Felix Höffler Memorial Lecture: Designing Contracts for the Energy Transition

Natalia Fabra from the Centro de Estudios Monetarios y Financieros (CEMFI) in Madrid is this year’s recipient of the Felix Höffler Memorial Lecture. The Spanish Professor of Economics was honored in Cologne on February 5 and delivered a lecture at the University of Cologne on the design of long-term contracts for the energy transition. Fabra is an expert in Industrial Organization with a focus on Energy and Environmental Economics as well as Regulation and Competition Policy. She is the founder and director of EnergyEconLab and Principal Investigator of the ERC Advanced Grant “ENERGY-IN-TRANSITION” (2025–2030).

The event began with a welcome address by Prof. Dr. Marc Oliver Bettzüge, who commemorated the work of the late EWI Director Felix Höffler. In his memory, the lecture series addresses current and fundamental questions of the energy industry.

Counterparty Risk as an Investment Barrier

In her analysis, Fabra identified the so-called buyer counterparty risk in private long-term contracts as a major barrier to investment. The problem: If the electricity market price falls below the contractually fixed price, the incentive for the private buyer to renegotiate the contract, or even default, increases. This uncertainty leads to higher risk premia, unnecessarily driving up the cost of capital for the energy transition.

As a more efficient alternative, Fabra derived the necessity for regulator-backed Contracts for Difference (CfDs), while warning against a “one-size-fits-all” approach. Such an approach would be economically inefficient; instead, contracts should account for the specific attributes of different technologies. For dispatchable technologies, Fabra recommended partial exposure to market prices to maintain incentives for system-friendly production.

For intermittent renewables like wind and solar, however, whose generation is exogenously determined by the weather, price exposure would merely lead to higher risks without providing steering effects. Here, Fabra argued, contracts that couple fixed payments to actual output payments are optimal for selecting the most productive locations. This institutional framework, she emphasized, is just as decisive for the success of the transformation as technological progress itself.

Following the lecture, the scientists and practitioners in attendance took the opportunity for discussion. The evening concluded with a personal exchange, in the spirit of the scientific dialogue that Felix Höffler always fostered.

“Paper Clinic” with EWI PhD Students

The following day, Natalia Fabra dedicated her time to an intensive exchange with the doctoral students of the Institute of Energy Economics. In a further presentation, she provided a broader overview of her research priorities. This was followed by a “Paper Clinic,” in which the PhD students presented their own current research projects and received constructive feedback from the expert.

The EWI regularly hosts the “Felix Höffler Memorial Lecture” in honor of former EWI Director Felix Höffler. Höffler, who became Professor of Economic Policy at the University of Cologne and Director of the EWI in 2011, passed away on February 4, 2019, after a long and serious illness. Since the internationalization of the institute and the support of doctoral students were particularly important to him, internationally renowned experts in economics deliver the keynote lecture and engage in professional exchange with the EWI team during their stay.

Previous recipients of the Felix Höffler Memorial Lecture include Matti Liski from Aalto University, Shmuel S. Oren from the University of California at Berkeley, and Richard Green, Professor at Imperial College London.