|The advent of power-purchase-agreement marketplaces could broaden and diversify the pool of electricity buyers, giving smaller companies access to procurement avenues well-used by the likes of Google and Amazon.
As renewable energy subsidies are whittled down across Europe and developers look to corporate off-take agreements to underpin their projects, a growing number of these deals are now being done on online trading platforms, rather than bilaterally, allowing the entrance of smaller buyers into a market dominated by large companies like Google LLC and Amazon.com Inc.
Germany's innogy SE, for example, on Feb. 11 made 770 MW of wind and solar assets available for corporate off-takers via Instatrust, an online marketplace for power purchase agreements, or PPAs, created by consultancy DNV GL.
In many of Europe's power markets, this increased access to a host of power suppliers is good news for those looking to buy green electricity.
While most large power buyers will have in-house procurement expertise, the complexities that lie behind signing a multiyear PPA can be daunting, said Jason Tundermann, vice president of business development at trading platform LevelTen Energy Inc., which originated in the U.S. and is now expanding into Europe. For sellers, the use of the platforms can also save time and resources.
German developer ib vogt GmbH recently used another platform, Renewable Exchange Ltd., to sell power from several of its U.K. solar farms to green energy supplier Ecotricity Ltd. "There were a large number of major parties bidding on our assets whom I wasn't aware were participating in the market," ib vogt's Thomas Milner said in a Feb. 18 news release.
The platforms include price analytics tools, including forward power price curves. For ib vogt's solar assets, bids in the final round still diverged by £3/MWh, based on the off-takers' risk appetite, required profit margins and, to a lesser extent, differing views on the forward price.
Increased price transparency and access to a wider market helps companies that are looking to buy renewable power, since there are still many more projects than there are off-takers in most markets. "The seller pretty much always has a preference for a bilateral deal," Tundermann said, while "if you're a buyer, that's rarely in your best interest."
One large developer's view underscores that assumption. Asked about the way in which he sees PPAs being traded in the future and the potential role of PPA marketplaces, Ørsted A/S CEO Henrik Poulsen said bilateral agreements would usually be the most appropriate route.
"When you deal with relatively large contracts, I think it's going to be more of a buyer-supplier type of relationship," he told S&P Global Market Intelligence in January. "On the other hand, if you over time see a need for smaller and smaller contracts in a much, much bigger, more diversified market, maybe you will need an exchange at some point to facilitate that trading."
Broaden the pool
In the meantime, trading platforms like London-based start-up Zeigo Ltd. are already matching smaller buyers with green power. "One of the main enemies we have right now is time; we can't sit down and wait until all these big deals have taken place," Zeigo CEO Juan Pablo Cerda said in an interview. "Our role is to simplify. It's up to us to demystify the process."
The advent of PPA procurement platforms is set to broaden the pool of green power buyers. Increasingly, interested companies are also able to join forces and boost their collective buying power.
For developers with projects, having multiple off-takers can provide additional security. If a deal is signed with a group of five buyers, "any one of them could go under, but the chance of all five going under is significantly lower," Tundermann said. Innogy told S&P Global Market Intelligence that it too is open to these kind of aggregated PPAs.
On the other side, LevelTen is also offering larger buyers the chance to diversify their power purchasing across different sites and suppliers, an option that coffee chain Starbucks Corp. chose for a multi-site PPA in the U.S. in 2019. Even electricity benchmarked in different power price hubs can be aggregated on the platform, adding another layer of diversification.
For each of the platforms, a crucial selling point is liquidity: the availability of a sufficiently large pool of buyers and sellers. While being able to tap into buyers at "the base of the pyramid" has increased the number of suitable off-takers, Tundermann also sees upsides from electrification and the internet of things, which could boost data center demand from technology giants.
But the outlook for future PPA demand varies. "Where exactly the limit is, is hard to say," said Luca Pedretti, COO and co-founder of price analytics and PPA facilitating platform Pexapark AG, used by utility off-takers to buy power from green asset owners across Europe. "There is not unlimited risk appetite and unlimited credit. That's a big bottleneck."