Despite possibly the most turbulent year in recent history for the European energy markets, the number and volume of PPAs remained impressively stable. 2022 saw disclosed contracted volumes of 8.4 GW – a 21% decrease with respect to 10.7 GW in 2021, based on data provided by Pexapark, a Swiss-based advisory company, specialised in renewable energy. Deal count increased 4.5% year-on-year, with a total of at least 161 deals in lieu of 154 the year beforeDespite possibly the most turbulent year in recent history for the European energy markets, the number and volume of PPAs remained impressively stable. 2022 saw disclosed contracted volumes of 8.4 GW – a 21% decrease with respect to 10.7 GW in 2021, based on data provided by Pexapark, a Swiss-based advisory company, specialised in renewable energy. Deal count increased 4.5% year-on-year, with a total of at least 161 deals in lieu of 154 the year before.
Corporate PPAs accounted for an impressive 80% of deal count (129 out of 161), and 83% of contracted volumes (7 GW out of 8.4 GW). Activity increased at least 20% by disclosed contracted volumes, which in 2022 scaled to 7 GW with respect to 5.8 GW in 2021. In terms of deal count, increase rate reached around 29%, with 129 deals in lieu of 100 in 2021.
PPAs, a relatively novel financing instrument, are now common in renewable energy businesses due to the decline of government subsidies. Without subsidies, there is a lack of financial security for lending institutions, such as banks, to invest in a renewables projects. As a result, lenders require a new way to secure their investment. A PPA can prove that the concerned renewable asset has already found a long-term buyer at a fixed price. PPA contracts thus enable renewable investment by providing revenue certainty to investors and lenders in unsubsidised markets. However, PPAs are complex in their structure and pricing. Overlooking or inadequately negotiating a contractual clause can impact the overall revenue of a PPA project. This necessitates a thorough understanding of energy risks, valuation, and negotiation issues.
Today, the PPA market is still in its infancy in SEE but could explode over a short period of time, once players familiarise themselves with the available technical tools and financial engineering techniques and as costs from RES generated power continue to slide.
The Monthly Analysis of May 2023, which is available here, tries to shed light on the latest developments in PPA activity in SE Europe, highlighting both obstacles and challenges for their further deployment over the next years.
