Electricity market reform 2024/1747: two-way CfDs from 2027 — will they cover biogas and biomass?

The 2024 electricity market reform introduces an obligation that from mid-2027 direct price support for new wind, solar, geothermal, run-of-river hydro and nuclear power plants take the form of a two-way contract for difference (CfD). Biogas and biomass are not on this list, so they are not subject to this obligation.

What Regulation 2024/1747 changes

Regulation (EU) 2024/1747 of 13 June 2024 amends Regulations 2019/942 and 2019/943; the accompanying Directive (EU) 2024/1711 amends Directives 2018/2001 (RED) and 2019/944. The regulation was published in the Official Journal of the EU on 26 June 2024 and entered into force on 16 July 2024. It contains several elements concerning renewable energy: rules for PPAs, provisions on support for non-fossil flexibility and the key Article 19d on two-way CfDs.

A two-way CfD in a nutshell

A contract for difference sets a strike price. When the market price is lower, the generator receives a payment up to the strike price. When it is higher, the generator returns the surplus. In the one-way model (a premium) the generator keeps everything above the strike price. According to Article 19d, revenues above the strike price are to be passed on to final customers.

We know such a mechanism from Ireland, where the RESS scheme is based on a two-way CfD for 15 years (see the report on the RESS decision). The Estonian and Finnish premium models are different: the premium falls as the market price rises and disappears at high prices, but the generator does not return the surplus (see Estonia and Finland).

A numerical example

Let us assume hypothetically a strike price of €100/MWh. If the average market price is €60/MWh, the generator receives a payment of €40/MWh and in total €100/MWh. If the market price is €130/MWh, the generator returns €30/MWh and also ends up with €100/MWh. Under a one-way premium in the second case it would earn €130/MWh. The difference shows that a CfD stabilises revenue but removes the possibility of profit in periods of expensive energy. For installations with generation costs close to the strike price this is advantageous, because it reduces risk, while for flexible installations that can sell energy in peak hours it is sometimes less attractive.

Scope and deadlines

According to Article 19d, from 17 July 2027 direct price support for new installations generating energy from wind, the sun, geothermal, run-of-river hydro and nuclear energy is to take the form of a two-way CfD or an equivalent mechanism. For offshore hybrid projects the deadline is 17 July 2029.

Combustion technologies, that is biogas and biomass, are not listed. This means that countries may continue to support them with a one-way premium, a tariff or certificates, provided they comply with the CEEAG guidelines (see the post on CEEAG) and with the requirements of the renewable energy directive.

Significance for biogas

The exclusion of biogas has practical consequences. First, auctions for wind and solar will soon use two-way CfDs, while in biogas baskets countries may retain a premium or tariff. Second, if a country decides on a joint auction in which biogas competes with wind and solar, the final design of the contract may also cover biogas, and then the generator will have to return surpluses. Third, the provisions on non-fossil flexibility give countries a basis for supporting dispatchable sources, which may be beneficial for biogas plants operating in peaking mode.

A practical conclusion: an investor in a biogas plant should follow not so much Article 19d itself as the national draft acts implementing the reform, because they will decide whether biogas goes into a basket with a two-way CfD or keeps its existing model.

What is voluntary

The regulation also introduces elements that Member States may, but need not, apply. These include support for non-fossil flexibility (provisions added to Regulation 2019/943) and recommendations on PPA templates. Generators gain the possibility of concluding long-term contracts that secure their revenues outside the auction system.

Conclusions

• The two-way CfD obligation from 17 July 2027 concerns wind, solar, geothermal, run-of-river hydro and nuclear, not biogas.
• For biogas and biomass the form of support continues to be decided by national law within the CEEAG framework.
• Revenues above the strike price are to go to customers, so generators in a CfD lose the "upside" in exchange for certainty of the "downside".
• The scope of the obligation may change in subsequent acts, so it is worth checking the current text in EUR-Lex.