INTERVIEW: Vattenfall sees rising demand for corporate PPAs in Germany, no impact from lower prices

Demand for green power purchase agreements (PPAs) in Germany from industry is outstripping supply with utility scale solar projects growing fastest in response, Vattenfall's head of European renewables origination, Christine zu Putlitz, told S&P Global Commodity Insights in an interview.

The Swedish utility plans to market 2 TWh/year from 28 large German solar projects expected to come online by 2026 and has recently signed three deals with industrial offtakers.

"Customers are queuing for our green energy, we have a lot more demand at the moment than what we can supply," zu Putlitz said.

The 2-GW portfolio of projects, with output ranging from 30 GWh/year to 500 GWh/year, are too large to participate in state support tenders and must pursue a merchant route to market.

In February, chemicals maker Evonik signed a 10-year PPA for 120 GWh/year to secure pay-as-produced (PaP) output from two Vattenfall solar projects in Schleswig-Holstein coming online next year.

No financial details were provided, but Putlitz saw no impact from falling wholesale power prices on offtakers' desire to to sign corporate PPAs.

"We see no correlation to our current negotiations on the corporate PPA market. We also did a lot of intelligence with the actual companies doing the price curves and many are saying 'yes, we know it's underestimated at the moment' so we see it completely unrelated to the price levels we currently see in the negotiations," the Vattenfall PPA director said.

The Platts Pexapark index for a standard 10-year German solar PPA almost halved in value over the past year to a Eur41.64/MWh settle on Feb. 16.

The index based on wholesale power market signals rebounded to Eur47.66/MWh by March 8.

Capture prices for German solar averaged Eur79.04/MWh in 2023, down 66% from a record 2022, according to Platts assessments for S&P Global Commodity Insights.

Regulatory tailwinds

In addition to growing demand for green energy from German industry, Vattenfall sees additional support from new regulation under the EU's Electricity Market Design (EMD) reforms, expected to be implemented in the coming months.

"The EMD reforms enable member states to set up simplified state credit guarantees for PPAs. This instrument should also come to Germany and will give the PPA market further tailwind," zu Putlitz said.

Standardization of PPAs would be another benefit with Germany's so-called 'Mittelstand' mid-sized companies a good fit for the profile of Vattenfall's solar portfolio.

However, zu Putlitz said the "greenification" of such companies remains an "unsolved issue" with the government's decarbonization efforts focused on large energy intensive industrial players.

"High price volatility is a challenge especially for mid-sized firms in providing credit guarantees for PPAs," she said, adding state protection for the default risk could replace buyer's bank guarantees.

Solar boom

Germany added a record 14 GW of solar capacity in 2023 and remains Europe's biggest, fastest growing renewable energy market. Merchant utility scale projects are emerging quickly as Berlin aims for 215 GW installed solar capacity by 2030.

For its part, Vattenfall bought a 4-GW solar project pipeline from Solizer last year, boosting its portfolio to 7 GW.

In Germany, only merchant renewables projects receive guarantees of origin (GO), another potential source of revenue.

GO values have dropped sharply since peaking near Eur10/MWh in 2022, S&P Global data show. Platts last assessed EU solar GOs for 2024 at Eur1.90/MWh on March 11.

Zu Putlitz sees current GO prices as "undervalued," but noted different regulatory approaches across Europe with Germany an outlier.

"Greenification via certificates is very favorable. So the value of certificates is really picking up. Our customers want to have a German renewable asset, that's why the GOs are of high value. Secondly, the price is quite undervalued as the market was not really there," she said.

Offshore tender scores

Meanwhile the market for onshore wind in Germany has evolved differently to solar, with projects preferring 20-year support via tenders, the Vattenfall manager said.

Berlin's ambitious 2030 targets and permitting delays have seen most onshore wind tenders undersubscribed, allowing projects to secure contracts near the maximum bid ceiling of Eur73/MWh.

That compares to Eur49.06/MWh for the Platts Pexapark index on March 8 for a 10-year onshore wind PPA in Germany.

Capture prices for onshore wind fell 54% in 2023 to Eur78.57/MWh, according to Platts assessments.

For offshore wind, the situation again is different, with zero subsidy bids dominating auctions since 2017 as players compete for concessions. In 2023, BP and TotalEnergies bid Eur12.6 billion to develop 7 GW offshore wind.

Vattenfall secured the concession for the 1.6-GW Nordlicht projects in the German North Sea and plans to partner with BASF on the investment.

In the Netherlands, it sold a 49.5% stake in the 1.5-GW Hollandse Kust Zuid to BASF, marketing the remaining output via PPAs.

Offshore wind is a better match for large industrials, zu Putlitz said, again noting strong demand outmatching current supply.

In the upcoming tender for 5.5 GW of North Sea wind concessions this August, marketing via PPAs wins bidders additional points in the contest, potentially reducing the financial component, another PPA benefit for developers.

First generation North Sea projects meanwhile are coming out of EEG support contracts and may also seek PPAs, the Vattenfall manager said.

Germany's PPA potential is seen at 192 TWh/year in 2030, a quarter of national electricity demand, according to a study by German energy agency Dena.

Currently around 5% of Europe's industrial power demand is underpinned by PPAs that will deliver some 163 TWh/year, according to analysts at S&P Global.