As Europe moves toward offshore grid expansion, offshore bidding zones have emerged as a promising market design to support large-scale offshore wind development. However, this new setup exposes wind farm developers to significant risks related to revenue uncertainty. There is a clear need for policy support to encourage investment in these offshore wind projects. Among the different schemes proposed, Contracts for Difference are gaining attention. Although there is some research on CfD policies, limited work has been done to test their impact in offshore bidding zones using flow-based market coupling.

This thesis explores how CfD policies can be designed and applied to offshore wind farms in offshore bidding zones. It studies how wind farm operators respond to these policies when making bidding decisions in the market. The study combines a literature review with a simulation model. The model is built in Julia and includes a flow-based market-clearing structure. Offshore wind farms make decisions based on the expected revenues under different CfD schemes.

The results show that production-based CfDs increase revenues but expose wind farms to volume risk and often lead to overbidding and curtailment. Financial CfDs reduce both price and volume risk but introduce new distortions. When offshore assets differ in location or technology, the CfD policy can lead to unequal outcomes unless this diversity is taken into account. Flexible demand, such as offshore electrolysers, helps reduce curtailment and price instability.

The study recommends using location-based references, grouping similar technologies, and accounting for behaviour under uncertainty when designing CfD policies for future offshore markets.