The European renewable energy power purchase agreement (PPA) market is likely to exceed 10GW in 2021, due to continued momentum in Spain, the emergence of a strong subsidy-free market in Germany and growing offshore wind momentum throughout Europe. This is according to a market outlook released today by Pexapark, a provider of software and advisory services for post-subsidy renewable energy sales and risk management.
This predicted boom in PPAs comes off a strong year for the renewable energy markets throughout Europe, with nearly 9GW of deals signed in 2020 despite an increase in price volatility due to Covid-19. According to Pexapark’s data, Spain led the market due to favourable prices, with 3.4GW of renewable energy PPAs signed in the region over the past year. A record volume of corporate PPA deals was also signed in 2020 by a sell-side dominated by 30 companies, including Iberdrola, BP Lightsource, RWE, Orsted and WPD.
Based on Pexapark’s price data and insight into ongoing deal activity, a number of trends are expected for PPAs signed across European markets in 2021. Spain dominated deals in 2020 and if currently deal activity continues, is set to be a leading market in terms of volume in the coming year. However, it will likely be challenged by the nascent German PPA market which is expected to take off in 2021, as more non-subsidy projects emerge from the permitting stage.
Additionally, as offshore wind developers plan for gigawatt-scale projects in the years ahead, 2021 will likely see first large deals for capacity coming online during 2023. The large volume of power involved in these deals is likely to drive further consolidation of players in the market with access to sufficient capital.
Pexapark also forecasts continued challenges around price and volatility, particularly in markets with a high volume of projects built due to initially favourable prices, without a matching increase in demand. For example, record-low prices in Sweden and Norway due to the cannibalisation effect are likely to render financing for future projects non-viable without significant decreases in cost of turbine technology or advances in storage.
In order to address these market challenges, developers, utilities and independent power producers will need to invest further in advanced energy risk management capabilities.
Luca Pedretti, Chief Operating Officer and co-founder of Pexapark, commented: “Over the past year, renewable energy companies have come to realise that success in a post-subsidy power market requires robust energy risk management. We’ve seen this in particular through M&A activity in 2020, as companies seek to integrate tools, systems, and talent from the traditional power trading world.
“However, even smaller companies can adapt to these market challenges, particularly with the recent proliferation of digital ‘operating systems’ to cover essential tasks, from PPA origination to price analytics, to portfolio management.”
“2021 has the potential to be a boom year for renewable energy PPAs – but in order to get there, the industry must take stock of the reality of risk and volatility in energy markets and ensure it has the talent and tools to manage these risks.”