INTERVIEW: More regulatory needs to impede PPA market's growth, says Statkraft

More regulatory requirements in the Power Purchase Agreement sector, including obligatory reporting, will slow down its development, Statkraft's vice president, Central European Origination, Sascha Schröder told S&P Global Commodity Insights in an interview.

"[The European Commission] wants to [introduce] PPA market reporting requirements and more standardization. And if you want to unleash a market, regulating it and creating more bureaucracy around it does not help," Schröder said, adding that the market itself will naturally become more standardized and transparent.

In the PPA sector, contracts are mostly individualized and tailored, as opposed to the electricity market in general.

"For example, if the renewable [asset] is not built on time, how do you deal with potential risks? All factors relating to how risks are allocated between different market participants have an impact on the final PPA price," Schröder said, adding that the market has already found ways to provide transparency by creating indexes that map transactions.

Indeed, on Feb. 21, S&P Global began publishing Platts-Pexapark renewable PPA indices (3pi) that reflect the changing value based on a methodology developed by Platts and Pexapark. Each index is calculated daily using Pexapark's PPA reference pricing models, which are regularly calibrated against market-transacted PPA prices.

Reduced hedging

Another proposal that could slow down new renewable assets coming online by challenging the corporate PPA market is Germany's plans to introduce a long-term industrial power price scheme pegged at Eur60/MWh for 80% of annual consumption unveiled in early May.

The proposal from Germany's energy ministry would compensate clearly defined industrial consumers for costs above Eur60/MWh for 80% of consumption based on an average price for the current year.

In response to the proposal, Statkraft's customers indicated a reduced interest in hedging activities, according to Schröder.

"Reduced hedging from the energy-intensive industry would significantly (lower) liquidity on forward markets. This is not good for other market participants and the market as such. Germany has one of the most liquid future markets. That should not be destroyed by state interventions," Schröder said.

EC's market re-design

However, there are some good elements in the recent European Commission's electricity market design proposal, enhancing the importance of PPA as a tool to enable more renewable buildout.

"It is good to see that policymakers have recognized the importance and advocated for the co-existence of CfDs and PPAs ...We do not need a mandatory CfD system," Schröder said, pointing out that the suggested credit support mechanism could help small and medium companies that need reaching net-zero targets and sourcing renewable electricity.

EU member state representatives on June 30 failed to finalize a mandate for negotiations on the EC's proposals. A resumption of talks could be delayed beyond September.

Pure merchant projects

Total Statkraft's European upstream PPA portfolio amounted to about 10 GW installed capacity in the first quarter.

"We have now built a PPA portfolio of over 1 GW in Germany, and that's without subsidy or anything. Just pure merchant projects that we help come online, and it was possible during low as well as high market prices," Schröder said.

A total of eight new PPA deals were announced this year so far by Statkraft, with three of them being in Germany, according to S&P Global PPA tracker.

"There is that beautiful market element of closing PPAs where you don't need any governmental support. So, my wish is just that we will have the right regulatory framework and certainty that the CfD market and the PPA market can coexist," Schröder added.