European price volatility puts PPA market under unprecedented strain: Pexapark

Power price volatility has put the power purchase agreement market under severe pressure, reducing appetite to contract, Pexapark CEO and co-founder Luca Pedretti told S&P Global Commodity Insights July 1.

Pexapark produces reference prices across 18 markets and has supported over 20 GW of renewable PPA transactions.

"Unprecedented levels of price volatility are currently putting the PPA market under strain, increasing PPA discounts, lowering liquidity and raising required credit collaterals," Pedretti said.

"Understanding in detail how PPA prices are shaped and affected by price movements and market developments has never been more important as today to secure deal execution and correctly assess the value of renewable production, open positions and PPA contracts," he said.

The platform's Euro Composite PPA price (solar, onshore and offshore wind) has climbed 35% since the start of the year from Eur64.65/MWh Jan. 3 to Eur87.20/MWh June 30, peaking at Eur103.13/MWh on May 12.

The volatility has been greatest in solar, the PEXA Euro Solar price climbing 38% this year to Eur89.33/MWh June 30, peaking at Eur105.99/MWh May 12.

"When we started a few years ago the PPA market was a rather opaque backwater reserved for a few market participants and insiders," Pedretti said.

Fast forward to today and Pexapark covered of all PPA market and contract type across Europe as well as providing locational value pricing down to single turbine models or specific contract parameters.

"Understanding in detail how PPA prices are shaped and affected by price movements and market developments has never been more important to secure deal execution and correctly assess the value of renewable production, open positions and PPA contracts," he said.

On June 30, Pexapark and S&P Global announced an agreement to build a suite of daily renewable energy price indices, combining the Platts price benchmark expertise with Pexapark's reference pricing for European PPAs.

As the build-out of renewables accelerated across Europe in response to EU's Fit for 55 climate package, pricing transparency in PPA markets would be vital for market participants looking for clear price signals from power produced across wind, solar and hydro, said Alan Hayes, head of Energy Transition Pricing for S&P Global.

The set of co-branded indices would explore the potential for granular PPA price information on different technology pathways in specific geographical locations, Hayes said. The goal was to produce first prices later this year.

"This new family of renewable energy indices will combine the independence and methodology rigor of Platts benchmarking processes with Pexapark's established price data, technology and expertise in this growing and important sector," Hayes said.