The “APE – Energy Notes” series continues with an in-depth look at support mechanisms for the energy transition, focusing on two key instruments: Contracts for Difference (CfDs) and Power Purchase Agreements (PPAs). Paola Ferrari, RSE researcher, analyzes how these tools contribute to the security and sustainability of the Italian electricity system on its path towards renewable sources.
 
The document explains how CfDs and PPAs, although with distinct roles, are fundamental for stabilizing the revenues of renewable plants and making energy prices more predictable, thus encouraging new investments. CfDs, introduced by the FER X Mechanism, are public contracts that guarantee a fixed price for the energy produced, transferring part of the investment risk from private entities to consumers and facilitating access to credit. PPAs, on the other hand, are long-term bilateral agreements between producers and buyers, allowing the energy price to be fixed and risks to be shared between the parties, with flexible contractual formulas and different delivery types.
 
The advantages and risks of a 100% renewable energy system are analyzed: environmental sustainability, reduced costs and lower dependence on foreign energy supplies, but also challenges such as the intermittency of sources and reduced system inertia. To address these challenges, the EU has introduced a reform of the electricity market (Reg. 2024/1747), which maintains the principle of marginal pricing but adds stable instruments such as CfDs and PPAs.
 
The FER X Mechanism provides for twenty-year CfDs with the GSE for solar, wind, hydroelectric and plants powered by residual gases, with competitive procedures for sizes above 1 MW. PPAs, meanwhile, are characterized by a variety of counterparties (utilities, large companies, consumer groups) and the possibility of obtaining Guarantees of Origin, increasingly important for corporate sustainability.
 
Finally, the document highlights how the combination of price and delivery profile in PPAs determines the allocation of risks and benefits between producer and buyer, and how the spread of these instruments is strategic for building an efficient, transparent and secure electricity market.