Corporate PPA market overtakes utility PPA’s in Europe in 2021, changes foreseen

Highlights :

  • The European market, even if a vastly more open market as compared to India, offers interesting lessons for the turmoil it has gone through due to price volatility.
  • Corporate PPA’s are of course set to be a major factor everywhere, as firms will be, and should be expected to do much more, earlier, than governments.
Corporate PPA market overtakes utility PPA’s in Europe in 2021, changes foreseen

Corporate contracted capacity in Europe hit 6.5GW in 2021, versus  4.6GW for utility PPAs, making it the first time corporate PPA’s overtook utility PPA’s in Europe. This is disclosed in a report by renewable advisory firm, Pexapark, in its report titled European PPA Market Outlook 2022. 

The resurgence of corporate PPA’s, at a time when energy market volatility has hit new highs, makes the case for some major structural changes and adjustments the market will need to make soon, says the study.

Utilities and corporates may need to work closer together to maintain the 10-year PPA market in Europe, something that has been catching in for the past few years, mostly on the assumption of stable gas prices, which is no longer the case.

In 2021,  annualised volatilities of front year contracts witnessed volatility levels of up to 250%, due to spiking gas prices, among other reasons. PPAs jumped 58%, with December seeing a record 3.2GW of signings spread over 21 PPAs.

Pexapark COO Luca Pedretti was quoted saying “Sustained and continuous high volatility of capture rates highlights the need for more active management of asset revenues,” Noting that an increase in discounts of Pay-as-Produced PPAs had triggered rising demand for shorter term and baseload PPAs, Pedretti added that such volume structure not only brings a steep shift from the typical risk profile used for traditional renewables investment, but also in the day-to-day operating model of the asset.

The firm also predicts that mega energy buyers in Europe could only be matched well with offshore wind, even as demand for short term, baseload energy goes up. Amazon, Alcoa, BASF and Agder Energi were the top buyers of capacity in 2021, while Luxcara, Greenalia, Vattenfall and Opdenergy were the top sellers.

The firm also predicted that large renewable investment funds pursuing utility-like business models are emerging to fill the gap with short-term PPAs and baseload structures.

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