How the energy crisis in Europe has impacted companies’ renewable PPAs

Europe’s corporate renewable power purchase agreement (PPA) market grew nearly sevenfold between 2016 and 2021, but it looks like the energy crisis will make 2022 the first year of downturn, data reveals of the trade association WindEurope. In the first ten months of 2022, 3,491 MW of corporate renewable PPA agreements were signed in Europe, compared to more than 8,000 MW for the whole of 2021.

Despite slowing growth, the European market is still on track to comfortably exceed the total PPA contract capacity for 2020, which was 3,568 MW.

Wind turbines at the Storheia Wind Farm, one of the largest onshore wind farms in Europe, in the municipality of Afjord, Norway. Companies enter into power purchase agreements with renewable energy developers to access clean energy. (Photo by Jonathan Nackstrand/AFP via Getty Images)

The impact of geopolitical tensions, and the resulting high energy prices and inflation, have driven up the prices at which suppliers offer PPAs. Prices for European PPA offers increased by 10-15% in the first quarter of 2022, according to a report by renewable energy platform Zeigo and market analyst S&P Global Platts. Level Ten Energy reports a similar price increase for the second quarter, European P25 solar and wind prices – aggregated from the lowest quarter of solar and wind bids based on LevelTen’s PPA market data – increased by 16% to 66.07 € per megawatt hour (MWh). Prices are up nearly 50% year over year.

“Put simply, PPA prices have been rising for a year because supply cannot keep up with demand,” Flemming Sørensen, vice president for Europe at LevelTen Energy, said in a statement. Press release in July. “Developers continue to struggle to build new, badly needed solar and wind projects due to difficult permitting and interconnection challenges and rising input and labor costs. .

“In addition, developers now have more options to market and fund their existing projects outside of enterprise PPAs, which also limits the available supply,” he added. High wholesale electricity prices mean that developers of renewable energy projects now have an incentive to sell into the wholesale market, contributing to higher PPA prices.

The EU’s emergency interventions in the energy market in response to high prices are adding to the uncertainty, according to the RE-Source platform, a forum for sourcing renewable energy from businesses in Europe. EU leaders have approved an electricity price cap of €180/MWh, but some fear that national and even technology-specific price caps could undermine this.

“The €180/MWh revenue cap should apply EU-wide to provide certainty for companies buying or producing renewable energy,” said the RE-Source platform in a report September 27. “Diverging revenue cap levels in Europe would create significant commercial uncertainty for all parties involved in long-term energy contracts.”

The current volatility in energy prices means that it will be more difficult for buyers and sellers to strike long-term deals. Since they usually agree on a fixed price for the next 10 to 15 years, buyers risk losing money if market prices fall over time. Conversely, sellers stand to lose money if wholesale market prices remain high for longer or rise further.

The average duration of the PPA has already decreased from 11.6 years in the fourth quarter of 2021 to 9.5 years in the first quarter of 2022, according to the Zeigo report. At the same time, if the market is expected to be volatile over the long term, a PPP is attractive to buyers because of the security that prices can provide.

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Despite the disruptions of the energy crisis, it seems inevitable that the enterprise renewable PPA market will continue to grow in the coming years, following the trend it had established before the energy crisis. Both for energy security and for the race to net zero, more renewable energy is needed. Corporate PPAs remain attractive for companies looking to change their energy mix and commit to renewable energy targets, says Sørensen.

“Greenwashing is a big concern for many buyers focused on meeting their renewable energy goals,” he notes. “PPAs offer the greatest environmental benefit, as they generate more renewable energy generation capacity. Businesses and other buyers who enter into PPAs have the opportunity to tell a high-impact story. »

Editor’s Note: This story is part of a series of articles Energy monitor produced as part of a media partnership with the RE-Source platform (WindEurope, SolarPower Europe, RE100 and wbcsd) for RE-Source 2022an annual gathering of European buyers and suppliers of renewable energy, in Amsterdam, the Netherlands, on October 6-7.

Edward N. Arrington