Designing Contracts for the Energy Transition

Natalia Fabra () and Gerard Llobet
Additional contact information
Natalia Fabra: CEMFI, Centro de Estudios Monetarios y Financieros, https://www.cemfi.es/

Working Papers from CEMFI

Abstract: This paper examines the limitations of spot markets in providing adequate investment incentives to support zero-carbon investments in electricity markets. In contrast, properly designed long-term contracts have the potential to mitigate price volatility and facilitate the funding of the investments. A theoretical model is developed to analyze contract design under conditions of moral hazard and adverse selection, emphasizing the trade-offs that arise when exposing firms to price and quantity risk. The findings inform optimal contract design for nuclear and renewable energy projects, offering policy recommendations to enhance investment incentives while minimizing productive inefficiencies and excessive rents.

Keywords: Contract design; adverse selection; moral hazard; risk aversion; renewable energies; nuclear power plants. (search for similar items in EconPapers)
JEL-codes: L13 L94 (search for similar items in EconPapers)
Date: 2025-10
New Economics Papers: this item is included in nep-cta, nep-ene, nep-env, nep-mic, nep-ppm, nep-reg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cemfi.es/ftp/wp/2521.pdf (application/pdf)

Related works:
Journal Article: Designing contracts for the energy transition (2025)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cmf:wpaper:wp2025_2521

Access Statistics for this paper

More papers in Working Papers from CEMFI Contact information at EDIRC.
Bibliographic data for series maintained by Araceli Requerey ().