INTERVIEW: This year could be a game changer for PPA market growth: RE-Source

This year could become "a game changer" for the development of renewables in Europe, which will unlock the growth of the Power Purchase Agreement (PPA) market, RE-Source Platform's Policy and Impact Director Annie Scanlan told S&P Global Commodity Insights in an interview.

"Policymakers have really woken up to the fact that power purchase agreements are... an effective tool for corporates to decarbonize and also to hedge their costs over time," said Scanlan, citing the recent proposed revisions to the EU's internal electricity market design.

The proposal's aim is to accelerate development of renewables and avoid price spikes seen throughout last year. The draft is yet to be approved by the European Parliament and the Council, with the European Commission hoping to finalize it "as soon as possible".

Not a sweeping reform

The current EC proposal is "not a significant reform", according to Scanlan, and specifically targets elements to make it easier for corporates to buy renewable power, create long-term contracts and provide flexibility for consumers.

"If they had gone for a sweeping reform without an impact assessment, mistakes clearly would have been made," Scanlan said.

A particularly important part of the proposal is that EU member states should encourage PPAs and accelerate the rollout of renewables at national level, according to Scanlan.

"We need to unlock renewable energy in Europe to unlock PPAs," Scanlan said, adding that the obstacles to the PPA market are the same as the general obstacles to renewables, including the supply chain, inflation, slow permitting procedures, and poor auction design.

"At the moment, [PPA] is very much a suppliers' market – energy customers are keen to swiftly sign deals. It is expected to swing back to a buyers' market however," Scanlan said.

PPA landscape

The PPA market in Europe took off in 2013-2014, with big technology companies – that had to power their large data centers – leading the way.

"The Amazons and Googles of the world have typically been able to sign PPAs because they can take on that level of risk," Scanlan said.

By the end of 2022, total disclosed contracted PPA capacity for ICT (Information and Communications Technology) sector in Europe reached 9.2 GW, according to RE-Source data. This was followed by heavy industry -- such as chemical and steel sectors -- with total contracted capacity of 7.4 GW over the period.

A similar trend has been observed this year so far, with Amazon signing at least two PPAs: offshore wind in Germany and solar in Spain, according to data aggregated by S&P Global.

Looking at geographical split, Spain tops the list, with a total of 5.2 GW contracted capacity by the end of 2022. It is followed by Sweden (3.4 GW) and Norway (2.7 GW), RE-Source data showed. The UK and Germany were at fourth and fifth place respectively.

Turning point

The energy crisis changed the way companies look at their power consumption and costs, with more businesses now seeking to manage risks.

At least 44 various PPAs were signed across Europe this year so far, according to data aggregated by S&P Global. And the total number of deals in 2023 could reach a record high of 200, according to PPA pricing platform Pexapark.

"Before the war in Ukraine, an average household probably never even looked at their energy bill – and now they are so conscious of what an increase in price can mean. Companies are exactly the same," Scanlan said.

Even at the height of the crisis, there was still a lot of interest in signing PPAs even though there was some debate about whether it was a good idea to lock in the high prices, according to Scanlan.

RE-Source expects the trend towards PPAs to get "bigger and bigger every year" in Europe.

"Companies know they can do this. And now we have so much political attention on it," said Scanlan, adding that very small companies can do consortium PPAs.