Large-scale renewables in France benefit from 20-year two-sided Contracts for Difference (CfD) awarded through a competitive pay-as-bid auction process. Several months to years can separate the award date and the effective date of the CfD contract. Between 2021 and 2022, rapidly rising costs of components and debt resulted in numerous projects being put an hold, despite having obtained all approvals and secured a tariff. The tariff, resulting from the developers’ bid, had not factored in the inflation and was no longer sufficient to ensure the profitability of the projects.
In December 2022, the Commission for Regulation of Energy (CRE) introduced an indexation factor to mitigate such risk for developers. This factor, called the K factor, is calculated from a number of statistical indices and built to reflect the cost of developing solar and wind projects, respectively.
When the cost of solar and wind goes up, the K factor goes up, and the developers eventually secure a tariff above their initial bid prices. However, when the cost of solar and wind goes down, the K factor also goes down—since its implementation, the K factor has mostly been on a downward trend.
In this session, we explored the following questions:
If you have any questions, please get in touch with Humberto Medrano.