German PPA volumes to rise amid bullish futures outlook

Bullish base prices

In recent weeks, settlement prices for German base futures have been ranging at EUR 90-100/MWh for 2025 on exchange EEX, amid bullish gas and carbon prices. By 2026 market expectations decrease towards EUR 85-90/MWh and further down to EUR 80/MWh in 2027.

Veyt’s analysis, however, shows a tightening EU ETS market especially in 2026-2027 putting upward pressure on power prices across Europe. We expect electricity prices of EUR 90-95/MWh in Germany between 2025 and 2027, before decreasing to a level between EUR 70-80MWh in the 2030s.

In the long term, the role of thermal generation as the marginal price setter should decrease and renewable (RES) power generation plus flexibility should push power prices downwards to a stable level of EUR 60/MWh.

Capture cost fluctuates between technologies

Higher renewables build-out in Germany will increase cannibalisation and thus decrease capture rates for wind and solar. The year 2024 already served as a striking example of low solar capture rates. We expect this trend to continue as Germany moves towards its 2030 target of 215 GW installed solar PV capacity. Solar capture rates decrease towards a 50 % yearly average by 2030 and a 40 % rate closer to 2050.

With a comparably slower build-out of onshore wind, we expect capture rates to remain above 80 % until the 2030s. Before accelerated deployment of offshore wind also cannibalises onshore wind assets to capture rates below 70 % past 2040.

While offshore wind exhibits high simultaneity with onshore generation, higher capacity factors result in capture rates that are higher at 80 % in 2040.

For all technologies, increased flexibility in the power system stabilises capture rates in the long term. Geographical differences in solar and wind resources have a significant impact on overall capture rates and price volatility, as well as performance of individual assets.

A previous Veyt analysis on German onshore wind showed large differences in capture costs between areas of favourable wind conditions and dense build-out in the north and less popular locations in the south of Germany. Offshore wind sees a divide between Baltic Sea and North Sea, where capture costs are higher in the North Sea as correlations with wind regimes in major wind regions both on- and offshore are strong.  

For solar the spread in capture costs from south to north is less pronounced, as assets with similar orientation will be producing during summer daytime peaks. Better resource potential in the south mainly affects overall generation volumes and resulting revenues, be it from higher volumes delivered within a pay-as-produced PPA or higher excess volumes to be sold in the spot market on top of a baseload PPA.

Imbalance costs on the rise

While capture costs will remain the largest cost component in pay-as-produced PPAs for all technologies in Germany, imbalance costs are gaining importance in PPA pricing.

Veyt modelling shows increasing imbalance costs as more volatile renewable generation enters the market and firm capacity decreases.

For onshore wind we expect imbalance costs to rise from EUR 1.50/MWh in 2025 toward EUR 2.40/MWh in 2050. Similarly, offshore wind imbalance costs increase from EUR 1.80/MWh in 2025 to EUR 2.90/MWh in 2050.

Solar imbalance costs experience a similar increasing trend but with a higher starting point of EUR 2/MWh in line with higher historical imbalance prices to EUR 2.90/MWh in the late 2040s. Solar assets also see higher seasonality in imbalance cost.

GO recovery on the horizon

GO prices have seen sharp price declines this year, such as the 92 % drop in the 2024 spot vintage. Oversupply continues to dominate the market, driven by high RES generation in 2024 and an estimated rollover of 164 TWh of GOs from 2023.

However, the market has experienced high volatility in recent weeks as sellers and buyers seem to be in a tug-of-war over expectations of the market balance, where the former are withholding their inventory hoping for higher prices or banking the GOs for future disclosure periods.

In many markets, GOs are bankable between 12-18 months, enabling their use as a hedge against future risks. This dual role amplifies uncertainties over the present and future market balance causing price fluctuation. Expectations of increasing future demand and a tightening of the market balance can provide a bullish price signal. 

Veyt’s long-term GO forecast projects prices to increase steadily to EUR 5.77/MWh by 2027 as the market balance tightens. In the long-term prices should stabilise between EUR 3-5 /MWh.

