European PPAs offered safe harbor during Q3 power price storm: Zeigo

In the face of extreme volatility in electricity prices throughout Europe due to the gas crisis, power purchase agreement values held constant through the third quarter, with offer prices averaging Eur47.61/MWh ($55.1/MWh), Zeigo's senior price analyst Freddie Lyons told S&P Global Platts Nov. 12.

The average in the UK was GBP48.10/MWh ($64.4/MWh), less than a quarter of the UK market month-ahead power price throughout September and October, Lyons said.

S&P Global Platts assessed UK month-ahead baseload power at GBP184.00/MWh on Nov. 11.

Similar to pricing trends over the past few quarters, the long-term nature of PPA contracts made them less susceptible to short-term price volatility, allowing corporates to hedge against the risk associated with energy-only wholesale power markets.

Instead, offer prices are being determined by manufacturing costs and policy developments.

"This has led to increased demand for corporate PPAs with 76% more offers [on Zeigo's platform] made in Q3 of 2021 compared to Q1 and Q2 combined," Lyons said.

Longer terms

PPA contract lengths varied between countries with UK-based contracts being offered at an average of 13.2 years, the minimum length being seven years and the maximum 15 years.

The minimum offer length in the European market was five years compared to a maximum of 15, showing a higher prevalence of offers for contracts of less than 10 years.

It remained a common feature that PPA contracts run for several years and should be seen as a long-term investment for corporates and an opportunity of long-term bankability for developers, Lyons said.

Average PPA duration of 13.2 years in Q3 was up from 11.5 years seen in Q2, as more corporates looked to secure lengthier contracts with a fixed value providing cost certainty, he said.

Solar offers

In terms of technologies, solar PV accounted for the majority of offers in both the Spanish and UK markets, taking a 91% and 66% market share, respectively.

Similarly, new-build projects made up the majority of offers -- 97% of UK offers and 100% of Spanish offers, as corporates sought to achieve additionality and contribute to new green energy into the grid.

"Despite this the UK wind offers accounted for greater capacity due to the larger-scale nature of projects," Lyons said.

Baseload premium

UK baseload contract structures were priced higher on average compared to other structures, at GBP50.45/MWh and GBP47.66/MWh, respectively, with the additional costs of balancing and shaping accounting for the difference.

The same trend was observed in Spain where baseload PPA offers averaged Eur46.37/MWh, compared to Eur38.03/MWh for other PPA contract structures.

Lastly, there was a notable trend in offer pricing being lower for projects of greater volume. The favorable pricing was given as generators prefer to secure PPAs for the entire output of the renewable project, rather than for a proportion of a project.

For volumes greater than 50 GWh in Europe, offer prices were Eur7.30/MWh cheaper than offers for volumes below 50 GWh, the data showed.