L R AS Published on Monday 12 September 2022 - n° 415 - Categories:purchase/sale contracts
The PPA market has changed today, compared to the past
Energy Purchase Agreements (PPAs) are currently being disrupted by price volatility in the energy markets, inflation and soaring interest rates
Corporate customers are increasingly interested in PPAs as the main way to hedge against long-term energy price fluctuations
This is why it is important to have some stability in their production costs.
In September 2021, the markets were still quiet. Energy prices were fluctuating within a reasonable range. According to Bloomberg, in 2021, 31 GW were contracted worldwide. However, between the end of the third quarter and the beginning of the fourth quarter of 2021, cold weather hit Europe, leading to higher demand for gas and electricity, while gas stocks in Europe were low. These had to be replenished for the winter. The start of the winter period pushed prices up.
At the same time, the price of European emission allowances (EUAs) was rising for climate purposes. They reached €100/tonne at the beginning of 2022. The rise in gas andCO2 prices thus led to a slight increase in electricity prices, which however remained within "reasonable" and expected limits.
The invasion of Ukraine pushed energy prices to particularly high levels amid fears of shortages and supply problems. The EU's series of restrictive measures against Russia has made it even more difficult to balance supply and demand. The closure of the Nord Stream pipeline has further reduced Europe's gas supply capacity.
The current situation
The recent particularly hot summer period has led to increased air conditioning, lower water levels affecting hydro and nuclear generation. France was particularly affected as nuclear power plants did not have enough river water to cool the reactors. This was compounded by reactor maintenance and corrosion problems. At the beginning of August 2022 and at the end of August, the contract price in France for thefirst quarter of 2023 temporarily exceeded €1,000 per MWh.
All this has caused the prices of power purchase agreements to soar. They have risen faster than market prices. Liquidity has decreased because higher prices also mean cash flow problems for market participants (accelerated consumption of credit lines, need to pay for electricity).Liquidity has decreased as higher prices also mean cash flow problems for market participants (increased consumption of credit lines, need for larger and more expensive collateral to cover counterparty risks, and higher margin calls).
The risk premiums of utilities and traders also fuel the upward trend, as market conditions reach extreme scenarios, which have to be taken into account, especially for long-term agreements.
For example, in Germany, the one-year contract (2023 power baseload) has increased sixfold from €122/MWh on 03/01/2022 (EEX close) to €760/MWh on 29/08/2022. The ten-year average baseload is 2.8 times higher (from €87/MWh to €245/MWh) over the same period
The near future
This has been the case throughout Europe. In France, for example, the price for the new tender (PP2) is 16% higher than the previous one.
Developers, for their part, are experiencing price increases (in panels, freight, financing, interest rates), while the interest of companies in such contracts is low.The interest of companies in such contracts is obvious as they allow them to protect themselves against a further increase in wholesale electricity prices
All this has affected the PPA market. The volume of transactions in 2022 will be significantly lower.
It all depends on the winter that comes; there may be a prolonged drought reducing hydroelectric production, prolonged nuclear reactor outages, a halt in Russian gas supplies, winter weather. Energy buyers may also experience spot prices and be unable to pay as they rise.
Conversely, there may also be a mild winter with enough energy to satisfy consumption.
While it is certain that the downward trend will eventually take hold, there may be a temporary increase in the current situation. In the current situation, it is prudent to select projects that are ready to be built. The prospective PPA subscriber should check that there is grid access authorisation and licences, panel supply, EPC, financing obtained, etc.
Finergreen of 6 September 2022-PV Magazine u 6 September 2022
Editor's note: In our assessment of the situation, we are torn between an inevitable difficulty in supplying energy during the winter and a lack of energy in the summer.In our assessment of the situation, we are divided between an inevitable difficulty in energy supply during the winter and a winter period without any major problems since "the worst is never certain".
In favour of the first alternative, the decisions to embargo and suspend supplies were too brutal for there to have been any preparation of the measures to be taken and gradual adaptation to the new situation. The best solutions are not adopted in an emergency
In favour of the second possibility (a winter without severe cold), global warming, the measures taken or the withdrawal of certain energy-intensive production units may lead to a period without major problems.