Renta 4 | The latest report published by Levelten, a renewable transactions consultant and PPA market operator, states that the prices of PPAs signed in Europe reached €57/MWh (blended solar and wind), which represents an increase of 27.5% vs. the first quarter of 2021 and 8.6% in this quarter alone.
Solar PPAs in Spain averaged €38/MWh, 12% higher (€4/MWh) than in 1Q21, being the country with the lowest solar PPA prices in Europe (€50/MWh European average). In wind, PPAs were signed at €43/MWh, up 26% (€9/MWh).
The increase in PPA prices corresponds, on the one hand, to an increase in prices in the supply chain and, on the other hand, to a higher demand from energy traders and energy companies, which need: 1) to ensure a fixed energy price to avoid the continuous volatility and uncertainty of the energy market and 2) to obtain clean energy to meet their sustainability and decarbonization goals.
Opinion: The PPA market (long-term power purchase and sale market) is a key market for renewable energy projects currently in the pipeline in Europe. The signing of PPAs increases the long-term visibility of revenues from energy sales, which allows access to more favorable financing for the projects, which are mostly financed under Project Finance schemes.
Despite the increase, Spanish PPAs remain the cheapest in Europe, highlighting the country’s vast solar and wind resources.
We believe that an increase in the number of PPA bidders is positive for the sector in the long term, as it improves the revenue and financing capacity of the farms. However, the increase in the price of raw materials and transportation also has a negative impact, as it hampers the profitability of projects in the pipeline.