The European renewable energy PPA market has entered a turning point

The European renewable energy PPA market has entered a turning point

A number of research institutions believe that the future European renewable energy PAA market is relatively uncertain.

The European renewable energy long-term power purchase Agreement (PPA) ushered in the first monthly price increase in nearly nine months, but the European green electricity market has not been activated, but increasingly weak. According to the latest data released by LevelTen Energy, a renewable energy consulting service company, in the first quarter of this year, the price of renewable energy PPA in Europe fell by 5% compared with the same period in 2022, of which, the photovoltaic power generation PPA price fell by 5.9%, and the wind power PPA price fell by 4.3%.

In recent years, PPA has become the main way for European countries to promote the development of renewable energy. The PPA allows the developer or operator of a renewable power generation project to enter into an agreement with a green power buyer to pay a flat price for the duration of the agreement. However, under the influence of factors such as rising costs of renewable energy production and inflation, this direct transaction method between producers and consumers of green electricity has begun to show disadvantages. A number of research institutions believe that the future European renewable energy PAA market is relatively uncertain.

Deal size shrinking

According to the latest data released by Swiss consulting firm Pexapark, in March, the average price of renewable energy PPA in Europe was 47.4 euros/megawatt-hour, up 9.8% from the previous month. This is the first monthly increase in renewable energy PPA prices in Europe since August 2023.

Normally, price recoveries should support higher renewable energy markets, but they don't. In March, the total transaction size of renewable energy PPA projects in Europe was 718 MW, a decrease of 76% compared to February. At the same time, LevelTen Energy reported disappointing first-quarter data.

It can be said that this year, the European renewable energy PPA market has not continued to go all the way up the development trend. According to Pexapark, a total of 272 renewable energy PPAs were signed in Europe in the whole of 2023, an increase of 65% year-on-year. The total transaction size reached 16.2 GW, an increase of more than 40% year-on-year.

Pexapark believes that the price of natural gas and electricity has been the main reason for the change in the price of renewable energy PPA. Natural gas prices and electricity prices rise or remain high, renewable energy PPA has better bargaining power. For example, due to the recent high energy costs, in March, the UK became the country with the highest increase in renewable energy PPA prices in Europe, and the total size of the transaction project is also in a leading position.

In the view of a number of research institutions, changes in PPA prices do not directly reflect the European renewable energy market. It is understood that the general PPA signing period is longer, up to 10 to 20 years. If the contract period is shorter, it may result in a higher PPA price. In addition, the difference in signing time will also make the price have a large gap. Taking the 10-year average European renewable energy PPA price as an example, the average annual price in 2022 is €90 / MWH, while in 2023 it is €58 / MWH.

Placido Ostos, director of European energy analysis at LevelTen Energy, believes that previously, the price of renewable energy PPA in Europe has experienced a period of rapid rise, and the current price change can be seen as entering a period of relative stability.