Iran conflict boosts interest in short-term PPAs in Europe

The Iran-related conflict is driving price volatility and supply concerns in European energy markets and, according to Montel analysis, increasing interest in short-term power purchase agreements (PPAs). In periods of uncertainty, the hedging value of such contracts is considered highest, as price signals respond more quickly to geopolitical developments.

Montel’s PPA Deal Tracker, which categorises annually concluded PPAs by contract duration, shows that the share of agreements with terms of one to four years rose from around 6.8% in 2025 to about 14.6% year-to-date in 2026. The share of five- to nine-year contracts also increased, from 12.3% to 20.8%.

A similar pattern was observed during the 2020–21 energy crisis, when the share of one- to four-year PPAs climbed from 1.7% to 10.98%.

“Rising volatility increases the value of hedging short-term energy prices, particularly for off-takers seeking budget certainty. At the same time, higher short-term forward prices can improve potential revenues for generators,” said Josephine Steppat, senior energy analyst at Montel.

Despite this shift, Montel notes that structural drivers of long-term PPAs in Europe remain intact, supported by renewable expansion, electrification, and decarbonisation targets. Geopolitical events have only limited influence on longer-dated forward prices.

“Long-term PPAs will continue to be driven more by structural fundamentals than short-term shocks,” Steppat said.

Montel adds that the recent trend reflects a shift in contract mix rather than an expansion in total volumes. The PPA market is also being shaped by structural pressures on renewables, including declining capture rates and increasing cannibalisation effects, which are putting revenue streams under strain and raising questions about long-term value for developers.