Covid-19 halting European PPA market – Part V

The European market for power purchase agreements has not been completely halted by the Covid-19 pandemic, despite falling power prices and declining demand, argues Luca Pedretti, COO and co-founder of Swiss software developer Pexapark.

“The PPA market is driven by overall price levels and risk appetite and demand of both corporate and utility offtakers,” Pedretti said in a recent chat with pv magazine. “Simply put, there are thresholds of long-term PPA price levels that allow for new investments.”

New mindset

Pedretti cited Spain and Sweden as benchmark markets for PV and wind, respectively. In Spain, developers have enjoyed price levels of between €35/MWh and €37/MWh in 10-year PPAs for solar projects, while in Sweden, 10-year PPAs for wind farms have traded around the €30/MWh range.

“There is such a broad consensus investment level in many countries, but these two areas are the most important in terms of PPAs and transactions volume,” he said.

Forward prices, the most important factor, are now changing, he noted. “When these prices change, everything can change,” he said. “This is how it already worked for more than 10 years in the Nordics.”

Pedretti added that a different mindset and approach is now required for this market. “PPAs cannot be done only sequentially after the project is done, but come first when the price is right and then the PPA is matched with the right project,” he explained.

Downward trend

He noted that electricity prices were already falling in many markets for quite some time before reaching the levels now seen in the Nordic countries and Germany, while Spain has been pushed to €32 to €34 on long-term PPA price levels. “There is clearly a fear factor in the market as uncertainty is high, but this will pass,” Pedretti affirmed. “And we have already seen stabilization of prices and some rebounds.”

He acknowledged that in some markets, we might see fewer transactions. “But it is too early to say, as a lot depends also on the change in long-term outlook,” he said.

The Covid-19 pandemic has contributed to the slowdown in some countries, but a similar decline may have occurred even without the outbreak, he argued. “That is part of the new non-subsidy investment paradigm,” he said.

Pexapark recently released its PexaQuote software, a free-access online tool that can be used as a PPA deal tracker for the European energy market.

In a recent report, German consultancy Enervis estimated that 8.4 GW of solar PPAs have been signed in recent years in Europe. The study, based on data from 25 countries, revealed that the largest European PPA market for PV plants is Spain. Last year alone, the country announced 4.39 GW of solar-linked PPAs.

Italy and Germany followed, according to Enervis, with 1.91 GW and 1.05 GW, respectively. Demand is also rising in Portugal (444 MW), Denmark (338 MW), France (158 MW), Ukraine (44 MW), Poland (35 MW), Sweden (16 MW) and the United Kingdom (6 MW).