Power purchase agreements (PPAs) are a win-win for offtakers and generators, and help drive Europe’s energy transition
The Electricity Market Design (EMD) reforms preserved, importantly, an efficient functioning power system by maintaining the existing target model of short-term wholesale markets based on marginal pricing and focused on improving long-term hedging and contracting opportunities. Further improving access to long-term contracts will be key to ensure that offtakers feel the benefits of the EMD reforms. PPAs additionally play a key role in supporting the development of new, and financing of existing, generation – contributing to Europe’s decarbonisation and climate neutrality objectives.
For offtakers, ensuring long-term certainty of energy costs against volatile markets is a key benefit of long-term contracts (i.e. through signing a PPA), alongside enabling the linking of electricity consumption to clean generation for consumers that desire to use more sustainable energy. This may come at a premium, with risk allocation defined as part of a free and fair commercial negotiation (and, as part of this negotiation, typically defining which party is best to manage different risks[1]).
Eurelectric believes it to be vital that PPAs remain market-based and tailored to specific project and offtaker requirements, with contracts finalised through bilateral negotiations.
Eurelectric’s priorities for further increasing the uptake of PPAs
There are, at present, several remaining barriers to improving access to PPAs. These are explored below.
However, given the bespoke nature of PPA contracts, it must be noted that any barriers will depend on the type of PPA signed – for example, physical PPAs, financial/virtual PPAs, or both, as well as greenfield PPAs or PPAs from existing assets. It is unclear whether this Call for Evidence is targeted at general barriers to all PPAs, or barriers to specific PPA types (e.g. virtual or physical).
[1] Particularly important risks that require allocation as part of PPA negotiations include price, volume, profile, balancing, credit, legal and regulatory risks.