Decline in European Green Power Purchase Agreements

FRANKFURT (Reuters) – European power purchase agreements (PPAs) for green electricity decreased in price by 12.4% in the third quarter compared with the same time in 2023, according to price tracking platform LevelTen.

Contributing Factors

The decline in prices is attributed to:
– Decrease in inflation
– Reduced market volatility following the COVID-19 pandemic and the 2022 energy crisis.

LevelTen's quarterly report suggests that with market conditions stabilizing, buyers should consider entering the market to secure necessary deals. The report noted that buyers now have an unprecedented variety of offtake opportunities available.

What are PPAs?

PPAs are long-term agreements between corporate power users and solar and wind project developers. They ensure supply for providers that need to meet the European Union (EU) regulatory requirement of obtaining at least 42.5% of electricity from renewable sources by 2030.

For developers, PPAs offer a guaranteed income stream, facilitating financing arrangements.

Impact on Consumers

The implications of these cheaper deals for household consumers remain unclear, although policymakers anticipate that an increase in green power will eventually lower costs.

Regional Insights

LevelTen highlighted a significant regional disparity, with an increase in projects in central and eastern Europe and a surge in solar projects in Ireland. However, supply chain challenges and inflation have obstructed the wind sector, with countries like Belgium, France, Greece, Ireland, Italy, and Portugal not contributing prices for Q3 in the LevelTen index.

The 25% most competitive PPA prices for new-built capacity (July to September) across 22 European countries fell to 76.17 euros ($82.97) per megawatt hour (MWh), down from 86.94 euros the previous year. This marked a 1.3% decrease from 77.21 euros in the second quarter of 2024.

In the blended index for wind and solar, solar prices showed a 1.3% quarter-on-quarter rise, driven by higher prices in Hungary, Italy, and newly added Ireland.

Lower interest rates are expected to facilitate financing for renewable projects, bolstered further by positive political support in Britain and the German government’s wind capacity auctions. PPA terms typically span 11 years, with prices linked to hourly day-ahead wholesale market rates.

($1 = 0.9180 euros)