Spain's Endesa turns to power supply contracts as renewables build-out slows

Endesa SA will likely end 2023 having built less wind and solar capacity than anticipated amid difficult development conditions in Spain's renewables market, executives said Oct. 31.

Enel SpA's Spanish subsidiary finished the third quarter with 9.3 GW of installed renewables, having so far not added any new capacity since the end of 2022. The company expects to complete between 700 MW and 800 MW in total this year, having previously targeted 1 GW, with some capacity slipping into 2024.

Renewables developers in Spain continue to face grid connection challenges and supply chain bottlenecks in their attempts to bring new capacity online.

"If you see our development in terms of megawatts along the year, probably we will end up installing ... less megawatts than we thought, because we are somehow, not waiting and seeing, but ... taking maybe a slower pace," Endesa CFO Marco Palermo said on the company's third-quarter earnings call.

Amid the slowdown in installations, Endesa has turned to opportunistically contracting green power from other renewables operators in Spain. It recently signed a power purchase agreement with local developer Solaria Energía y Medio Ambiente SA to buy electricity from a 126-megawatt peak solar facility.

The pay-as-produced PPA starts in January 2024 and lasts for 10 years. Palermo said the deal "should give ... some hints at what we are now thinking" in terms of Endesa's renewables strategy, with more details to come at Nov. 23's capital markets day.

Solaria executives detailed the PPA during the developer's Sept. 28 strategy update, showing a chart that appeared to put the price at somewhere between €45/MWh and €50/MWh, which they said was 40% higher than the company's last PPA. The graphic was subsequently updated to conceal the price.

"Frankly it's a bit embarrassing because we were not expecting Solaria to give any kind of detail, even more [since] they were not exactly correct," Palermo said.

Endesa executives declined to clarify the actual price when asked by an analyst if it was in fact in the low-€40/MWh range. Solaria did not immediately respond to a request for comment.

Still, Palermo said the price was at an "attractive" level when gauged against Endesa's short- and medium-term power price assumptions, while from Solaria's side, it made sense to have a long-term buyer with the "solidity" of Endesa.

"Even though the PPA is not very big in quantity, to us there's a point where it is interesting, vis-à-vis building renewables," Palermo said. "It was in a range of price that made us interested to buy, even though we have our own ... pipeline that is huge and our own renewables in construction."

The Platts-Pexapark PPA index for a standard 10-year Spanish solar PPA was pegged at €36.39/MWh at the start of the fourth quarter.

Meanwhile, volume-weighted capture prices for Spanish solar averaged €83.43/MWh in the third quarter, according to Platts Renewable Energy Price Explorer. The capture price is the average price renewable energy generators receive for the electricity they produce based on hourly generation and pricing data.

Analysts at S&P Global Commodity Insights said the pricing of Endesa's PPA with Solaria might depend on how guarantees of origin are taken into account.

For Endesa, signing the agreement is a way to diversify its renewables generation, according to Josefin Berg, associate director in the clean energy technology group at Commodity Insights.

"Endesa owns and builds gigawatts of solar [photovoltaic], and another option would have been to acquire projects. But that creates risk in terms of price cannibalization," Berg said. "Combining the in-house portfolio with PPAs offers better long-term risk hedging."

Endesa's EBITDA in the first nine months of 2023 amounted to €3.35 billion, down 3% compared to the year-ago period. Meanwhile, the company's net ordinary income fell 28% to €1.06 billion.

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