Despite the COVID-19 pandemic, corporate renewable power sourcing in Europe has continued to develop, highlighting the renewable energy sector's resilience and potential.
COVID-19 did not slow the growth of the European power purchase agreement (PPA) energy market—over 12 GW of renewables entered a PPA contract, up from 8.2 GW in 2019.
Power purchase agreement (PPA) transactions have now been observed in most European countries, though various markets are at varying stages of development.
- The PPA market is dominated by five regions: Iberia leads in solar deals, Germany in solar and offshore wind deals, the UK and Benelux in offshore wind agreements, and the Nordics in onshore wind deals.
- Finland, Portugal, and France are among the developing markets.
A growing number of newcomers have agreed to a PPA: Around a quarter of Europe's 33.4 GW of renewable energy installations in 2020 have signed a PPA.
The demand for renewable energy among corporations is growing.
- Several large corporations have set emissions reduction goals and are keen to sign PPAs to ensure that those goals are met.
- From 28 in 2018 to 53 in 2020, the number of corporate PPA (CPPA) deals increased.
- In Europe, a total of 5.8 GW of CPPAs were signed in 2020, more than doubling the amount negotiated in 2019 (2.6 GW) and in 2018 (2.8 GW).
- Spain and Germany are the two largest European markets for CPPAs
Another strong year for PPAs in Europe
The 3 GW internal total deal has a sizable impact on the PPA market in 2020
In September 2020, total signed an internal PPA for Spanish solar production to supply its European operations
The total deal in Spain is very visible in the increase of corporate PPA volumes, while utility PPAs are stable and virtual power plant (VPP) deals are on the rise in 2020.
Without the Total 3 GW deal, solar PPA transactions would have dropped year on year in 2020; offshore wind contracted volumes more than doubled, while onshore wind deals are stable.
Most European markets have signed PPAs, however market maturity varies substantially from one market to the next.
- The European PPA industry has exploded since 2018.
- PPA transactions have occurred in almost every European market, with some markets having reached maturity while others are still developing.
- Only a few European markets, like the Nordics, Spain, and the United Kingdom, may be deemed mature. The volume of transactions in these exchanges is sufficient to establish a market. Nonetheless, transactions are still done on a case-by-case basis, resulting in high transaction costs for both parties.
- Good renewable resources benefit all mature markets. The PPA market in Spain was supported until the end of 2019 by the strength of the gas price, which resulted in higher-than-average power prices.
- Markets such as Germany and the Netherlands are showing increased interest. Offtaker interest in PPAs should be high in both markets due to energy-intensive companies and a population that is concerned about the environment.
- Western Europe has the most transactions, but growing markets like Poland and Lithuania have had transactions as well.
Corporate PPAs are on the rise
Corporates signing deals to reach emissions reduction and renewable sourcing targets
As Europe moves closer to achieving its 2050 net-zero carbon goal, corporate interest in sourcing renewable energy is growing:
- From 28 in 2018 to 53 in 2020, the number of corporate PPA deals has increased.
- In Europe, 5.8 GW of CPPAs were signed in 2020, more than double the amount negotiated in 2019 (2.6 GW) and 2018. (2.8 GW).
- However, without the 3 GW Total deal, CPPA volumes would have remained flat in 2019 and 2020.
- By comparison, CPPAs in the United States reached 10.6 GW in 2020
The two main European markets for CPPAs are Spain and Germany.
The average deal size for corporate transactions is dropping, indicating that new players are entering the market.
The majority of CPPAs were signed by firms with worldwide emission reduction targets.
- The RE100 pledge has been signed by almost 280 businesses.
- A rising number of businesses are aiming towards net-zero carbon emissions by 2050.
PPAs account for a growing share of expected renewable additions
Growing role for PPAs in the renewable market.
- PPAs for a growing shares of renewables additions have been signed.
- Approximately a fifth of Europe's 33.4 GW renewable additions in 2020 have signed a PPA.
- PPAs are becoming more important in Europe's electricity markets: over 40% of offshore wind additions in 2020 will be covered by a PPA, and over 25% of onshore wind and solar additions will be covered by a PPA.
- However, not all PPAs offer this benefit.
- A PPA contract adds value when a renewable energy facility would not have been built otherwise. This is the situation in markets where renewables are not supported (Spain till 2020) or where assistance is insufficient to spur investment (Norway and Sweden).
- Companies who sign PPAs want to show that their actions are contributing to the answer to climate change. They are focusing on reducing their emissions because of investor and client pressure. Additionality is critical for the most sophisticated business customers. Corporates may choose PPAs from projects that are close to them in various instances.
A slow start for 2021, but acceleration expected.
- In 2021, the PPA market gets off to a moderate start.
- So far in 2021, 2.4 GW of PPAs have been signed across Europe, more than double the 1.2 GW inked in the first quarter of 2020.
- Spain is the country with the most transactions once again. Since the beginning of 2021, about 700 MW of PPAs have been reported in Spain. PPAs for 550 MW have been signed in the Netherlands.
S&P Global anticipates transaction volumes to parallel, if not exceed, that of 2020, based on corporate enthusiasm for PPAs and recovering power prices.
Learn more about the global energy markets in CERAWeek 2021 : The New Map: Energy, Climate, and Charting the Future
