European renewable energy market saw contracted volumes growing by over 40% annually in 2023, prompting Pexapark to term it the 'golden era' of the power purchase agreement (PPA) market. Solar PV hogged the total disclosed contracted volume of 16.2 GW with 10.5 GW of capacity transacted last year in 160 deals.
Onshore wind saw 2.3 GW of new capacity contracted last year across 58 deals, whereas offshore wind sold 2 GW across 20 deals.
Pexapark attributes this growth to a number of factors including market participants becoming more aware of pricing and PPA structures. It cites decreased volatility vis-à-vis 2022's peaks, stabilizing pricing environment, and growing maturity from both buyers and sellers in managing energy risks as the other major factors.
"One of the main trends we see is the evolved role of utilities in the market, offering solutions to challenges posed by price volatility, intermittency and higher green standards," explained Co-Founder and COO at Pexapark, Luca Pedretti. "Project owners, utilities and corporates are joining forces to leverage each other's strengths, and the role of more structured PPAs will increase. Risk managers such as utilities have an opportunity to further evolve into 'market integrators' unlocking significant innovation in the market."
While multi-buyer PPAs saw increased interest, hybrid PPAs entered the scene in 2023.
With 272 PPAs signed, representing a 65% annual increase, the volume of disclosed contracted deals was led by Spain (4.67 GW) and Germany (3.73 GW). Both these nations accounted for 8.4 GW or 51% of the total contracted volume.
In 2024, however, tables could turn as analysts expect Spain to be outperformed by Germany's growing solar and offshore sector that's attracting interest from industries.
Italy was another nation with over 1 GW of capacity contracted. Greece and Portugal are the new entrants to the top 10 of Pexapark's 4th annual edition European PPA Market Outlook 2024.
According to Pexapark, corporates signed up for 11.95 GW across 218 deals, 28% more on an annual basis. Most corporates prefer to contract directly with projects to 'illustrate additionality more clearly.'
Among corporates, it is Amazon that was the top buyer having contracted 1.87 GW across 7 deals. This includes 1.3 GW of solar in Spain, 47 MW PV in Great Britain and 24 MW PV in Greece, apart from onshore and offshore wind projects elsewhere in Europe.
Shell Energy followed next in terms of capacity contracted with 654 MW, and LyondellBasell with 583 MW.
Iberdrola is adjudged the top seller by analysts, under the utilities category, both by volume and deal count. It entered 9 deals worth 908 MW capacity. Of this, 6 were in Germany alone. Statkraft of Norway was the most active seller with 19 deals representing 739.5 MW.
The report writers do point out some pain points like the cost of debt at an elevated level reaching a peak of almost 3.9% last year, due to persisting changes in market fundamentals. It was, in fact the 1st full year with a challenging financing environment leading to some PPA negotiations having paused.
Short-term PPAs with a >1-year tenor as part of dynamic selling strategies faced setbacks due to the introduction of revenue caps, but the picture for short-term PPAs of up to 5 years was more nuanced, according to the report writers. At the same time, competition between contracts for difference (CfD) and PPA market could be a new challenge for 2024.
Nonetheless, Pexapark sees the European renewable energy PPA market 'poised for further evolution' with growing appetite and sophistication. It forecast the long-term PPA market to surpass 20 GW. New developments in Hybrid PPAs, 24/7 green procurement approaches, PPAs for Green H2 Production and Multi-buyer PPAs will attract further attention in 2024.
The complete Pexapark report can be downloaded from its website for free.