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Power purchase agreements could become a victim of the EU’s struggle against astronomical energy prices, but there is a longer-term opportunity for banks to offer support in a broadening sector. Philippa Nuttall reports.

When EU energy ministers on September 30 backed plans to allow governments to collect excess revenues from certain energy generators, the renewables industry suggested investors might be spooked.

The power purchase agreement (PPA) market – for the sale and purchase of electricity supply – was singled out by some clean energy experts as a potential victim of Europe’s changing energy policies. The market looks less vulnerable in the short term than some feared, but the future for clean energy investments remains unclear as Europe fights to deal with the dual challenge of keeping the lights on this winter and weaning itself off Russian gas. 

Soaring energy prices and a massively reduced gas supply from Russia are causing a perpetual headache for the European Commission (EC) and national governments as autumn hits and temperatures drop. Russian gas accounted for 40% of EU gas imports in 2021 – today it is down to 9%, as Ursula von der Leyen, president of the EC, commented in her State of the Union speech on 14 September.

As a consequence, bills have rocketed. Since Russia’s invasion of Ukraine on February 24, wholesale prices for electricity and gas in the EU have risen five- to 15-fold, “with severe impacts for households and businesses,” commented Bruegel, a Brussels-based think tank, in a briefing published on September 28.

Contentious measures

One of the measures agreed during last week’s extraordinary meeting of energy ministers in Brussels to help the bloc manage this predicament was a revenue cap of €180 per megawatt hour on low marginal-cost generators, such as wind, solar, lignite and nuclear power. The collected funds can be used to relieve the burden of high energy bills on consumers.

WindEurope, a Brussels-based industry body, warned the measure could negatively impact investors. “Taxes on electricity producers’ total revenue, rather than their profits” and a lack of a standardised approach will create market uncertainty and “stop renewables investments”, warned the organisation. “Investors will go elsewhere – to the US, for example, where the Inflation Reduction Act has big tax credits for renewables investments.” The cap is mandatory, but member states can introduce a higher or lower rate. 

Taxes on total revenue, rather than  profits, will create market uncertainty and stop renewables investments


Last year was a record one for PPAs, electricity supply agreements between producers and consumers or traders. Corporations globally bought 31.1 gigawatts (GW) of clean energy through them, an increase of nearly 24% from 2020, and Europe announced 8.7GW of deals, with Spain and the Nordics in the driving seat, show data from BloombergNEF.

Yet, Joop Hazenberg, policy director at RE-Source, a European platform representing clean energy buyers and suppliers, says Spain’s PPA market has “come to a halt” since heavy government intervention in the electricity markets. “If we get these measures across Europe with different national caps on top, investors will run away,” he warns. 

Cristian Stet, energy transition analyst at RaboResearch, downplays such concerns. The €180 cap is “not a direct concern for now for PPAs, as its value is higher than the prices at which PPAs were and are still being considered,” he says, adding that one main impact of the energy crisis on the market to date has been an increase in more short-term contracts.

High power prices make it “more appealing and feasible for renewable energy developers to sign contracts of even one to three years,” says Mr Stet. PPAs tend to be long-term contracts of 10 to 15 years. “To enter into long-term contracts, a less volatile and uncertain environment is beneficial,” he comments, adding that in the current market, shorter-term projects remain bankable.

A fork in the road

Mr Stet believes the market could now go one of two ways. It could follow the pattern feared by WindEurope and others, whereby market uncertainty “puts a break on new deals”. He also suggests an alternative, more positive, scenario where Europe pushes for a fast-tracked energy transition. This would “make the case for a growing PPA market”. Increasing numbers of companies wanting to power their activities through renewable energy and potential for growth in eastern Europe could also help, rather than hinder, PPAs, says Mr Stet.

Today, the majority of PPAs are signed by “big, investment grade companies”. In 2021, tech giants including Amazon, Microsoft, Meta and Google were among the top 10 global buyers of renewable electricity via PPAs, shows BloombergNEF research.

In the longer term, smaller companies will join this list, says Mr Stet. Banks can help facilitate their access to the PPA market by “working together to find ways to meet the securitisation needs of sellers,” he comments. As a general rule of thumb, if banks want to help speed up the energy transition, they should not overlook the PPA market, adds Mr Stet.


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