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The European renewable energy PPA market is entering a turning point
The European Renewable Energy Long Term Purchase Agreement (PPA) has seen its first monthly price increase in nearly 9 months, but the European green electricity market has not been activated as a result and is becoming increasingly sluggish. According to the latest data released by renewable energy consulting service company LevelTen Energy, in the first quarter of this year, the PPA prices of renewable energy in Europe decreased by 5% compared to the same period in 2022. Among them, the PPA prices of photovoltaic power generation decreased by 5.9%, and the PPA prices of wind power decreased by 4.3%.
In recent years, PPA has become the main way for European countries to promote the development of renewable energy. PPA allows developers or operators of renewable energy generation projects to sign agreements with green power purchasers to pay fees at a unified price during the signing period. However, under the influence of factors such as rising production costs of renewable energy and inflation, this direct trading method between green power producers and consumers has begun to show disadvantages. Multiple research institutions believe that there is significant uncertainty in the future European renewable energy PAA market.
Shrinking transaction size
The latest data released by Swiss consulting firm Pexapark shows that in March, the average PPA price for renewable energy in Europe was 47.4 euros per megawatt hour, an increase of 9.8% compared to the previous month. This is the first monthly increase in renewable energy PPA prices in Europe since August 2023.
Normally, a price rebound should have supported a rise in the renewable energy market, but in reality, this is not the case. In March, the total transaction volume of renewable energy PPA projects in Europe was 718 megawatts, a decrease of 76% compared to February. Meanwhile, the first quarter data released by LevelTen Energy Company was also unsatisfactory.
It can be said that the European renewable energy PPA market has not continued its upward trend this year. According to Pexapark, a total of 272 renewable energy PPAs were signed in Europe throughout 2023, a year-on-year increase of 65%; The total transaction volume reached 16.2 gigawatts, a year-on-year increase of over 40%.
Pexapark believes that natural gas prices and electricity bills have always been the main factors affecting the price changes of renewable energy PPA. Only when natural gas and electricity prices rise or remain high, can renewable energy PPAs have better bargaining power. For example, due to recent high energy expenditure, in March, the UK became the country with the highest increase in renewable energy PPA prices in Europe, and the total scale of trading projects was also in a leading position.
In the view of multiple research institutions, changes in PPA prices do not directly reflect the direction of the European renewable energy market. It is understood that the general PPA signing period is relatively long, up to 10 to 20 years. If the contract period is short, it may lead to a higher PPA price. In addition, the difference in signing time can also result in a significant price difference. Taking the 10-year European renewable energy PPA as an example, the average price in 2022 was 90 euros/megawatt hour, while in 2023 it was 58 euros/megawatt hour.
Placido Ostos, Director of European Energy Analysis at LevelTen Energy, believes that previously, European renewable energy PPA prices had experienced a period of rapid increase, and the current price changes can be seen as entering a relatively stable period.
Changes in trading partners
Against the backdrop of the climate crisis, European companies are facing increasing pressure and hope to express their stance to the public by increasing green electricity consumption. This situation has also brought about changes in the target audience for purchasing renewable energy PPAs.
The report "European PPA Market Outlook 2024" proposes that the European renewable energy PPA market is driven by enterprises, and public utility companies have fallen behind. In the total transaction volume of 16.2 gigawatts in 2023, the company purchased 11.95 gigawatts, an increase of 28% compared to 2022.
Luca Pedrett, Chief Operating Officer of Pexapark, stated that companies have become the main force in purchasing renewable energy PPAs. More and more enterprises are voluntarily purchasing green electricity, which has also led to an increase in the number of PPA projects. Meanwhile, it should be noted that since the beginning of this year, the proportion of enterprises signing renewable energy PPAs has further increased, even rising to 94% in March.
Recently, Google announced that it has purchased a renewable energy PPA with a total capacity of 700 megawatts in Europe, including photovoltaic power plants and offshore wind farms. As of now, Google has purchased renewable energy PPAs in countries such as Italy, Poland, and Belgium.