Weather price risk intensifies

The power system is becoming dominated by weather-driven generation such as wind, solar and hydro power. Different weather scenarios have a large impact on base prices and capture prices. It is therefore important to understand the possible outcome space of base prices and capture prices to accurately price a PPA and quantify associated risks during the contract tenure.

Weather-driven price risk increases in the 2030s as firm capacity exits the market, RES generation picks up and flexibility is yet to scale up to the required volumes to stabilise prices. By 2035, different weather scenarios can result in base prices 40 % above or below prices in an average weather year. 

RES capture prices are even more strongly affected by different weather outcomes. A windy weather scenario across Europe will compress capture prices for all wind assets, while a calmer wind pattern results in higher capture prices for the technology.

For both solar and onshore wind, a range between lowest and highest capture prices span from minus to plus 70 % of average year capture prices in 2035, according to Veyt modelling. 

German PPA volumes decline in 2024

Germany has recorded 38 PPA between 1 January – 30 November 2024, one PPA more than in the same period last year, remaining the biggest market in terms of deal count. However, contracted volumes reported in Veyt’s database stood at 1.8 GW up to 30 November 2024, down over 50 % year on year.

The drop in contracted volume can be linked to reduced interest in signing big offshore wind deals, while at the same time smaller-sized solar PPAs gained ground.

Declining wholesale spot prices in 2024 also played a role by steering projects towards the government support scheme. Especially for onshore wind assets PPAs have become a less attractive alternative compared to the market premium received under the national subsidy scheme EEG when prices are lower. The fourth onshore wind auction round this year set a record high volume of onshore wind awarded of just over 4 GW with 6 GW worth of submitted bids.

Meanwhile, the first two solar auctions this year were heavily oversubscribed with the results of the third one expected shortly. The two zero-subsidy offshore wind auctions in 2024 also remained highly competitive with more offshore wind PPAs likely to be announced now that these auctions have concluded. Most of the offshore wind projects that are due online between 2024 and 2026 have already secured PPAs for at least part of the capacity. 

Market impact

According to Veyt’s modelling, annual baselod 10-year PPA prices including GOs in Germany stand at EUR 95/MWh. In comparison, the average fair value of pay-as-produced PPAs in Germany is EUR 88/MWh for offshore wind, EUR 79/MWh for onshore wind and EUR 50/MWh for solar. 

German future settlement prices ranging just below EUR 100/MWh for 2025 and Veyt forecasting Day-ahead prices at EUR 95/MWh until 2027, suggest a promising landscape for PPAs compared to the market premium received via the EEG, boosting supply side volumes.

Recent auctions for RES capacity were oversubscribed for solar and onshore wind, opening up the potential for the unawarded volumes to enter the market on merchant terms or with a PPA.

The expectation of increasing GO prices which serve as an additional revenue stream for assets choosing to opt out of the EEG, can be a further bullish factor for PPA volumes in the German market in the coming years.  

From the consumer side, PPAs with bundled GOs are already an attractive form of hedging and meeting corporate sustainability targets. High volatility in power prices in recent years have further increased the corporate appetite for long-term procurement strategies.  

Demand for coupled electricity delivery and the associated GOs within physical PPAs in Germany is also likely to be driven by industrial offtakers who benefit from state aid for indirect emission costs. While the coupled delivery is not yet a tradable product, it can boost the GO value within a physical PPA, thus incentivising renewable producers to offer such an option. 

The balance of increased supply and consistent high demand will determine whether the market will experience shifting dynamics from a sellers’ market, where PPA prices see a premium compared to the fair value to reach the minimum level set by the EEG, to more of a buyers’ market where PPA prices will settle between the EEG level and the higher fair value. 

However, increasing cannibalisation, higher capture costs and larger weather risk make the PPA landscape more complex. Especially for solar PV, counterparties will need to find ways of distributing and mitigating risk associated with low capture rates and weather volatility.

For onshore wind location specific assessments will be crucial in the valuation of PPAs. We therefore expect more PPA market participants to tailor delivery profiles to their needs either with different contract structures e.g. monthly baseload or profile, or by opting for multi-technology and hybrid PPAs.