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Trends in European Corporate PPAs

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Prior to the global pandemic, the use of corporate power purchase agreements (PPAs) was growing rapidly around the world.  According to a study by Bloomberg NEF, corporate PPAs grew by 44% globally in 2019 and through the first quarter of 2020. Covid-19, and the knock-on impact on the global economy created new challenges in multiple industries and the electricity sector was no exception.  While there was a chilling effect on the European corporate PPA market, most observers are confident the market will recover strongly in the year ahead.

The uncertainty as to the economic impact of the pandemic undoubtedly resulted in a reduced appetite for PPAs on the corporate side, as most businesses across Europe either temporarily ceased or reduced their activities and/or experienced changes in their creditworthiness. Additionally, businesses were cautious about making long-term commitments given the economic view ahead remained unclear.

Despite these headwinds, reducing carbon emissions and more generally, the ‘greening’ of business remains near the top of the action list for many corporations across a range of industries driven by their own objectives, investor sentiment and public opinion. As has been well publicized, several of the world’s largest oil and gas companies have set ambitious goals to reduce emissions, with BP recently announcing an aggressive plan to reach 50 GW of renewable energy in its portfolio by 2030. On the purchaser side, over 200 global companies from a range of different sectors have made commitments under the RE100 initiative to move to 100% renewable energy.1 Corporate PPAs will play a critical role in achieving these objectives and have been deployed by such companies to lead the global movement towards the energy transition and as a key tool to managing their energy costs on a long term basis.

Game-changing PPAs in Europe emerged in the last quarter of 2020. For example, Amazon signed a 10-year PPA with Ørsted to offtake the output generated by 250MW of Ørsted's planned 3 offshore wind farms in Germany. The PPA is considered to be the largest for offshore wind in Europe and will support Amazon’s commitment to be carbon free by 2040. In a similar vein, Total entered into what is thought to be the world’s largest corporate PPA with Ignis for 6 terawatt-hours of power from around 3 GW of its Spanish solar portfolio. This is expected to help Total supply each of its industrial sites in Europe with solar power by 2025.

Despite the challenges of 2020, prices held up well.  According to LevelTen’s latest European PPA price index, PPA prices remain mostly flat and the pandemic did not have a significant impact on pricing; wind prices rose slightly, while solar prices dropped a little. Moreover, it is predicted by Pexapark that the European corporate PPA market is set to exceed 10GW in 2021, up from 8.6 GW in 2020. In addition to stable prices, there are further reasons to foresee high long-term demand for renewables in Europe in the months and years ahead. The Renewable Energy Directive 2018/2001/EU has a binding EU-wide 32% (currently proposed to increase to 55%) renewable energy target for 2030 and an enabling framework for self-consumption through PPAs. Also, the EU Commission announced in July 2020 that at least 25% of its €750 billion Next Generation EU COVID-19 recovery package will be used to support decarbonization.

In short, the European corporate PPA market is likely to remain active in the short to medium term.



1RE100 is a global corporate leadership initiative bringing together influential businesses committed to 100% renewable energy. Led by The Climate Group in partnership with CDP, RE100’s purpose is to accelerate change towards zero carbon grids, at global scale.

 

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