Auctions and Contracts for Difference (CfDs) are increasingly used to finance renewable energy projects in South East Europe. While they do not remove all project risks, they change the risk profile of renewable investments. The shift is linked to cheaper capital for developers and improved lender confidence.
Stakeholders report different value from the structures. Developers can rely on revenue stability, lenders can assess bankability with greater clarity, and governments can use auctions for competitive price discovery. Consumers may benefit through lower long-term electricity costs and reduced exposure to wholesale market volatility.
Romania expands CfD-backed solar and wind auctions
Romania has become a regional reference point for this transition. With support from the European Bank for Reconstruction and Development (EBRD), it has run two renewable energy auctions under a CfD framework. Together, the auctions awarded about 4.2 GW of solar and wind capacity and exceeded a 3.5 GW target under its Recovery and Resilience Plan.
The second auction allocated 2,751 MW of CfD-backed capacity. It also attracted bids totaling more than 5,500 MW, reflecting competition among renewable developers.
The market shift in Romania is tied to a move away from a purely merchant model dependent on wholesale power prices. Instead, projects are increasingly structured as auction-backed investments with higher revenue certainty. This affects how projects are financed and assessed by lenders.
How two-way CfDs affect revenue under price swings
The role of CfDs becomes more visible during periods of market volatility. Under a two-way CfD mechanism, developers receive compensation when market prices fall below the strike price. When prices exceed the strike level, revenues are returned under the contract terms.
This arrangement is designed to provide downside protection for investors while offering upside protection for consumers. Long-term contracts supported by CfDs can also influence financing terms for renewable assets.
Renewable projects backed by long-term CfD contracts can typically support higher debt levels and lower equity risk premiums. They may also attract a wider set of lenders and institutional investors compared with projects relying solely on merchant revenues.
Romanian solar financing includes 15-year Slobozia CfD
A financing package for 531 MW of solar capacity illustrates how revenue certainty can be reflected in project structures in Romania. The flagship Slobozia project is supported by a 15-year CfD contract. Other projects in the same package rely on merchant revenues rather than CfD-backed income.
The transaction highlights how long-term contract support can be used alongside merchant exposure within a single financing arrangement. It also shows how different revenue streams can be combined when structuring debt and equity.
Serbia’s auction results include solar at €50.9/MWh and wind at €53.6/MWh
Serbia is also progressing toward a more bankable renewable energy market through auctions. Its second renewable energy auction attracted 41 project proposals and awarded support for up to 645 MW of new capacity. The auction delivered highly competitive pricing outcomes across technologies.
Bids included approximately €50.9/MWh for solar and €53.6/MWh for wind. The results were part of the country’s broader shift toward auction-based procurement for renewables.
The relevance extends beyond Serbia because it operates as the largest power system in the Western Balkans outside the European Union. Competitive auctions, market premiums, and more transparent offtake structures are cited as factors that can improve investor confidence and reduce reliance on ad hoc bilateral agreements.
Auction requirements shape readiness and commissioning risk
Auction processes can add discipline to project development by rewarding tenders that are ready for execution. Competitive bids are associated with elements such as secured land rights, advanced permitting, grid connection agreements, realistic cost assumptions, and credible financing plans.
Auction participation can also create risks when bids do not match delivery realities. Developers that underestimate construction costs, financing expenses, or delivery timelines may face pressure on project economics even after winning support.
Key design issues include strike levels, grid build-out, and negative prices
Strike prices must remain high enough to ensure project delivery through financial close and commercial operation. Low auction prices may appear attractive but can provide limited value if projects fail to reach required milestones.
Grid infrastructure is another constraint as renewable deployment increases. Awarding gigawatts of new capacity without corresponding transmission and distribution investment can lead to congestion, curtailment, and delays that affect investor confidence.
Auction frameworks also need to address inflation risk, foreign-exchange exposure, balancing obligations, commissioning deadlines, and negative electricity prices. These factors influence how costs and operational requirements are managed under contract terms.
Storage becomes relevant as renewables penetration rises
Energy storage is identified as an additional challenge as renewable penetration grows. Storage is expected to become part of system flexibility needs in future deployment phases.
Future auction rounds may therefore need to support hybrid renewable-storage projects or create incentives for technologies providing balancing and grid-support services. The design choices would determine how storage-related capabilities are incorporated into procurement outcomes.
CfDs influence renewables M&A through more predictable cash flows
The expansion of auctions and CfDs is also reshaping renewable energy mergers and acquisitions across the region. Projects with long-term CfD contracts can be easier to finance, sell, or refinance because future revenue streams are more predictable than merchant-only income profiles.
Developers may increasingly focus on originating projects, securing permits, and de-risking before selling them to utilities, infrastructure funds, or institutional investors. Strategic buyers often prefer auction-backed assets with lower revenue uncertainty and more stable cash flows.
CfD-linked stability comes with trade-offs in returns compared with fully merchant assets. Projects operating under CfDs generally offer lower returns because developers give up part of the upside associated with high market prices in exchange for greater financing certainty and reduced risk exposure.
Auction design remains central for policy implementation
A key policy implication highlighted in the region is that auctions and Contracts for Difference act as a bridge between policy ambition and private capital availability. Countries that design credible, transparent, investor-friendly auction frameworks are more likely to attract lower-cost financing while accelerating renewable deployment.
The alternative scenario described involves delays in reforms or unstable regulatory environments that increase dependence on state utilities, development finance institutions, or opportunistic capital sources.
The next phase of renewable energy policy is described as needing emphasis on better auction design rather than only higher volumes. Frameworks referenced include those that are bankable, grid-aware, storage-compatible, and transparent.
Southeast Europe’s challenge is framed around converting abundant renewable resources into financeable projects that can be built, connected, and operated successfully. Well-designed CfD schemes are presented as one of the main tools available to support that conversion process.