Q3 Renewables Market Update Highlight: Altenex Energy’s Kristi Ghosh, Clean Energy Analyst, breaks down project availability and PPA pricing trends across the EU market.
In Q3 2022 we saw the following trends:
- PPA prices continue to rise across all European markets due to a variety of factors. These include the Russian invasion of Ukraine, the European gas crisis, rising interest rates, surging power prices, and supply chain constraints.
- Despite these challenges, demand for PPAs remains strong and continues to expand across various technologies. Growing power prices and high market volatility has incentivized more corporates to shift their focus towards renewables. The growing demand, however, has been unable to meet supply, which is reflected in developers becoming more selective and aggressive when it comes to pricing and contract negotiations.
- Permitting remains a major hurdle both for developers and offtakers, as policy has not kept up with the current market environment. Although many EU Member States have
announced aggressive renewable energy goals accompanied by facilitated permitting, it takes time to implement these projects at the local level. As an example, a new fast-track solar PV permitting mechanism introduced this year in Spain is still under implementation at the local level, despite developers’ eagerness to apply.
- Supply chain issues continue to impact renewable energy project development, bringing further uncertainty to PPA prices due to rising materials costs. As an example, the price for Siemens Gamesa onshore turbines grew by 41% since last year, while Vestas grew by 22% according to both wind turbine manufacturers. Supply chain constraints have also led to uncertainty around project onstream dates and contract start dates.
Despite the above factors, the current crisis has pushed market players to think creatively and has driven new opportunities: we have already seen several new PPA price structures offered in the market and new partnerships being formed.
PPA pricing trends
Figure 1. Current PPA Prices Q3 2022
PPA prices shown above reflect flat, unit-contingent offers received in Q3 2022. Markets and technologies with offers from fewer than three distinct projects are not shown. Some offers shown may no longer be on the market.
Due to significant uncertainty seen in the market during the past quarter, including market volatility, surging inflation and interest rates, supply chain constraints, and policy uncertainty, PPA prices continue to increase across all European markets. Despite this, we continue to see strong demand from corporates alongside high project availability across several markets.
- Southern Europe remains one of the most attractive PPA markets despite price increases. Spanish and Italian markets are experiencing significant delays due to permitting challenges, thus exposing offtakers to project risks. In both markets, we see a reluctance from developers to transact before projects are fully permitted. To
help address this, the Spanish government has introduced fast-track permitting, although this is still under implementation. The Spanish PPA market, in particular, offers strong economics and a significant pipeline of projects of various sizes and technologies
- Greece is poised to become a new hot spot for PPAs. The local PPA market was recently launched via the first signed PPA between Cero Generation and Axpo – with a PPA price of up to 45 EUR/MWh – and we expect to see more similar announcements. Due to Greece’s vast solar capacity and limited governmental support for solar project development, PPAs have become a very attractive alternative for developers. While project permitting is slow, this may be expedited by having an offtaker on board.
- More PPA deals announced in Bulgaria and Hungary. Together with Greece, Bulgaria and Hungary joined the list of emerging PPA markets in Europe, with both signing deals in 2022 with corporate offtakers and for long-term tenors. More information on available projects in these markets can be found on our Insights Platform. Please reach out to the Altenex team for further details.
- Major droughts have resulted in increased PPA prices in the Nordics. Numerous heatwaves and lack of precipitation this summer caused largescale droughts, which resulted in PPA and GO price increases for hydro projects in Europe overall, with the Nordics experiencing the highest surge.
- The Polish market has seen soaring PPA prices due to the energy crisis. Due to increased dependence on gas and coal, current power prices in Poland have skyrocketed, causing a significant rise in PPA prices. At the same time, interconnection of new projects has been sluggish. This has caused major online delays for new projects. To help jumpstart renewable energy development, the Polish government earlier this year proposed amendments to the 10H rule. This rule has been a major roadblock for onshore wind development. However, 10H amendments have not been approved by the Parliament nor adopted at the local level, adding uncertainty to project development.
- Overall, Q3 2022 continues to bring challenges to the PPA environment for all players but sees new PPAs signed. With the current volatile market environment, PPA deals can help corporates meet their sustainability goals. To help overcome current market challenges, we recommend that our clients pay close attention to counterparty reliability, project development timelines, and emerging risk mitigation strategies.
This article was included in Altenex Energy’s Q3 Renewables Market Report, released on October 18, 2022. Download the full report here.