- European renewable energy PPA market in 2022 was marked by disarming price volatility, according to Pexapark
- A total of 161 deals were signed representing 8.4 GW combined capacity which was a 21% annual dip in contracted volumes from 10.7 GW last year
- Corporate PPAs accounted for 83% of this volume with 7.0 GW share, led by C&I segment and IT industry
- In 2023, it forecasts more short-term PPAs, tripartite agreements renewables+storage to become popular trends
Europe counted 161 renewable energy power purchase agreements (PPA) in 2022 with corporate buyers bagging 83% or 7.0 GW of 8.4 GW reported last year with risk management as the ‘main theme’, according to Pexapark for whom last year was all about ‘disarming price volatility’.
The 2 months of January 2022, and September 2022 were reportedly the ones with highest volatility, reaching up to 230%, while during the entire calendar year PPA prices increased by 23%, as per Pexapark analysts in European PPA Market Outlook 2023.
“High market prices moved down the forward curve, creating the phenomenon of extreme ‘backwardation’ which led to a notable price disparity between short-term and long-term PPAs,” explains the report attributing this as the main reason that accelerated the shift towards short-term PPAs, as power producers moved to adopt more active energy trading strategies with a rising focus on short-term hedges.
Analysts explain, “Indeed, as investors’ merchant appetite increased, certain financing deals were underpinned by short-term PPAs or no PPAs at all, especially those leveraging instruments such as flexible construction facilities, or all-equity short-term financing.”
Without any robust risk management for long-term baseload PPAs, some of the power producers had to face high prices, decreasing capture factors and under-production, leaving a series of assets in significant financial distress, especially in the Nordics area.
With this shift coming in, instead of baseload PPAs, power generators are now offering 24×7 green supply to the buyers.
Challenges faced by renewable energy generators included uncertainty created by regulatory changes in all major European markets including windfall taxes and price/revenue caps. In 2023, they can be safely assumed to make ‘regulatory monitoring standard procedure, while incorporating revenue impacts on hedging decisions’.“2022 was a year of ‘shock therapy’ for renewables investors,” said Co-Author of the report and Senior Insights Analyst at Pexapark, Maritina Kanellakopoulou. “For those who were caught out by the market conditions – and equally for those who weren’t – the turmoil made it a necessity to better understand and manage energy risks.”
Nonetheless, Pexapark’s Co-Founder and COO Luca Pedretti appreciated the ‘maturity of the PPA market’ amid the European Energy Crisis and added, “It’s fair to say that certain corporate procurement departments deserve awards for saving their companies from spiraling energy costs.”
2022 highlights
Among major findings of the report, While the 8.4 GW was a 21% annual dip in contracted volumes from 10.7 GW last year, the total number of PPA deals in Europe increased by 4.5% from 154 signed in 2021, says the software and advisory services for renewable energy sales firm.
Corporate PPAs grew by a minimum of 20% in terms of contracted capacity of up to 7.0 GW, and accounted for 80% or 129 of all deals signed.
Corporate and industrial (C&I) segment was the largest offtaker last year with Information Technology (IT) firms bagging the most contracted volume of 1.97 GW last year, followed by metals and mining signing up for 1.95 GW. Aluminium producer Alcoa was the largest single buyer in the continent while Greenalia of Spain was the largest seller, followed by Endesa.
Both Greenalia and Endesa signed 2 PPAs of more than 1.8 GW with Alcoa to hold the position. Spain was the largest market for PPAs in Europe in 2022 with over 3.2 GW deals reported including 1.8 GW by Alcoa.
2023 forecast
Pexapark expects to see short-term PPAs becoming popular in 2023, in fact a mix of short- and long-term PPAs will become the norm. Analysts also predict the evolution of the tripartite PPAs involving project owners, utilities and corporates. Another trend the report forecasts is for volatility and system costs to increase the share of renewables-plus-storage and bring to the fore PPAs reflecting both energy sale and storage elements.
Complete report is available for free download on Pexapark’s website.
In a recent report on European solar and wind energy PPA markets, LevelTen Energy found offer prices for solar projects in the region went up with high development costs and unstable regulatory environment in Q4/2022 (see Solar PPA Prices Soared In Q4/2022).
