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Inflation and volatility roil green PPA market
Corporations urged to lock in power prices as wind and solar costs soar
Buying green electricity via a long-term power purchase agreement offers a great way for corporations and utilities to insulate themselves from price volatility and reduce their carbon footprints. Energy-intensive companies that signed PPAs prior to the global energy crunch are sitting pretty. Some are making good margins reselling cheap power into red-hot spot markets. But prices for new deals are rising sharply in Europe and North America, as wind and solar developers contend with myriad cost pressures and uncertainties.
Renewable PPA prices are spiking in Europe and America, as supply chain constraints and permitting issues converge with skyrocketing wholesale electricity prices. LevelTen Energy, which operates a global PPA marketplace spanning 21 countries, reported an 8% hike in its index of European PPA offer prices in the third quarter of 2021.
LevelTen’s European P25 Index, which tracks the most competitive 25th percentile wind and solar offer prices, now stands at €48.68 per megawatt-hour. That’s still well below prices to be found in wholesale power markets. German monthly baseload power futures are trading at or above €100/MWh all the way out to March 2023, so it still makes sense to lock in via a PPA.
But these prices won’t be around for long. Market dynamics are pushing up prices across the board and buyers “should act quickly to secure the best offers,” LevelTen said.

A lot depends on geography. Germany and the UK have been hit particularly hard, with P25 prices in both countries reported at around €65/MWh. Wind and solar projects in Sweden and Finland are by contrast the most competitive, at €30/MWh.
There are still good deals to be found in Spain, where PPA prices fell 17.3% between Q2’20 and Q2’21. But that trend reversed in Q3’21, as Iberian wind prices nudged up by 2.9% to €35/MWh.
LevelTen manager of Europe developer services Frederico Carita said Europe’s ongoing energy crisis seems “poised to stunt the remarkable growth of the Spanish renewable sector”:
“As part of an effort to keep wholesale prices down, the Spanish Government has introduced a new Royal Decree that caps the profits renewable generators can make — a move that has sent shockwaves through Spain’s PPA market and has already slowed project buildout for some developers while project economics are re-evaluated.”
Stateside drama
The story is the same in the United States, where an “unprecedented mix” of regulatory uncertainty and friction in global supply chains is slowing wind and solar project development, choking off the supply of new green PPAs.
The North American P25 market-averaged national index, which spans the five major US electricity markets, rose 5.7% in the quarter to $34.27 per MWh. Wind PPA prices rose 8.4% to $36.14/MWh and solar prices rose 3% to $32.39/MWh.

Compounding upward price pressures, renewables developers are being shouldered with the cost of transmission upgrades to secure access to the grid. This issue is acute in the PJM energy market, where interconnection bottlenecks have “hamstrung marketable projects” and created a shortfall of PPAs.
Solar developers must contend with disruption to the polysilicon supply chain, after the Biden administration sanctioned several Chinese suppliers in response to allegations of use of forced labour at factories in Xinjiang. The White House warned US companies that doing business, even unknowingly, with unethical Chinese producers could result in legal action.
A survey of solar developers found nearly all are taking action over this issue, with one-third saying they are raising PPA prices. Others are seeking new module suppliers or inserting anti-forced labour clauses into existing contracts.
Rob Collier, VP of developer solutions at LevelTen, said many companies can’t solve these problems overnight:
“In some cases, developers are handcuffed by watertight module supply contracts signed years in advance. We have seen signed PPAs fall apart because of this. It’s important for buyers to do their homework and ask about sourcing practices to avoid headaches down the road — at least until anti-forced labor provisions become a uniform industry standard.”
Certainty in uncertain times
While PPAs offer a saving on today’s wholesale prices, they require offtakers to commit to legally-binding contracts of around a decade or more. In Europe, the average PPA term length is 11 years, while in North America it is more than 13 years.
