Which European Markets Have the Highest PPA Potential?

Megan McIntyre, Meghan McIntyre, Energy Analyst at Zeigo
Meghan is an experienced energy analyst with an MSc in Sustainable Resources from UCL. Zeigo was acquired by Schneider Electric in January of 2022.


European wind turbine with blue skiesDespite a slow start to 2022, Europe has seen the return to bullish power purchase agreement (PPA) activity as corporates seek to achieve net-zero targets in both developed and emerging markets. For renewable energy buyers, there remains the question of which European markets offer the greatest potential for PPAs, particularly as governments announce greater auction capacity to support the transition to renewables. Some markets, such as Sweden or Belgium, are well on their way in meeting renewable targets, and others, such as Ireland or France, have expanding auction schemes that allow for renewable development. Either way, the level of government interaction via auctions, often a contract for difference (CfD) scheme, will impact the availability of projects for corporate offtakers.

To guide these decisions, we have conducted quantitative analysis into government renewable targets and measured these against forecasted renewable auction scheme capacities. This comparison has allowed us to identify the markets with the largest gap between policy targets and government support to determine “PPA market potential”. As market forces improve the price parity of renewables with fossil-fuels, the need for longer-term government subsidies has been called into question highlighting the long-term stability PPAs offer.

 

The figure above depicts a country breakdown of 2030 wind and solar targets and how these targets may be met. Any projects that are currently operational are accounted for in blue and auction capacity is estimated in grey, leaving any remaining volumes available for a corporate to offtake under a PPA in green.

The analysis not only shows markets with huge potential for PPA activity but also where existing projects and auction capacity are reasonably matched with 2030 targets, such as in Belgium and Ireland. Despite this, there remains scope for PPAs depending on how auction strike prices compare against PPA prices. Auction prices will always represent the minimum price developers are willing to settle on, with many projects choosing to go to market via potentially more economical routes. While these markets may not see PPAs expand on the same scale as other markets, they should not be discounted by corporates as viable pathways towards meeting renewable electricity goals. Government targets do not need to be considered a cap on the amount of renewable energy that can be introduced. Through PPAs, corporates can support exceeding the targets set by governments in conjunction with CfDs. This has already happened in countries like the Netherlands and in Scandinavia, where renewable targets are rising consistently to keep up with the appetite of domestic renewable generation.

As can be seen in the figure above, the sheer size of Germany’s renewable targets means that even though the country has the largest forecasted capacity under their negative bidding auction, it will also provide the greatest PPA potential of just under 100GW. Despite the large targets set by the UK for 120GW of capacity, Italy shows slightly greater PPA potential of 28GW with much less significant government support. Similar conclusions can be made for Spain and France, which close out the top 5 European markets in terms of potential.

While findings for Germany and Spain may not be entirely surprising given their relative maturity, this analysis highlights the potential in emerging markets. Poland is rising in the ranks and has seen several PPAs signed in the past few years and Greece has recently increased their renewable targets, removing red tape for PPAs and becoming more attractive for corporate off takers. Sweden and Finland show relatively less potential for future PPAs despite being market leaders in recent years. This is due to the smaller national electricity consumptions and reduced project availability in these countries. However, Sweden and Finland both have a very large project pipelines that are set to exceed their national wind and solar targets. Therefore, the target can not be seen as a cap on renewable capacity but more of a minimum, with PPA potential exceeding our estimates in the Scandinavian countries and Belgium.

It should also be recognized that announced auctions usually dedicate a substantial capacity to offshore wind projects, particularly in the UK, Netherlands, and Nordic countries. The scale of these contracts will be much greater than solar or onshore wind projects, which will still allow for a significant section of the market to access PPAs via smaller scale renewable generators. The same also applies for low-carbon technologies such as hydropower and biomass, which don’t typically engage in corporate PPAs but are included in numerous auction schemes across Europe.

Of course, for the corporate PPA market to grow, there must be demand from buyers in the first place. Currently, 1,949 European companies of various sizes have committed or set Science-Based Targets to transition to renewable sources to power their operations. There are also over 370 RE100 members globally (companies committed to being powered by 100% renewable energy), with Europe hosting the headquarters of many members. Considering our analysis of existing auction schemes, it looks likely that PPAs will continue to provide stability for renewable energy buyers and sellers for years to come.

Corporates looking to sign PPAs can find both operational and new build projects on the Zeigo platform. If you are interested in a demo of the digital procurement platform, fill in the contact form below.

 

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