Netherlands submits draft law creating contracts for difference for renewable energy and nuclear

The way the Netherlands supports new renewable power is about to change. 

The Dutch government has submitted a bill to parliament introducing two-way contracts for difference (tweerichtingscontracten ter verrekening van verschillen, or CfDs) whereby the state tops up revenues when power prices are low, but claws back revenues when prices are high. The move is driven by EU law. Under article 19d of the 2019 Electricity Market Design Regulation (i.e. the Electricity Regulation), from 17 July 2027 EU member states may only grant direct price support for new renewable or nuclear generation through CfDs or equivalent schemes. The Dutch bill goes further and opens the door to CfDs for a wider range of activities that cut greenhouse gas emissions. For investors and project developers, this will reshape the business case for new projects.

The following article summarises the key features of the bill and what they mean in practice.

How CFDs work

A CfD is a contract between an energy producer and the state that works in both directions. If the market price falls below a pre-agreed minimum price, the state pays the producer the difference per kWh produced. If the market price rises above a pre-agreed upper limit, the producer pays the excess to the state. The minimum price and upper limit may be set at the same level, creating a single fixed price (commonly referred to as the "strike price") or may form a price band. The result is price certainty for the producer, without the risk of windfall profits, and less exposure to the volatility of the electricity market.

Up until now, price support for renewable energy production and CO2 emissions reduction projects was provided via the SDE++ subsidy scheme (Stimulering Duurzame Energie en Klimaattransitie). 

The key difference between the SDE++ and a CfD lies in the clawback mechanism. Under the SDE++ framework, the state can only recover a subsidy that was already paid or offset it against a future subsidy. Hence, recovery is capped at the total support provided. A CfD goes further. The state can claim all revenue above the agreed upper limit even if this exceeds the total support received. For investors modelling project returns, this is a crucial distinction.

Scope

Article 19d of the Electricity Regulation makes CfDs mandatory for direct price support for onshore and offshore wind, solar energy, geothermal energy, reservoir-free hydropower and nuclear energy. Small-scale installations (i.e. capacity < 200 kW) and demonstration projects are exempt from this requirement. Hence, subsidy support remains possible for them.

The bill goes beyond what the Electricity Regulation requires. CfDs may also be used for other activities that help reduce greenhouse gas emissions to be designated by ministerial regulation (ministeriële regeling). The explanatory memorandum mentions, for example, installations for the capture and storage of CO2 (CCS), installations for the production of hydrogen or sustainable heat, and the electrification of production processes (e.g. replacing gas boilers with electric boilers). As EU law does not require a CfD for these activities, the government may choose between a subsidy and a CfD. At this moment, there are no concrete plans to use CfDs for these projects yet. For now, CfDs will only replace subsidies for new wind, solar, geothermal, hydropower and nuclear installations.

Contracting process

CfDs will be awarded through a competitive bidding process set out in a ministerial regulation. Before each tender, it must be clear whether support for a given category will take the form of a subsidy or a CfD. Before opening a tender, the Minister for Climate and Green Growth (Klimaat en Groene Groei) must first carry out a study of the market conditions for the relevant technology or activity. When setting the tender budget and estimating the costs of the projects concerned, the Minister will typically be advised by the Netherlands Environmental Assessment Agency (Planbureau voor de Leefomgeving), which already performs a similar advisory role for the SDE++ scheme.

The Minister will publish a draft model CfD together with the tender rules, so bidders know the contract terms in advance. This model is not an offer by the state. the producer makes the offer by submitting a bid. Bids are ranked according to criteria in the ministerial regulation, which may differ per tender (e.g. the support required per tonne of CO2 avoided). CfDs are awarded to the highest-ranked bids until the tender budget is exhausted.

The CfD regime combines public-law and private-law elements. The Minister’s decision to accept or reject a bid qualifies as an administrative decision (besluit) within the meaning of the General Administrative Law Act (Algemene wet bestuursrecht). As a result, a rejected bidder must first file an objection (bezwaar) with the Minister and may then appeal to the Trade and Industry Appeals Tribunal (College van Beroep voor het bedrijfsleven). Once the bid has been accepted, however, the CfD is a private-law contract between the producer and the state. The bill explicitly provides that the subsidy rules in title 4.2 of the General Administrative Law Act do not apply to it. This matters in practice because the state’s rights and obligations follow from the contract rather than from administrative subsidy law. Disputes about the performance of a concluded CfD must be brought before the civil courts. All CfDs must be drafted in Dutch and are governed by Dutch law.

