European PPA Market Enters a 'Golden Era' - Pexapark 2024 Outlook
2023 was the busiest and most dynamic year for European renewable energy Power Purchase Agreements (PPAs) to date, breaking records for both the volume and number of deals signed. The past year saw a substantial 16.2 gigawatts (GW) of disclosed contracted volumes, a remarkable surge of over 40% from the year before. Deal count increased by 65% from 2022 – totalling 272 PPA announcements.
Continuously weathering multiple peaks and troughs, the market is now entering its ‘Golden Era’. Factors contributing to this optimistic outlook include decreased volatility vis-à-vis 2022’s peaks, a stabilising pricing environment, and growing maturity from both buyers and sellers in managing energy risks. These conditions have unleashed a plethora of innovations and advancements in the European PPA Market, commencing a new chapter for the continent’s energy transition.
This is one of the main conclusions of the European PPA Market Outlook 2024, the fourth edition of an annual report series by Pexapark, a leading provider of PPA price benchmarks and market intelligence, enterprise software, and advisory services for renewable energy.
According to the report, market activity was driven by corporates, but the balance between such players and utility offtakes improved. Corporates secured 11.95GW – 28% increase from 2022, across 218 deals. This was underpinned by a significant deal count surge of 66% year-on-year. Utilities represented 23% of the volumes – an increase from last year’s 18% share, and 18% of deal count. This translates to 4.02GW – more than double the 1.96GW of 2022, across 48 deals – a 60% increase from last year’s 30 deals.
Spain continued to lead the market both in volumes and deal count for the fifth consecutive year, with 4.67GW. Germany climbed to second position in the market, with 2023 volumes at 3.73GW. Solar PV (1.77GW across 18 deals) and offshore wind (1.73GW across 14 deals) played an equal role in this achievement, bringing Germany’s solar sector back into the spotlight.
Overall, total solar PPA volumes were quadruple those of both onshore and offshore wind, accounting for 10.5GW across 160 deals. Onshore wind saw 2.3GW across 58 deals, while offshore wind saw 2GW across 20 deals.
However, it was not all plain sailing in 2023. Market fundamentals exerted pressure on financing – with the cost of debt reaching a peak of almost 3.9% (Euro swap rate) in 2023. Unmanaged Baseload PPAs continued to make headlines, and cannibalisation risk also impacted Pay-as-Produced (PAP) pricing structures.
Short-term PPAs with a >1-year tenor as part of dynamic selling strategies faced setbacks due to the introduction of revenue caps. The report notes that some market players viewed such tools as an opportunity for quick profits rather than as a risk management optimisation tool, despite the evident upside. The picture for short-term PPAs of up to 5 years was more nuanced, with market fundamentals still supportive.
Regulatory interventions created a more supportive environment for PPAs in 2023, but uncertainty remains. For example, the introduction of new government credit guarantee schemes, such as the one recently implemented in France, is expected to significantly expand the potential pool of offtakers entering the PPA market. Nonetheless, competition between CfDs and the PPA Market could be a new challenge for 2024.
Looking ahead, the PPA market is poised for further evolution. New developments in Hybrid PPAs, 24/7 green procurement approaches, PPAs for Green H2 Production and Multi-buyer PPAs will attract further attention in 2024.
Based on growing appetite and sophistication, the long-term PPA market is expected to surpass 20GW. Pexapark expects Germany to challenge Spain for the top spot and become the most active market for PPAs this year.
Luca Pedretti, Co-Founder and COO at Pexapark, said: “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. Project owners, utilities and corporates are joining forces to leverage each other’s strengths, and the role of more structured PPAs will increase. Risk managers such as utilities have an opportunity to further evolve into ‘market integrators’ unlocking significant innovation in the market.”
Maritina Kanellakopoulou, Senior Insights Analyst at Pexapark, said: “It’s positive to see increased understanding of risks associated with the open markets from both buyers and sellers. The renewables industry is slowly adapting to the new phase of the energy transition, being able to benefit from the large spectrum of opportunities in a risk-adjusted manner. We hope to see the trend further growing towards the right direction.”
To access Pexapark’s European PPA Outlook 2023, please visit: https://pexapark.com/european-ppa-market/
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