Renewable Energy Power Purchase Agreements in Europe

By Editor


The year 2023 marked an unprecedented milestone for European renewable energy Power Purchase Agreements (PPAs), establishing itself as the busiest and most dynamic period in the sector’s history.

According to the European PPA Market Outlook 2024, a comprehensive report by Pexapark, a leading provider of PPA price benchmarks, market intelligence, and advisory services, the continent experienced a remarkable surge in both volume and deal count.

The disclosed contracted volumes for the year soared to an impressive 16.2 gigawatts (GW), marking a staggering 40 percent increase from the previous year. The number of deals reached a new record of 272, reflecting a substantial 65 percent surge compared to 2022.

The European PPA market is now entering what experts are calling its ‘Golden Era.’ Factors contributing to this optimistic outlook include a decrease in volatility compared to 2022, a stabilizing pricing environment, and growing maturity from both buyers and sellers in managing energy risks. These favorable conditions have spurred a wave of innovations and advancements, ushering in a new chapter for the continent’s energy transition.

Corporate entities were the driving force behind the market’s activity, securing 11.95GW, representing a 28 percent increase from 2022. This surge was witnessed across 218 deals, reflecting a notable 66 percent year-on-year increase in deal count. Utilities also played a significant role, representing 23 percent of the volumes, a notable increase from the previous year’s 18 percent. This translated to 4.02GW across 48 deals, more than doubling the 1.96GW recorded in 2022, and marking a 60 percent increase in deal count.

Spain continued to lead the market for the fifth consecutive year, with 4.67GW, while Germany climbed to the second position with 3.73GW in volumes. Solar PV and offshore wind played pivotal roles in Germany’s achievement, with 1.77GW and 1.73GW, respectively, bringing the country’s solar sector back into the spotlight.

Total solar PPA volumes quadrupled those of both onshore and offshore wind, accounting for 10.5GW across 160 deals. Onshore wind contributed 2.3GW across 58 deals, while offshore wind saw 2GW across 20 deals.

Despite the overall success, the market faced challenges in 2023. Market fundamentals exerted pressure on financing, with the cost of debt reaching a peak of almost 3.9 percent (Euro swap rate). Unmanaged Baseload PPAs and cannibalization risk also impacted Pay-as-Produced (PAP) pricing structures. Short-term PPAs faced setbacks due to revenue caps, with some market players viewing these tools as opportunities for quick profits rather than risk management optimization.

Regulatory interventions created a more supportive environment for PPAs in 2023, but uncertainties remain. The introduction of new government credit guarantee schemes, such as the one implemented in France, is expected to expand the potential pool of offtakers. However, competition between Contracts for Difference (CfDs) and the PPA Market could pose a new challenge in 2024.

Looking ahead, the PPA market is poised for further evolution, with new developments in Hybrid PPAs, 24/7 green procurement approaches, PPAs for Green H2 Production, and Multi-buyer PPAs expected to gain attention in 2024. Based on growing appetite and sophistication, the long-term PPA market is projected to surpass 20GW, with Germany expected to challenge Spain for the top spot and become the most active market for PPAs in the coming year.

Luca Pedretti, Co-Founder and COO at Pexapark, commented on the trends observed, stating, “One of the main trends we see is the evolved role of utilities in the market, offering solutions to challenges posed by price volatility, intermittency, and higher green standards.” Pedretti highlighted the collaborative efforts between project owners, utilities, and corporates, emphasizing the increasing role of more structured PPAs and the potential for utilities to evolve into ‘market integrators.’

Maritina Kanellakopoulou, Senior Insights Analyst at Pexapark, expressed optimism about the industry’s adaptation to the new phase of the energy transition, stating, “It’s positive to see increased understanding of risks associated with the open markets from both buyers and sellers.” Kanellakopoulou hopes to see the trend towards a more risk-adjusted approach continuing in the right direction.

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