The past year saw a substantial 16.2 gigawatts (GW) of disclosed contracted volumes, a remarkable surge of over 40 percent from the year before. Deal count increased by 65 percent from 2022 – totalling 272 PPA announcements.
Continuously weathering multiple peaks and troughs, the market is now entering its ‘Golden Era’ the report says. Factors contributing to this optimistic outlook include decreased volatility vis-à-vis 2022’s peaks, a stabilising pricing environment, and growing maturity from both buyers and sellers in managing energy risks. These conditions have unleashed a plethora of innovations and advancements in the European PPA Market, commencing a new chapter for the continent’s energy transition.
According to the report, market activity was driven by corporates, but the balance between such players and utility offtakes improved. Corporates secured 11.95 GW – 28 percent increase from 2022, across 218 deals. This was underpinned by a significant deal count surge of 66 percent year-on-year. Utilities represented 23 percent of the volumes – an increase from last year’s 18 percent share, and 18 percent of deal count. This translates to 4.02 GW – more than double the 1.96 GW of 2022, across 48 deals – a 60 percent increase from last year’s 30 deals.
Spain continued to lead the market both in volumes and deal count for the fifth consecutive year, with 4.67 GW. Germany climbed to second position in the market, with 2023 volumes at 3.73 GW. Solar PV (1.77 GW across 18 deals) and offshore wind (1.73 GW across 14 deals) played an equal role in this achievement, bringing Germany’s solar sector back into the spotlight.
Overall, total solar PPA volumes were quadruple those of both onshore and offshore wind, accounting for 10.5 GW across 160 deals. Onshore wind saw 2.3 GW across 58 deals, while offshore wind saw 2 GW across 20 deals.
However, it was not all plain sailing in 2023. Market fundamentals exerted pressure on financing – with the cost of debt reaching a peak of almost 3.9 percent (Euro swap rate) in 2023. Unmanaged Baseload PPAs continued to make headlines, and cannibalisation risk also impacted Pay-as-Produced (PAP) pricing structures.
Short-term PPAs with a greater than 1-year tenor as part of dynamic selling strategies faced setbacks due to the introduction of revenue caps. The report notes that some market players viewed such tools as an opportunity for quick profits rather than as a risk management optimisation tool, despite the evident upside. The picture for short-term PPAs of up to 5 years was more nuanced, with market fundamentals still supportive.
Regulatory interventions created a more supportive environment for PPAs in 2023, but uncertainty remains. For example, the introduction of new government credit guarantee schemes, such as the one recently implemented in France, is expected to significantly expand the potential pool of offtakers entering the PPA market. Nonetheless, competition between CfDs and the PPA Market could be a new challenge for 2024.
Looking ahead, the PPA market is poised for further evolution. New developments in Hybrid PPAs, 24/7 green procurement approaches, PPAs for Green H2 Production and Multi-buyer PPAs will attract further attention in 2024.
Based on growing appetite and sophistication, the long-term PPA market is expected to surpass 20GW. Pexapark expects Germany to challenge Spain for the top spot and become the most active market for PPAs this year.
“One of the main trends we see is the evolved role of utilities in the market, offering solutions to challenges posed by price volatility, intermittency and higher green standards” said Luca Pedretti, Co-Founder and COO at Pexapark. “Project owners, utilities and corporates are joining forces to leverage each other’s strengths, and the role of more structured PPAs will increase. Risk managers such as utilities have an opportunity to further evolve into ‘market integrators’ unlocking significant innovation in the market.”
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