Europe on the Cusp of a 'Corporate PPA Revolution'

Subsidy cuts are forcing developers to court corporate customers.

 European wind industry body WindEurope claims the region is on the verge of a corporate renewable energy power-purchase agreement (PPA) “revolution” as state subsidies tumble.

A significant decline in in government-set feed-in tariffs is forcing previously reluctant investors to take PPAs seriously as a way to take projects to financial close, said the organization.

Strike prices for wind have fallen significantly across Europe in recent years. Onshore, for example, pricing has dropped from €117.10 (USD $137 at today’s rates) per megawatt-hour in Italy’s first auction, in 2013, to €65 ($76) in France this year, according to WindEurope. France is a relatively high-value market that has only just started to introduce auctions.

Last year saw onshore wind auctions going as low as €34 and €32 ($40 and $38) per megawatt-hour in Spain and Turkey, respectively.

 Offshore, meanwhile, the levelized revenue of electricity, including transmission costs at 2016 prices, has dropped from €156 ($182) per megawatt-hour for the U.K. Walney extension project in 2014 to €71 ($83) per megawatt-hour for the Baltic Eagle project in Germany this year.

Germany and the Netherlands have even seen offshore projects being awarded with no subsidy at all. Experts believe the zero-subsidy phenomenon will be restricted to special cases.

But “the general trend is clear,” said WindEurope public affairs advisor Viktoriya Kerelska: “It's a sharp and continuous decline.”

An uptick in onshore wind strike prices in Germany this year should not be taken as an indication that things will change, she said.

The market is suffering from lengthy permitting procedures, which deterred investors and cut competition in the latest auction round, she noted.

Germany has also yet to provide guidance on the annual wind volumes, permitting rules and auction design within a 2030 national energy plan, which has further undermined investor confidence, Kerelska said.

But in every other European country where there have been multiple onshore auctions, prices have come down, giving developers a powerful incentive to look for alternative revenue streams.

The corporate PPA market, meanwhile, has been given a boost by recent changes to the European Union Renewable Energy Directive. The new directive instructs member states to identify and remove any administrative barriers to corporate PPAs for wind and solar.

“We expect the post-2020 Renewable Energy Directive to have a positive effect on the development of the corporate renewable PPA market in Europe,” said Kerelska. “And European governments will have to outline in their 2030 National Energy Plans concrete policy measures to incentivize corporate renewable PPA uptake. All this will help.”

Corporate renewable PPAs are already on the up. Volumes rose from 1.1 gigawatts to 1.4 gigawatts between 2016 and 2017.

In August this year, automotive giant Mercedes Benz signed a PPA to buy power for its manufacturing facility in Jawor, Poland from a 45-megawatt wind farm operated by VSB Energie Odnawialne Polska.

The deal was the first corporate wind PPA in Poland and the first in Europe from an automotive sector player. And while corporate PPAs have so far been restricted to onshore wind, experts believe the trend could soon extend to offshore.

“A major challenge in the offshore market is finding offtakers who require the entire capacity of a large offshore wind farm,” said Simon Luby, global head of due diligence at K2 Management, a global renewable energy advisory firm.

One way round this, he said, might be for offtakers to club together and share capacity. “As prices reduce further, incentivized by future auctions, this is likely to become a more attractive option for energy consumers,” he said.

“This development could also be incentivized by the movement toward zero-subsidy projects.”

Meanwhile, corporate procurement of wind through PPAs is expanding outside of Europe. In the U.S., for example, corporations have signed deals for 3.86 gigawatts of renewable energy projects (mostly wind) already in 2018, according to the Rocky Mountain Institute. Those deals include PPAs, green tariffs and direct ownership.

Source: Greentech Media
Date: Sep 4, 2018