"These efforts are part of our commitment to accelerating decarbonization in the global power system, and we hope that by 2030, our data centers and office parks can use carbon free energy 24/7," said Matt Britting, President of Google's Europe, Middle East, and Africa markets
Anne Scanlan, Policy Director of RE Source Platform, a PPA industry organization, revealed that the IT industry, heavy industry enterprises, and telecommunications companies are now enthusiastic about purchasing renewable energy PPAs. In 2023, more than 60% of renewable energy PPAs will be purchased by these three industry companies. "Participating in the green electricity market and purchasing renewable energy PPAs has become an important way for enterprises to actively practice the concept of green environmental protection."
Enterprises have shown a strong willingness to purchase green electricity, but the market is not easy to enter. "The European PPA market is basically still a seller's market," said an anonymous source. "Against the backdrop of sellers having greater say, there were even instances of PPA negotiations being suspended in the first quarter of this year."
The game is becoming increasingly fierce
However, with the emergence of new trends in the development of the renewable energy industry, there may be uncertainty in the future European renewable energy PPA market.
In recent years, the maturity of the development of the renewable energy industry has continued to increase, and the production costs and prices of green electricity have further decreased. At the same time, the activity of participating in market-oriented transactions has also continued to increase. Previously, when renewable energy did not participate in the electricity spot market, both buyers and sellers accepted that the price of green electricity would remain unchanged during the term of the PPA contract. Nowadays, the long-term fixed price of green electricity has caused dissatisfaction among buyers. The buyer hopes to shorten the PPA period and make the price of green electricity more market-oriented. If the buyer and seller cannot reach an agreement on this, it may affect the number and scale of future European renewable energy PPA transactions.
Industry media "Global Renewable Energy Magazine" pointed out that the "competition" between PPA prices and electricity spot market prices will become a highlight of the European renewable energy industry in 2024.
Max von Hausen, the head of PPA trading at Pexapark in Germany, believes that since the second half of 2023, the decline in electricity prices and the increase in financing costs have made it difficult for renewable energy developers and operators across Germany to survive. Providing competitive PPA prices has become a challenge.
The above-mentioned sources stated that there is currently a mismatch between investment requirements and market payment capabilities in the European renewable energy PPA market. Renewable energy is a capital intensive industry, and under the PPA model, buyers also need to pay high fees within a certain period of time, which is also a significant burden for buyers.
In recent years, PPA has become the main way for European countries to promote the development of renewable energy. PPA allows developers or operators of renewable energy generation projects to sign agreements with green power purchasers to pay fees at a unified price during the signing period. However, under the influence of factors such as rising production costs of renewable energy and inflation, this direct trading method between green power producers and consumers has begun to show disadvantages. Multiple research institutions believe that there is significant uncertainty in the future European renewable energy PAA market.
Shrinking transaction size
The latest data released by Swiss consulting firm Pexapark shows that in March, the average PPA price for renewable energy in Europe was 47.4 euros per megawatt hour, an increase of 9.8% compared to the previous month. This is the first monthly increase in renewable energy PPA prices in Europe since August 2023.
Normally, a price rebound should have supported a rise in the renewable energy market, but in reality, this is not the case. In March, the total transaction volume of renewable energy PPA projects in Europe was 718 megawatts, a decrease of 76% compared to February. Meanwhile, the first quarter data released by LevelTen Energy Company was also unsatisfactory.
It can be said that the European renewable energy PPA market has not continued its upward trend this year. According to Pexapark, a total of 272 renewable energy PPAs were signed in Europe throughout 2023, a year-on-year increase of 65%; The total transaction volume reached 16.2 gigawatts, a year-on-year increase of over 40%.
Pexapark believes that natural gas prices and electricity bills have always been the main factors affecting the price changes of renewable energy PPA. Only when natural gas and electricity prices rise or remain high, can renewable energy PPAs have better bargaining power. For example, due to recent high energy expenditure, in March, the UK became the country with the highest increase in renewable energy PPA prices in Europe, and the total scale of trading projects was also in a leading position.
In the view of multiple research institutions, changes in PPA prices do not directly reflect the direction of the European renewable energy market. It is understood that the general PPA signing period is relatively long, up to 10 to 20 years. If the contract period is short, it may lead to a higher PPA price. In addition, the difference in signing time can also result in a significant price difference. Taking the 10-year European renewable energy PPA as an example, the average price in 2022 was 90 euros/megawatt hour, while in 2023 it was 58 euros/megawatt hour.
