L R AS Published on Monday 14 February 2022 - n° 393 - Categories:purchase/sale contracts
Power purchase agreements in Europe in 2021 according to Pexapark
The power purchase agreement market in Europe has reached a volume of 11.1 GW in 2021. It has jumped by 58% on average over four years. Yet,
It was disrupted at the end of the year by rising energy costs. One-year contracts reached a volatility of 250%, five times the level of the usual peaks. PPA activity in the renewable energy sector
In 2021, PPA contracts signed by companies in Europe reached 6.5 GW. This is in addition to the 4.6 GW of contracts signed by companies with power companies. This is the first time that contracts from companies have exceeded those from power companies
According to Pexapark, market turbulence and high demand "herald the era of short-term PPAs and new baseload structures. They are driving the emergence of 'next generation utilities', which is leading investors to enhance their operating models to include new facets such as risk management infrastructure.
Utilities are experiencing declining margins due to high energy prices, which could lead to a 10-year decline in PPAs as generators seek to protect themselves from future shocks
The larger corporate share of PPAs is a trend that is expected to continue this year with "the rise of the 'mega-buyer' segment willing to pay a higher price," according to Pexapark.
Amazon was the largest buyer of PPAs, responsible for 16% of the year's contracted capacity and 30% of all PPAs from European companies.
The firm predicts that "the total long-term PPA market will stagnate in absolute terms", but that corporate contracts, which are based on favourable market conditions, will increase the risk for sellers.
He argues that utilities and companies could work better together to support long-term PPAs and remove volatility from the market. For example, a utility could reduce the risk of its hedging programme with "some long-term corporate offsets", which would free up some of the offsetting volumes into long-term PPA volumes with investors.
PV Tech of 10 February 2022
Editor's note: The power purchase market in Europe is very new. In 2021, it has been operating amidst turbulence that has disrupted prices and volumes. At this point, no one can be sure whether the price of energy will fall in 2022 or continue to rise. Contracts will certainly include cost and revenue sharing clauses depending on price developments.
If price-dependent cost and profit sharing clauses are included in the contracts, there is no reason why the duration of the contracts should be shortened as companies need a long-term price for their energy
As for predicting that the long-term PPA market will stagnate, it is a bit early to say so because the market has only just developed and many companies want to sign such contracts.
The reason is that these companies need to get their energy. On the other hand, energy suppliers (power plant developers) are building up a market share that the utilities are missing, and at the same time they are becoming utilities.
Note last week's review of PPAs by Bloomberg NEF which has quite different figures for Europe: Global clean energy purchases by PPAs in 2021
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Spain was the largest PPA market in Europe last year with almost 4 GW of contracts and 34 deals signed
The figures are unclear: Germany 765 MW, France 241 MW, Italy 115 MW, Lithuania 75 MW Poland 420 MW, Portugal 25 MW, Romania 300 MW, Sweden 1,977 MW Not specified: Belgium, Greece, Ireland, Netherlands, Switzerland
The rise in electricity prices that occurred in the fourth quarter has put a strain on contracts of ten years and more. This disruption will lead to a shortening of contract duration. Many market players are now recalibrating their tariffs. As a result of the fourth quarter price increase, the main approach used by utilities to manage the risk of their PPA portfolio has been severely affected. The price correlation between hedges and PPAs has been broken.
As a result of the current situation, utilities have increased their discounts in an unprecedented way, up to 40%, and drastic changes are coming. "We have observed that the increase in price discounts for PPAs with pay-as-produced has triggered an increase in demand for PPAs with shorter maturities, as well as for base load contracts."
This not only represents a sharp departure from the typical risk profile of conventional renewable investments, but also has implications for the plant's day-to-day operating model. "In response, renewable energy funds and investors are creating the next generation of power companies."
Short-term contracts could dwarf the long-term market, in terms of volume. Pexapark sees four developments :
. The long-term - 10-year - PPA market will languish in absolute terms.
. There will be an increase in new power company ventures led by new and large renewable energy investment funds.
. There will be an increase in corporate procurement.
. There will be more new players.
The market is maturing. Renewable energy investors and operators will be larger, more diversified in terms of technologies and markets, and will become more expert in managing energy risk.
PV Magazine of 11 February 2022
