Ripple effects of EU revenue cap on renewable energy


Since the approval of a revenue cap of €180 ($176)/MWh for electricity from generators with low marginal costs, including solar and wind, reactions from analysts and industry groups have been mixed. However, there is broad consensus that for developers, the ruling could open up a number of uncertainties if EU member states choose to enact different caps, consequently slowing down renewables rollout.

According to a survey by US-based LevelTen, 26% of respondents said that their PPA offer activity would fall if individual countries impose their own price caps. That is to say, different caps and rules could stall projects until that uncertainly is resolved.

“Different price setting mechanisms across the continent will have an unintended ripple effect on neighboring markets,” said Kristian Lande, senior director of European analytics for LevelTen Energy. “Without consensus among 27 countries on the timing and price level, there will be greater uncertainty, which will likely lead to less investment across the board.”

This echoes concerns voiced by SolarPower Europe about the possible “patchwork implementation” of the emergency energy measures agreed by the European Commission and European Council last week. Previously, the European solar industry trade body called for such measures to be applied uniformly, out of fear that less solar-friendly European member states would be ready to exploit any opportunity to penalize renewables more harshly than other “infra-marginal” generators, such as operators of lignite power plants or nuclear reactors.

PPA supply impact

In the survey of 19 developers with projects on the LevelTen Energy Marketplace, 42% said that a price cap of €180/MWh would not change their PPA offer activity. The same percentage said they will continue to submit some offers, but only for selected opportunities.

The cap is supposed to be temporary, so if a project is not expected to reach commercial operation until 2024, it might not be affected at all. On the other hand, projects that are nearing their commercial operation dates (COD) will be most affected, particularly if a portion of their capacity has been reserved for the spot market.

However, LevelTen said that even with the €180/MWh cap, the spot market remains an attractive option for developers who want to capture the full revenue potential of today’s market conditions. And finally, “there is hope that the incredibly high wholesale prices will attract a huge amount of investment, fueling development that will increase overall supply of renewable projects, and some of that capacity could be reserved for PPAs,” according to LevelTen.

Different types of PPAs will be affected in different ways. Most long-term contracts are not producing revenues above €180/MWh for generators, so the new regulations will not have an impact on them. According to Norwegian consultancy Rystad Energy, these fixed-rate contracts represent 60% of the total installed renewables capacity in the EU.

On the other hand, short-term PPAs – the prices of which are typically closely linked to actual market prices – are likely to be most affected and renegotiated if they are higher than €180/MWh. According to Rystad, the remaining 40% of renewable energy capacity falls into this category.

“While the revenue cap would apply to all renewable energy plants, only about 40% are benefiting from the current crisis,” the consultancy said in September. “Targeting all types of plants with such a non-tailored policy confuses the market and calls into question the effectiveness of the response.”

But overall, PPA prices are expected to continue to rise in the near term, due to a supply and demand imbalance. Even before the revenue cap proposal, supply was struggling to keep pace with demand, putting PPA prices on an upward trajectory.

According to Swiss consultancy Pexapark, 10-year PPAs for solar, onshore wind and offshore wind technology have doubled in price this year to an average of €107.80/MWh. In August alone, one-year electricity contracts in Germany and France surpassed €1,000 ($987)/MWh for the first time on record.

This content is protected by copyright and may not be reused. If you want to cooperate with us and would like to reuse some of our content, please contact:

Popular content

Germany’s balcony PV installations hit 200 MW in H1
19 July 2024 Germany's Federal Network Agency (Bundesnetzagentur) says 220,000 balcony PV systems were installed in the country in the first half of the year, reac...