Power purchase agreements stand firm in eye of Q4 2021 wholesale price storm

European power purchase agreements maintained a remarkable level of price stability in Q4 2021 despite the impact of record high gas prices on wholesale electricity markets.

Offer prices averaged GBP51.07/MWh on the Zeigo platform for the UK market, up 6% on Q3 2021, while Spanish offers averaged Eur34.36/MWh and the Italian market averaged Eur81.86/MWh, both seeing a decrease from Q3 2021.

PPA term

PPA contract lengths varied between markets but the European average, including the UK, was 12.4 years for Q4.

Longer contract terms were associated with lower prices, for example the UK market saw an average price of GBP56.01/MWh for terms less than 10 years, compared to GBP53.85/MWh for 10-20 years and GBP50.49/MWh for a term greater than 20 years.

"Despite market volatility at the end of 2021, PPA prices continued to be seen as a long-term investment, providing developers with long-term bankability, reflected by cheaper prices for longer contracts, protecting prices against short term market fluctuations," said Freddie Lyons, Zeigo's Head of Energy Markets.

Technology mix

Solar PV continued to dominate the Spanish market, accounting for 92.3% of PPA offers with wind making up the remaining 7.7%.

In the UK, 68.64% of offers were for solar PV projects and 31.34% for wind projects, although solar offers accounted for only 37.5% of total UK capacity with wind making up 62.5%.

This was because wind projects tended to have larger capacities than solar due to their economies of scale and the impact of large-scale offshore wind.

Price by structure, output

Baseload contracts continued to have higher than average prices in Q4.

The Italian market saw baseload offer prices average at Eur89/MWh compared to a non-baseload average of EUr80.00/MWh.

Italian market prices were also influenced by balancing and shaping pricing structures, including Discount to Market where prices were fixed at a constant discount in relation to the market price – either spot or forward.

Aggregation update

December 2021 saw the Co-operative aggregated PPA tender launched on Zeigo's platform, the first of its kind in the UK, aimed at tackling the retailer's Scope 3 emissions.

The tender is for 100 GWh a year, equivalent to powering 32,000 households.

"The structure, with the Co-op off taking the majority of the volume, makes PPAs more accessible to companies who do not have the energy requirements to enter a contract individually, making it easier to access renewable energy direct from generators," Lyons said.

With more companies seeking to address and control their carbon footprint, aggregated PPAs could unlock a huge portion of the market "who wouldn't usually consume enough electricity to meet the criteria of a stand-alone PPA," he said.

Solar, wind costs

Despite recent issues in the solar market with price increases and concerns over the social impact of panels sourced from Xinjiang in China, Lyons said he expected the market to quickly recover.

"The price of polysilicon was the cause of rising panel costs over the past six months, although it is expected that production in 2022 will outstrip that of 2021 by over 30% thanks to new capacity and factory debottlenecking," he said.

This would have a knock-on effect on overall panel costs, which reached a high of $0.278/Watt in October 2021, before dropping to around $0.23-0.25/Watt at present.

Conversely wind turbine costs were set to remain high after increases seen in 2021 due to serious supply chain problems caused by Covid-19.

"Logistics are more of an issue for wind than for solar as the technology is more reliant on port congestion and ship container availability," Lyons said.

All prices quoted are based on offers made by project developers on Zeigo's platform.

Schneider buyout

On Jan. 13, Schneider Electric announced it had acquired Zeigo for an undisclosed sum.

"As the world's largest advisor to corporations on renewable energy procurement, we know that speed and complexity are two of the barriers that keep some corporations out of the PPA market," said Steve Wilhite, SVP for Schneider Electric's Sustainable Business Division.

Acquisition of Zeigo's machine learning algorithm and its 20-person team in London would strengthen Schneider's advisory services, it said.

Schneider Electric has supported over 13 GW of corporate PPAs since 2014.