Placido Ostos, Director of European Energy Analysis at LevelTen Energy, believes that previously, European renewable energy PPA prices had experienced a period of rapid increase, and the current price changes can be seen as entering a relatively stable period.
Changes in trading partners
Against the backdrop of the climate crisis, European companies are facing increasing pressure and hope to express their stance to the public by increasing green electricity consumption. This situation has also brought about changes in the target audience for purchasing renewable energy PPAs.
The report "European PPA Market Outlook 2024" proposes that the European renewable energy PPA market is driven by enterprises, and public utility companies have fallen behind. In the total transaction volume of 16.2 gigawatts in 2023, the company purchased 11.95 gigawatts, an increase of 28% compared to 2022.
Luca Pedrett, Chief Operating Officer of Pexapark, stated that companies have become the main force in purchasing renewable energy PPAs. More and more enterprises are voluntarily purchasing green electricity, which has also led to an increase in the number of PPA projects. Meanwhile, it should be noted that since the beginning of this year, the proportion of enterprises signing renewable energy PPAs has further increased, even rising to 94% in March.
Recently, Google announced that it has purchased a renewable energy PPA with a total capacity of 700 megawatts in Europe, including photovoltaic power plants and offshore wind farms. As of now, Google has purchased renewable energy PPAs in countries such as Italy, Poland, and Belgium.
"These efforts are part of our commitment to accelerating decarbonization in the global power system, and we hope that by 2030, our data centers and office parks can use carbon free energy 24/7," said Matt Britting, President of Google's Europe, Middle East, and Africa markets
Anne Scanlan, Policy Director of RE Source Platform, a PPA industry organization, revealed that the IT industry, heavy industry enterprises, and telecommunications companies are now enthusiastic about purchasing renewable energy PPAs. In 2023, more than 60% of renewable energy PPAs will be purchased by these three industry companies. "Participating in the green electricity market and purchasing renewable energy PPAs has become an important way for enterprises to actively practice the concept of green environmental protection."
Enterprises have shown a strong willingness to purchase green electricity, but the market is not easy to enter. "The European PPA market is basically still a seller's market," said an anonymous source. "Against the backdrop of sellers having greater say, there were even instances of PPA negotiations being suspended in the first quarter of this year."
The game is becoming increasingly fierce
However, with the emergence of new trends in the development of the renewable energy industry, there may be uncertainty in the future European renewable energy PPA market.
In recent years, the maturity of the development of the renewable energy industry has continued to increase, and the production costs and prices of green electricity have further decreased. At the same time, the activity of participating in market-oriented transactions has also continued to increase. Previously, when renewable energy did not participate in the electricity spot market, both buyers and sellers accepted that the price of green electricity would remain unchanged during the term of the PPA contract. Nowadays, the long-term fixed price of green electricity has caused dissatisfaction among buyers. The buyer hopes to shorten the PPA period and make the price of green electricity more market-oriented. If the buyer and seller cannot reach an agreement on this, it may affect the number and scale of future European renewable energy PPA transactions.
Industry media "Global Renewable Energy Magazine" pointed out that the "competition" between PPA prices and electricity spot market prices will become a highlight of the European renewable energy industry in 2024.
Max von Hausen, the head of PPA trading at Pexapark in Germany, believes that since the second half of 2023, the decline in electricity prices and the increase in financing costs have made it difficult for renewable energy developers and operators across Germany to survive. Providing competitive PPA prices has become a challenge.
The above-mentioned sources stated that there is currently a mismatch between investment requirements and market payment capabilities in the European renewable energy PPA market. Renewable energy is a capital intensive industry, and under the PPA model, buyers also need to pay high fees within a certain period of time, which is also a significant burden for buyers.
However, even so, there are still analysts who are very optimistic about the development prospects of the European renewable energy PPA market this year. It is predicted that in 2024, the number of renewable energy PPA transactions in Europe is expected to exceed 350, and the installed capacity is expected to exceed 20 gigawatts. Germany, Spain, and other countries may become key markets.
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