Is Denmark ready for solar PPAs?

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On February 13, Danish clothing company Bestseller announced it was partnering with independent power producer Better Energy for the construction of a 125 MW solar facility to power its operations.

In its annual report for 2018, Better Energy said the project was ordered by Bestseller’s parent company, Heartland, and construction would start next year. “The power plant is expected to produce the equivalent of Bestseller’s global energy consumption for owned and operated buildings under a power purchase agreement (PPA),” Better Energy said, adding the project would be the first subsidy-free plant in Denmark and the largest in generation capacity.

Bestseller said the project would not receive public support, and that it would be privately funded by Heartland or Invest FWD, its sustainability-focused investment platform.

“The location for the project has not yet been finalized,” Bestseller spokesman Morten Norlyk told pv magazine. “We therefore have no further comments at the current moment, other than the initial press release.”

More PPAs coming?

pv magazine has learnt from industry sources that more PPA projects may see the light of the day in Denmark in the years ahead. “We are negotiating a purchase of a Danish portfolio [that is] partly PPA based,” one, anonymous potential investor told pv magazine. “We are still in the negotiation process.” The investor said the process may take months.

BloombergNEF solar analyst Cecilia L’Ecluse said, to her knowledge only a 42 MW PPA had been signed to date in Denmark, that of U.S. giant Apple for its Danish data center. Construction of the data center, however, was halted in mid-April following a dispute over missed deadlines by the contractor tasked with delivering the build, local media reported.

Difficult prospects

L’Ecluse said it is difficult to predict how much big electricity consumers entering a PPA would save on annual bills. “This depends on your total electricity consumption versus the size of the PPA, and whether you are a large industrial off-taker who can secure a lower electricity tariff or not,” she said. “However, Denmark’s electricity prices are the highest in Europe, due to high taxes – even for large industrial off-takers they are around $270/MWh which is well above PPA prices.”

When asked about the feasibility of large scale solar under PPAs in Denmark, L’Ecluse said unless factors other than price played a role, such as delivering a load close to consumption profile, such projects would not make too much sense. “Although solar’s LCOE [levelized cost of electricity] in the Nordics is on par with current wholesale power prices [$69/MWh], even offshore wind is cheaper than solar,” she said. “Our 2019 LCOE estimate for onshore wind in Denmark is $57/MWh, for offshore wind $62/MWh.”

She added, there is currently no need to sign private PPAs to meet green commitments. “There are other ways to meet green commitments, like buying guarantees of origin,” said the analyst. “Also, the Danish grid is already very green! Almost half of Denmark’s 2018 electricity production came from wind turbines, and adding biomass, solar and hydro may lead to almost 70% of electricity generation from renewable sources.”

One thing is for sure: “In Denmark there are enough creditworthy off-takers active so that should, in theory, not be a problem,” she added.

Nordpool energy prices

Fellow Denmark analyst Peter Ahm said the power market price of northern European electricity market operator Nordpool appears to be sufficient, if volatile, although it has uncertain medium to long term trends for solar PPAs. He said, however, developers are establishing PV farms in Denmark and elsewhere with zero or near-zero public support per kilowatt-hour. “Here most PPAs will only be public knowledge at a later stage – if at all,” he said.

Ahm told pv magazine domestic retail power rates depend very much on an equally uncertain political framework, and that for commercial entities the Nordpool market price is at present an average of €0.045/kWh. “Most experts expect power prices not to be reduced,” he added, explaining the development of power infrastructure alone requires a lot of finance.

When asked if a PPA for a 125 MW solar project made sense under current Danish energy market conditions, Ahm said Bestseller is achieving a green image and a stable power price for 15 years. “Economic sense? Who knows at present,” he replied.