Key considerations for investors and developers

The strike price is intended to cover the funding gap (onrendabele top) of a project (i.e. the part of the investment that cannot be recovered at market prices). This lowers the project’s risk profile and, with it, its financing costs. At the same time, article 19d of the Electricity Regulation requires CfDs to be designed so that producers still have an incentive to operate efficiently and to sell their electricity on the market. To that end, the bill allows for a carve-out: part of an installation’s production capacity to be left outside the CfD. In this case, the producer is free to sell electricity under power purchase agreements (PPAs), alongside the CfD. The size of the carve-out will be set by ministerial regulation. The carve-out is particularly relevant for green hydrogen projects: under EU rules (RED III and the underlying delegated regulations), hydrogen only qualifies as renewable if it is produced with electricity from renewable installations that do not receive operating or investment support. A carve-out allows unsubsidised electricity to be supplied from a project that is otherwise supported by a CfD.

Notably, the bill does not prescribe a fixed contract duration. This is deliberately left to ministerial regulation so that the term can be tailored to each technology. At a parliamentary technical briefing, officials indicated expected terms of 10 to 15 years for onshore, 20 years for offshore wind and potentially longer for nuclear energy.

Investors should also be aware of a security screening. No CfD will be concluded if direct or indirect control over the producer poses unacceptable risks to public safety, security of supply or the continuity of electricity supply. The ministerial regulation for each tender will specify whether the screening applies, which is expected to be the case particularly for vital energy infrastructure. Although the screening is not a foreign direct investment (FDI) screening, it follows a similar logic: like the Dutch Investment, Mergers and Acquisitions Security Screening Act (Wet veiligheidstoets investeringen, fusies en overnames), it focuses on who controls the undertaking and the risks this poses to national security interests. We anticipate that the assessment will draw on criteria similar to those used under that regime.

In addition, the bill sets out conditions that must be met before a CfD can be concluded. Where state aid notification is required, no CfD may be concluded until the European Commission has confirmed that the Dutch CfD scheme is compatible with the internal market. CfDs are not available to undertakings that are subject to an outstanding recovery order or are in insolvency proceedings. Furthermore, a CfD can only be concluded for new projects. Installations that have already been built or are under construction at the time of the bid, or for which irreversible investment commitments have already been made, are excluded. An exception to this may be made with the explicit approval of the European Commission. Finally, for offshore wind projects, the CfD will be integrated with the permitting process under the Offshore Wind Energy Act (Wet windenergie op zee).

What’s next

The bill was submitted to parliament on 24 June 2026, and parliamentary debate and adoption are expected in the coming months. The government is aiming for the bill to enter into force on 1 July 2027, just ahead of the EU deadline of 17 July 2027. From that date, CfDs will in principle be the only route to direct price support for new wind, solar, geothermal, hydropower and nuclear projects. Projects that already benefit from SDE++ support will not be affected: existing SDE++ grants will continue to run for their full subsidy period.

If the timetable holds, the first CfD tender is expected to open in autumn 2027, provided the necessary ministerial regulations are in place in time. Those regulations will determine much of what really matters for the business case, including the reference price methodology, the payment formulas, the size of the carve-out and the contract duration. Investors and developers planning projects for the first tender rounds are advised to follow the parliamentary debate and the drafting of the ministerial regulations closely and start assessing how a two-way CfD, with its unlimited clawback above the upper limit, will affect their financing structures, PPA strategies and expected returns.

The bill, including explanatory notes, can be found here (only available in Dutch): Regels in verband met de toepassing van tweerichtingscontracten ter verrekening van verschillen ter uitvoering van artikel 19 quinquies van Verordening (EU) 2019/943 en ten behoeve van andere activiteiten die bijdragen aan de vermindering van broeikasgassen (Wet toepassing tweerichtingscontracten ter verrekening van verschillen voor klimaat en energie) | Tweede Kamer der Staten-Generaal.

For more information on the Netherlands’ CfD framework and its implications for energy investments, contact your CMS client partner or these CMS experts.