European Renewable Energy Marketplace

PPA Landscape Across Europe

The move to a seller’s market impacts PPA dynamic

An imbalance of supply and demand is contributing to higher renewable energy PPA prices across Europe. These factors are described further below.

On the supply side, global supply chain constraints and cumbersome permitting procedures are limiting project availability. Project developers have cited shortages in materials, labor, and transportation issues as the primary drivers of project cost increases and timing delays. While there are current plans to reshore manufacturing, it remains to be seen how quickly that can yield material changes in renewable project pipelines.

Project developers have also been burdened by onerous permitting restrictions, which have kept projects from coming to fruition. Recognizing this challenge, the European Commission recently passed temporary regulations intended to streamline the permitting process for renewable energy projects. The permitting measure will be in place for at least one year but will likely fall short of unlocking the entire queue of renewable projects that await approval, as it only applies to new permitting requests.

On a positive note, projects phasing out of government subsidies that are eligible for contracting with corporate buyers could increase project availability. However, buyers should be mindful of recent guidance from RE100 (see page 6) that favors newer projects.

On the demand side, a growing number of buyers are seeking renewable energy PPAs. Similar to the US, buyers in Europe are facing stakeholder pressure to decarbonize their value chains, but in addition to this, many are seeking to mitigate high energy costs. This is more of a consideration for European buyers, given the more common usage of physically delivered renewables PPAs, and due to the greater volatility in power prices experienced recently in the EU than the US. An upward trend in GO pricing is also demonstrating meaningful value to some prospective buyers, as projects’ GOs are bundled into PPAs. Overall, PPAs are the mechanism of choice to show impact and additionality, and to secure affordable power supply.

Higher demand than supply is marking a major shift in how developers generate PPA prices. Historically, PPAs were priced based on the costs of developing and building a project, along with the developer’s required rate of return. Today, sellers are testing buyers’ willingness to pay higher prices than the projects may cost to build, with rising energy prices, a low supply of renewable energy projects, and an upward trend of GO pricing demonstrating meaningful value to some prospective buyers.