Lower costs, higher prices may revive European PPA market in 2026

A rebound for capture prices for wind and some solar assessments as well as lower PPA breakeven price estimates, may revive Europe's flagging PPA market after activity declined in 2025, S&P Global Energy data showed.

Europe's biggest PPA market, Spanish solar, saw the volume-weighted average capture price fall another 12% year over year to just under Eur40/MWh ($46/MWh), but most other segments registered on-year gains led by wind, according to assessments by Platts, part of S&P Global Energy.

"The European power market has reached a critical inflection point where aggressive renewable deployment, particularly solar PV, is systematically undermining the wholesale market prices essential for project bankability," said Bruno Brunetti, head of Environmental Markets and PPA Analysis at S&P Global Energy Horizons.

Spain's rapid solar expansion, with the majority of projects underpinned by PPAs, exemplifies the cannibalization effect, with the capture rate falling to a 61% average in 2025.

Based on S&P Global Energy cost-based models, a 10-year stand-alone solar PPA starting in 2027 would be reasonably priced from the low Eur30s/MWh, with a breakeven point estimated at Eur34/MWh, down 17% from the previous half-yearly estimate, according to the latest report.

"Spain's solar boom has created a complex web of risks that fundamentally reshaped the power market, forcing a strategic pivot toward hybridization and energy storage as a necessity rather than merely an option," Brunetti said.

PPA breakeven above capture price expectations

Germany, meanwhile, faces similar challenges with dried-up PPA market liquidity, where a 10-year solar pay-as-produced PPA starting in 2027 commands Eur50/MWh to break even, down over 20% from the previous report in early 2025.

This represents a substantial premium over expected capture prices, which in 2025 recovered slightly to average just below Eur55/MWh, Platts data showed.

Germany, a longtime leader in the EU PPA market, is facing a complex mix of bearish fundamentals, along with policy and demand uncertainty.

Liquidity in the PPA market has dried up, partly also due to better alternatives from auctions for 20-year sliding premium contracts that will expire this year as Germany mulls a comprehensive reform of its green energy law (EEG 2023) to incentivize a more merchant-based approach to renewables.

While solar projects above 20 MW are excluded from the auctions offering some PPA scope for new projects, onshore wind PPAs are mainly limited to older turbines, where 20-year EEG contracts have ended.

Here, the rebound in capture prices helped secure a short-term future for out-of-contract projects with the 2025 onshore capture price up 20% on year at Eur77.51/MWh.

That compares to a maximum bid price in the final auctions for 20-year contracts just below Eur70/MWh, while the PPA breakeven price for a new onshore wind project starting 2027 is pegged at Eur78/MWh, down 10% compared to the previous estimate.

Although PPA breakeven prices are calculated for new-built plants, the European PPA market could also be revived by existing capacity reaching the end of subsidized contracts, with onshore wind in particular in demand.

These plants would be offering short-term PPAs, of up to five years, as they near the end of their lifetime and could price their output competitively or closer to expected market capture prices.

New wave of North Sea PPAs ?

Europe's offshore wind industry continues to face an uncertain outlook, characterized by higher costs and lower wholesale values.

In Great Britain, 10-year corporate PPAs for offshore wind projects scheduled for commissioning in 2028 are expected to be nearly Eur110/MWh, while in Germany they are slightly lower at Eur100/MWh, consistent with prior S&P Global Energy reports.

Only 500 MW of offshore wind capacity has been contracted via PPAs in 2025 as the gap between buyers' payment willingness and costs widened.

"For the 60 TWh/year of offshore wind already tendered without subsidies in Germany, it remains unclear whether PPA buyers would be willing to pay these prices, given the high risks. In principle, offshore wind remains an option for buyers looking for scale and price stability over longer time frames," Brunetti said.

In the rejuvenated UK offshore wind market, the government launched a consultation on the interplay between Contracts for Difference and PPAs.

According to S&P Global Energy Horizon analysts, sensitivity analysis shows that capacity factors significantly influence offshore PPA prices with so-called wake effects potentially impacting some sites in more high-density turbine array zones, as for instance in Germany.