Mandatory long-term contracts for renewable energy: The best of both worlds?

Current renewable energy support schemes in Europe either minimize investment risk, but in doing so rely on administratively determined prices, or rely on market prices, but in doing so create substantially higher investment risk. In Brazil, an alternative market design has been pioneered, in which the renewable energy policy instrument is part of a broader capacity mechanism. This market design appears to be attractive for Europe in the future, when the share of renewable energy has grown, but does not solve the problem of how to maintain efficient dispatch in case of transmission network congestion. Some possible solution pathways are presented.