PPA market overview
A total of 134 PPAs have been announced between 1 January – 31 May 2024, rising by 51% compared to the same period last year, according to Veyt data. This translated into 10.2 GW worth of contracted capacity this year, an increase from 9.3 GW in the equivalent period in 2023.
However, annual delivered electricity stood almost flat at 21 TWh, compared to 21.8 TWh in the first five months last year. The 2023 numbers were likely boosted by several offshore wind PPAs announced in Germany in the spring of last year as the technology has high load factors. At the same time, the growing share of solar as contracted technology for PPAs this year has diminished to an extent the figures for total delivered electricity.
In addition, interest in multi-technology PPAs (mostly a combination of solar and onshore wind) has also been on the rise with over 2 GW contracted this year, up from 0.6 GW in the first five months of last year. Given that peak generation for solar and wind tends to be at different times of the day, combining the two technologies provides more flexibility in managing the output and a way for producers to offer baseload-like delivery profiles.
Germany and Spain remain the top PPA markets this year. Germany has been leading the way in terms of deal count (24 announced PPAs) but other markets are also starting to show promising growth depending on the metrics. In terms of PPA count, UK and France have recorded 14 PPAs each in the first five months of 2024, up from below 10 in the same period last year.
Looking at contracted capacity, Greece emerges as a growing market. So far, it is the only southeast European country that has seen large-size deals this year – one multi-technology and two solar PPAs. Activity is driven by big players such as RWE, PPC and Mytilineos.
Looking at the delivered energy, both the UK and the Netherlands saw their contracted annual delivered energy more than triple year on year in the first five months.
Volatile wholesale spot market
Against a promising PPA market growth, the wholesale spot market – a key reference point for PPA prices – has been very volatile in the first five months of 2024 with prices lower on average year on year. Instances of extreme prices grew amid higher renewables production. Spain was hit the hardest with the average monthly Day-ahead price between 1 January and 31 May falling below EUR 30/MWh, down 60% year on year.
Spain saw 142 negative price hours on the day-ahead market in the first five months of 2024 against none such instances in the same period last year. Meanwhile in Germany the number of negative prices rose to 160, up 142% year on year. Other major markets such as France and the Nordics also experienced similar trends.
This coincided with a 10% increase in combined wind and solar generation in Europe between 1 January – 31 May 2024 with offshore wind in particular producing 26% more year on year amid favourable weather conditions in the North Sea where the majority of existing offshore wind capacities are based.
Solar production also posted 20% year-on-year growth in the same time frame driven by a combination of rising installed capacities as well as high solar irradiation, particularly in southeast Europe.
The EU put online 56 GW of new solar capacity in 2023 (up 40 % year on year) and installation growth continues this year. Italy has already installed 2.1 GW of new solar capacity in the first four months of this year (up 53% y-o-y), while Spain, Poland, Romania and Bulgaria also collectively added over 2 GW in the first months of the year.
Falling capture prices, improving imbalance costs
As a result, solar capture prices have also been heavily hit. The average German solar capture price dropped below EUR 45/MWh, with the Spanish equivalent tumbling even lower to just below EUR 20/MWh for the first five months of 2024. As a result, capture rates (the ratio between baseload price and capture price) in Spain plummeted to record low 55% on average, and as low as 40% for the month of April. In contrast, onshore wind maintained healthier margins with average capture price around EUR 57/MWh in Germany and EUR 31/MWh in Spain.
At the same time, imbalance costs have dropped for both solar and onshore wind in key markets such as Spain. While imbalance prices decreased significantly year on year, mainly due to lower wholesale electricity price levels, imbalance volumes increased amidst higher renewable generation.
Overall, this painted a bearish picture for PPA prices. Comparing what the fair value for a pay-as-produced PPA signed for the first five months of 2024 would have been, to the same metric for 2023 shows this trend clearly.
The fair value PPA price for Spanish solar fell to EUR 15.59/MWh, shedding over 80% year on year with the increase of the capture cost and decrease of baseload price being the key price-formation factors that influenced the stark drop (see graph). German solar did slightly better with the fair value PPA price at EUR 42.34/MWh, shedding around 47% year on year.
For onshore wind decreases in fair value were more moderate with 38% and 60% for Germany and Spain respectively, and can be attributed to lower baseload price.
Price recovery on the horizon?
Against the backdrop of these extreme market conditions, the futures prices suggest that participants expect higher price levels next year before a lower and more stable price environment emerges in the following years.
Therefore the current extremes on the spot market are perceived as temporary before the market adjusts to the new norm of having more intermittent renewable generation in the system.
While baseload prices are expected to recover, Veyt modelling shows increases in capture costs and imbalance cost as more solar and wind capacity enters the market.
Considering future market expectations from 31 May 2024 the fair value of a one year pay-as-forecasted PPA in Germany would be EUR 91.50/MWh for onshore wind and EUR 77.80/MWh for solar PV. These price levels are similar to PPA prices in 2023. Longer-term contracts of 5 years have a fair value of EUR 76.20/MWh for onshore wind and EUR 56.70/MWh for solar.
These lower fair value prices reflect lower base price expectations as well as increased cannibalisation as more renewables are being built out.  In Spain, one year pay-as-forecasted PPAs were valued at EUR69.70/MWh for onshore wind and EUR 60MWh for solar PV as of end of May 2024.
All referenced PPA prices are based on power price futures for baseload price expectations coupled with Veyt’s modelling of PPA pricing components. More granular data for different contract types, locations and tenures can be explored on our portal.
The European market design is also expected to transform in the next few years paving the way for the balancing markets, battery storage and demand side response to be better integrated within daily trading amid the adoption of the Electricity Market Reform.
The European Agency for the Cooperation of Energy Regulators (ACER) has recently closed a consultation on the implementation of co-optimisation in the electricity day-ahead coupling algorithm. This co-optimisation will enable simultaneous bidding for both day-ahead supply and demand and for balancing capacity supply and demand, allowing for more efficient use of cross-zonal capacity and scheduling of power generation. This should lead to lower balancing costs over time.
ACER is also currently consulting on the need to standardise PPAs to boost their uptake in Europe. This could lead to the creation of new PPA templates designed to cut costs and negotiation times in the long term, although the question of a wider market uptake of such templates remains open.
PPA sellers could also start seeing improved revenues from their bundled GOs. While the European GO market is currently oversupplied, prices are expected to gradually strengthen before a slight decline from early 2030s, according to Veyt’s basecase scenario.
To learn more about Veyt’s PPA product, please get in touch with our team at: contact@veyt.com
