In this list
Coal | Electric Power

European PPA offers 'relatively stable' despite rising power prices: Zeigo

Commodities | Electricity | Energy | Electric Power | Emissions | Renewables | Energy Transition | LNG | Natural Gas | Natural Gas (European) | Oil | Crude Oil | Refined Products | Coronavirus

Market Movers Europe, June 14-18: Industry events to focus on energy demand recovery

Electric Power

Platts Forward Curves – Gas and Power

Crude Oil | Coal | Coronavirus | Natural Gas

S&P Global Platts Client Analytics Seminar

Electric Power | Renewables

Mexico readies constitutional amendments in power sector after election

Agriculture | Grains | Electricity | Energy | Electric Power | Nuclear | Oil | Crude Oil

Commodity Tracker: 4 charts to watch this week

European PPA offers 'relatively stable' despite rising power prices: Zeigo

Highlights

Mixed picture in a rising power market

Offtaker advantages in Spain

Post-FIT German market grows

European Power Purchase Agreement prices remained relatively stable in Q1 2021 despite a post-lockdown recovery in power prices, according to data from PPA platform Zeigo.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

Rising power prices were supported by colder than average temperatures and record highs in the carbon market as participants bet on tougher policies to meet emission reduction targets, and demand for pollution rights increased from industrial buyers.

These effects, however, failed to feed through to PPA prices with any consistency in Q1 2021, with average offers in Spain dipping Eur4.00/MWh ($4.83/MWh) quarter on quarter, counterbalancing a Eur3.70/MWh rise in Germany and a Eur0.5/MWh rise in GB.

Auction vs PPA

Spanish PPA prices remain low thanks to a mature, liquid market and abundant solar resources, a trend that is set to continue through 2021, said Zeigo senior price analyst Freddie Lyons.

A government renewable capacity auction in January generated plenty of speculation around its impact on PPA prices, Lyons said.

Spain awarded support to 2.036 GW of solar PV and 998 MW of wind capacity in the auction, its first since 2017, at an average price of Eur24.47/MWh for solar and Eur25.31/MWh for wind.

"Although it may provide buyers with more power in negotiations and lead to lower prices, prices obtained in the auction may not be comparable to PPAs due to key differences around credit risk, lower contracted volumes and other financing considerations," he said.

There have been huge volumes of PPA deals signed, 1.3 GW in 2020 alone, including a deal between Danone and Iberdrola which will support the latter's Francisco Pizarro project, the largest solar farm in Europe when operational.

German volumes growing

The German PPA market has historically lagged behind other European countries but, despite being relatively nascent, it was forecast to post the second highest volume of PPAs this year behind Spain, Lyons said.

This is partly due to efforts to save much of the 16 GW of onshore wind capacity that would come out of support by 2025 after 20 years on feed-in tariffs. German PPA prices continued to be some of the highest on the Zeigo platform, reflecting the early nature of the market.

Finally, UK PPAs saw a small increase quarter on quarter as spot power prices rose 4% in March to around GBP58/MWh.

"This may have led to an increase in the number of short-term PPAs as renewable energy generators look to cash in on contracts with greater value," Lyons said.

PPA contract lengths seen on the Zeigo platform average around 10-15 years, with Spanish and German term lengths being slightly shorter to GB.

As many German onshore wind assets are reaching the end of their project lifecycle the average wind term is just 2.4 years, meaning generators are offering shorter terms to tie off their energy supply until project decommissioning.

Firmer panel prices

Commenting on the data, Bruno Brunetti of S&P Global Platts Analytics noted that the sharp decline in Spanish solar PV PPA prices came despite the significant increase in EU Allowance prices underpinning wholesale power prices.

"The decline is interesting when put in the context of currently firmer solar PV construction costs due to higher module prices. Downward pressure on Spanish PPA prices has emerged in conjunction with the recent government auction, which has delivered particularly low results. With guaranteed remunerations and PPAs at particularly low levels, Spanish developers are targeting higher revenues in the tail years of projects," he said.

In the case of Germany, Zeigo's Q1 data showed a trend "more in line with increasing wholesale power prices and also government tenders," he said.

Alleviating intermittency

While the latest data gave mixed signals on price direction, "don't expect PPA prices to go down" in the longer term, Megawatt-X managing partner Laurent Segalen told Platts.

"The rise of carbon price is pushing merchant power prices higher and, with less nuclear and coal in the future, they will remain high on average over the long term, and volatile in the short term," he said.

The best trading strategies, meanwhile, would be to alleviate intermittency by investing in clean dispatchable resources "such as pumped hydro, batteries and interconnectors that bring a lot of value to the grid," he said.

Aggregated PPA

On the market development front, Zeigo founder and CEO Juan Pablo Cerda said the company had now developed and launched an aggregated PPA platform, inviting consumers with volume down to 5 GWh/year to sign up to a waiting list ahead of participation.

"We have consultants that want to bring in their clients, we have a large accounting firm, a supermarket and some banks. We aim for a maximum six or seven offtakers for a first-of-a-kind aggregated PPA in the UK, and we have enough volume already for one or two buying groups," he said.

The challenge was in the pricing detail. "We're working on a mechanism that gives each company a fair price based on a number of variables, including credit rating, volume, risk appetite and other contractual requirements," Cerda said.

The platform encouraged the use of one base contract that everyone could adhere to. Meanwhile there was potential for a triple-A rated party with a large volume requirement to lower the price for other buyers in a group.

With many small UK companies unable to commit to a 10-year agreement, Zeigo saw PPAs becoming more flexible in the near term, with deal tenors dropping to five or three years.

Once an aggregated PPA concept is proven in the UK, Zeigo plans to take it into Europe and the US.

"This is not just a huge market, it is an opportunity to democratize access to PPAs," Cerda said.