In the second quarter, European renewable energy buyers saw power purchase agreement prices soar 16% to EUR 66.07 per MWh, according to a new report from LevelTen Energy, provider of renewable transaction infrastructure and operator of the world’s largest PPA marketplace. Compared to last year, prices are now 47% higher, a staggering increase driven by the region’s complicated energy crisis and inflation.
“In the simplest terms, PPA prices have been rising for 1 year because supply cannot keep up with demand,” says Flemming Sørensen, VP of Europe at LevelTen Energy. “There isn’t a clear end in sight to this supply and demand imbalance because its underlying causes will take months or years to resolve. Developers continue to struggle to build new solar and wind projects, which are sorely needed, due to tough permitting and interconnection challenges and rising cost of inputs and labour. Furthermore, developers now have more options to market and finance their existing projects outside of corporate PPAs, which also limits available supply.”
European PPA Market Highlights
LevelTen’s Q2 report, covering April to June 2022, shows PPA prices and trends in 13 countries across Europe, including: Denmark, Finland, France, Germany, Greece, Ireland, Italy, Lithuania, Netherlands, Poland, Spain, Sweden, and the U.K. The report is based on actual PPA price offers uploaded onto the LevelTen Energy Marketplace from wind and solar project developers over the last quarter.
Market highlights include:
- Poland, where P25 solar prices rose 36,2% to EUR 95 per MWh. Demand for renewable energy PPAs has spiked due to the cessation of natural gas imports from Russia. Supply is struggling to keep up because of burdensome permitting barriers and government auctions. “In Poland, developers can bid half of their project’s production into government auctions. Developers can do whatever they’d like with the remaining project volume not contracted through the auction – like enter into a PPA or sell into the wholesale market to capture elevated electricity prices,” says Frederico Carita, Senior Manager, Developer Services at LevelTen Energy. Since wholesale electricity prices remain high, many more developers are taking their projects to the wholesale market and forgoing PPAs altogether or raising prices.
- Italy had the largest share of European PPA offers on LevelTen’s Energy Marketplace (more than 32%). Italian P25 solar PPA prices have soared 22% year-over-year but stayed flat quarter-over-quarter and currently sit at EUR 51.5 per MWh. In Italy, there are emerging questions around price cannibalisation in regions like Sicily, where solar production outpaces solar demand. This dynamic could lead to diminishing revenue for developers and uneconomical procurements for buyers.
- Greece made it onto LevelTen’s European PPA Price Index for the first time since its creation in 2020. “While Greek solar offers represent solid values, both buyers and sellers there should be aware of how the Greek market differs from other European ones. Greece’s credit rating is not as strong as some other European nations, which negatively impacts the credit of companies operating there who may be looking to procure,” says Luis López-Polín, Senior Manager of Business Development, Europe at LevelTen Energy.
- Spanish PPA prices remained relatively stable at EUR 39.50 per MWh, bucking the trend of rising prices. “In Spain, an abundance of competition and high levels of irradiance make for good opportunities for buyers. Spain has shown more stability and better values compared to many of Europe’s other solar markets,” says Sørensen.
What Do Buyers Need to Know about Procuring in this Market?
“PPAs are still compelling because PPA value – the potential financial upside of a PPA contract – still remains attractive,” says Sørensen. “In the near term, wholesale energy prices are forecasted to stay elevated but that won’t be the case indefinitely. Buyers that want to maximise their chances of using a PPA as a financial hedge should act now, as projects with 2023 commercial operation dates are nearly all accounted for.”
Equally important is the environmental value that PPAs deliver. “Greenwashing is a big concern for many offtakers who are focused on hitting their renewable energy goals. PPAs provide the highest amount of benefit to the environment because they drive more renewable generation capacity. Corporations and other offtakers that enter into PPAs get to tell a powerful impact story,” says Sørensen.
Apart from higher PPA prices, LevelTen also reports important changes to the way that PPA contracts are getting negotiated. Its report includes a survey of energy buyers and sellers, of whom approximately 50% said that indexing PPA prices to commodities prices or other capital expenditures is important to getting PPAs signed.