two-sided (symmetric) CfD. This means:

If MV < RV, the market premium continues to be paid.

If MV > RV, a claw-back mechanism now applies. Payments are made to the state - the so-called “refinancing contribution.”

This changes the revenue calculation logic for EEG-supported plants. The calculation of the market premium (i.e., payments from the state when market values are low) remains the same:

MP = RV – MV

If the value is negative, it is set to zero (MP = 0).

In addition, the second side of the CfD now applies: payments from the plant operator to the state. These occur when the (annual) market value exceeds the reference value. The refinancing contribution is calculated as:

If the Refinancing contribution (RC) = MV – RV

value is negative, it is set to zero (RC = 0).

Adjusted refinancing contribution

The new EEG draft also introduces an “adjusted refinancing contribution.” This applies when, in a given quarter-hour, the spot market price is less than or equal to the sum of the refinancing contribution and a minimum revenue:

Spot price ≤ RC + minimum revenue

In this case, the adjusted refinancing contribution is calculated as:

Adjusted RC = Spot market price – minimum revenue

The minimum revenues are fixed by technology:

Offshore wind: 1.5 ct/kWh

Solar: 0.5 ct/kWh

Other: 1 ct/kWh

This adjusted refinancing contribution ensures that operators can retain a minimum level of revenue when electricity prices are low.

Political asessment of the potential new support system

The market premium was and is intended to provide plant operators with security in the form of minimum revenues. This protection will remain in the future, as support payments will still be made when the annual market value is below the reference value.

It can be assumed that, in the absence of fossil-fuel price shocks, annual market values will continue to lie below the reference value. However, if the annual market value does exceed the reference value, the direction of payments reverses, and compensation payments are made to the state.

Plant operators also have the option to leave the support scheme and market their electricity independently. In that case, no refinancing contribution is required - but returning to the support scheme would no longer be possible. This detail gives operators a certain degree of flexibility, while also supporting market integration of renewable energy and enhancing the sense of fairness from the state’s perspective.

From the perspective of plant operators, this minimally invasive adjustment to the existing market premium model is likely to be viewed positively. The new EEG draft meets EU requirements without fundamentally overturning the system. A financing basis remains in place. Current challenges lie elsewhere, and there is relief that no additional pressure points are being introduced here.