European PPA Prices Double Y-o-Y Since Energy Crisis: Pexapark

Swiss firm Pexapark, which provides software and advisory services for post-subsidy renewable energy sales and risk management, has released a report entitled “Reflections on an ‘uprecedented’ year”. The study offers a comprehensive view  on how the global energy crisis, that has led to an unprecedented period of market turmoil, has affected renewable energy trading and investment. The findings of the analysis are as follows:

Pexapark’s EURO composite Doubles Y-o-Y
On the back of surging forward prices, Pexapark’s EURO Composite index has doubled over the past 12 months and is
currently standing at 107.8 EUR/MWh. This Index averages European PPA benchmark prices across countries and
technologies (solar, wind onshore & wind offshore).

Corporate deals surge 

The report finds that corporate deals have surged as PPAs deliver strong profitability and companies focus on sustainability. In a significant development, corporate activity has increased significantly: around 6.81 GW of capacity under PPA has been announced since September last year, up from 5 GW from the previous equivalent period. Crucial improvements in renewables’ cost competitiveness is another factor that has led to this advent. Increasingly, renewable PPAs play a key role for the profitability of industrial production in Europe. Alcoa, for example, has been curtailing its activity in its Spanish smelter since December 2021 due to high energy costs, planning only to resume at full volumes once they start receiving energy in January 2024 from the long-term PPAs they signed over the past months. The firm has signed PPA pre-agreements with wind farms comprising around 1.8 GW in Spain.

Merchant Appetite sees an increase, investors start accepting short-term PPAs

The report finds that renewable energy players sought more merchant exposure as the high pricing environment presented opportunities to strengthen business models of renewable energy without government subsidies. In August, Professio Energia signed a PPA with Dankse Commodities for a 46 MW existing onshore wind portfolio in Croatia commissioned between 2010 and 2012. Reads the report, “At Pexapark, we also saw significant interest from project owners to take advantage of the flexibility provided by Germany’s EEG mechanism and explore short-term products in the PPA and futures markets.”

Eastern Europe PPA market grows as constraints on liquidity and credit risk diminish

The PPA market in Eastern Europe has started to take off in the past year, with 16 PPA signings announced, up from 10 in the previous year and 5 the year before. Poland is Eastern Europe’s most active PPA market. In the past 12 months, Estonia, Croatia, Bulgaria and Romania have all seen the signing of their first publicly announced PPAs.

Fractured regulatory intervention continues to cause widespread uncertainty

Due to their operational nature, renewables, as low-marginal cost technologies, have taken a significant hit – especially those operating in the merchant markets. First, via re-distribution of revenue from windfall profits for certain generation technologies using windfall taxes and revenue caps to finance consumer subsidies. Second, via challenging whether the market design is fit for purpose and able to protect consumers in the long-term through seeking alternatives and
amendments to the marginal pricing method.

Key Recommendations 

In its study, Pexapark has also come up with key recommendations to policy makers. These include distinguishing short-term and long-term intervention- panic mode should not inform long-lasting decisions. The study also advises to listen to the market. Market forces designed by economists do not always align with short-term political aims, and the demonisation of marginal pricing method is an exemplary case study of this. A balance between the two will come through constructive dialogue, the study proposes.

The study recommends Aligning investor expectations and policy makers need to clearly define what they can offer to private investors. At the same time, the transition from consumers to prosumers needs to accelerate- any market design intervention should incentivise PPAs for large consumers and encourage smart household consumption.