For buyers, the pros and cons of this commitment boil down to risk appetite. Can energy-intensive industries withstand the sorts of extreme price spikes currently forcing some unhedged UK and European companies out of business? Moreover, can they hit looming renewable energy deadlines any other way?
But might some producers be kicking themselves for committing to sell power at a huge discount on today’s overheated wholesale rates – particularly when they see their counterparties reselling that power for two or three times the price agreed in the PPA?
Jeremy MacIver, senior associate at law firm DLA Piper and an expert in corporate PPAs, told Energy Flux that appreciating the value of a PPA requires a broad perspective:
“Whilst I am sure that some generators are currently wishing that they had agreed to a higher fixed price for their PPAs, given that most PPAs are between 10-15 years many will be looking at the bigger picture and still appreciate the security that their PPA has given them against potentially volatile prices over that period.
“We are seeing negative market prices in many jurisdictions, including the UK which saw negative prices for 6 consecutive periods in 2019. In that context generators will be happy with their arrangements.
“Moreover, on many projects the PPA has been an absolute requirement of the project’s lenders. As such, those generators had little alternative other than to conclude a long term PPA.”
The energy trader’s view
Energy traders are major participants in the PPA market, offtaking power from generators and selling it to industrial consumers under corporate PPAs. Swiss trading house Axpo identified strong growth in PPA demand as a “mega-trend in the area of renewable energies” two years ago, and since then has signed a string of deals across Europe.
This year alone Axpo has signed more than ten, including Sweden’s first market-based solar PPA and, in Romania, a PPA for Europe’s largest operational onshore wind farm covering more than 4 TWh of electricity production.
Domenico Franceschino, head origination western & eastern Europe at Axpo, said reselling cheap power from a fixed price PPA “makes a lot of sense” at today’s prices. Axpo’s corporate PPAs allow for this flexibility and the trading house is encouraging clients who are energy consumers to do this.
“It is a great way for energy consumers to optimise their purchase of gas and power and monetise the flexibility, especially if they can anticipate when they can stop production – for example when they carry out maintenance works for a few days in the short time future. At the same time it can also help balance the grid and market liquidity.”
Speaking to Energy Flux, Franceschino said the PPA offers a “smart way to offer demand response” and that any loss of industrial productivity from reselling cheap power would result in “very minimal reduction of production - i.e. producers only reducing their consumption by 10-20% for a few hours at a time, not for long periods”.
Power producers should not view this opportunity cost negatively. PPAs are not a tool for speculation, he added, but rather one of financial stability that enables their projects to proceed.
“What is the purpose of a PPA? To protect certain counterparties from risk that they cannot or don’t want to manage – from a potential downside which may somehow be too big for investors or a developer to manage.
“The PPA is exactly the result of this necessity to allocate risk to the correct risk managers. It is not a speculative instrument. A PPA is an instrument that can provide certainty, financial reliability, long term stability to a project… If you want to speculate, you have many other better ways to do it.
“The PPA takes price risks away from lenders and asset developers whose business should not really be to take market risk. They are happy to outsource the risk to a third party like us, traders, whose job is exactly this: to take certain market risks related to the energy commodities and manage them.”
Franceschino said energy traders are uniquely positioned to manage price risk thanks to their breadth.
“Our job is not to do a one-to-one business. We are not lining up back-to-back long and short positions, but taking on and managing multiple risks across geographies in order to enable the markets to develop.”
In spite of the many factors driving up prices, he does not expect strong demand for PPAs to abate:
“Yes, corporate PPA prices are getting more expensive now because of the market price, there’s always been a strong correlation between the two. But I think it’s still an extremely important instrument for corporate businesses because it offers the best way to allow the development of the energy transition on the production side.
“Ten years ago, when I proposed something green to an industrial offtaker, they would say ‘no, this makes my power more expensive, give me the cheapest possible product you can find’.
“But now it’s always the other way around, if it’s not green they don’t want to buy it. We are very happy that the market is shifting towards this direction, it’s been a gigantic shift, a dramatic change in approach.”