Determining commercially viable two-way and one-way ‘Contract-for-Difference’ strike prices and revenue receipts

Abstract

In this article, we investigate the role that a Contract-for-Difference (CFD) might play in increasing investment in renewable energy in Australia. Two CFD schemes are investigated: two-way and one-way CFD. A financial model is developed that determines commercially viable CFD strike prices. Account is taken of revenue from wholesale electricity market and renewable energy certificate sales. Capital and operational costs of the project including distribution of funds to holders of equity and debt are also included. Findings based on analysis of the solar array located at the University of Queensland Gatton Campus in Australia is presented, employing a typical meteorological year framework. The major finding was that Government will prefer a two-way CFD scheme and Single-Axis tracking solar PV array technology. In contrast, project proponents will strongly prefer a one-way CFD design.