Are European PPAs Financially Viable in 2022?

Freddie Lyons, Head of Energy Markets at Zeigo

Freddie is an experienced energy price analyst, having previously worked as an energy consultant at Argus Media. Zeigo was acquired by Schneider Electric in January of 2022.
 

The H1 2022 Bloomberg PPA pricing report stated that the usually steady pricing conditions in Europe had risen by 7.2%.

The shortage of gas, the invasion of Ukraine, and the ensuing impact on global inflation have severely impacted the cost of building new renewable projects. This had led developers to increase the value of the PPA contract to cover costs across the board and ensure the bankability of the project.

So, the big question for corporates faced with higher PPA prices will be: Is it still worth locking in a long-term renewable energy price in this market?

According to our research, potential energy savings for PPAs now can be even greater than they were before the market spiked. Let us demonstrate using a case study based on real market prices in the UK.

The Business Case for PPAs

Figure 1 below depicts a comparison of the UK average PPA price on the Zeigo digital tendering platform against a forward curve created during Q4 in 2021, before record wholesale prices in December and March this year. It shows that for a 10-year PPA starting in 2023 there was scope for savings against future market prices, with some uncertainty towards the end of the PPA tenure.
 

Figure 1: UK PPA prices against forecast baseload prices at Q4-2021, 2010-2032

Figure 2 on the other hand illustrates the increase in the average price increase observed in the UK on the Zeigo platform compared with Q4-2021. These will include a range of terms, commercial operation dates (CODs), volumes, delivery, and pricing structures yet still showed a rise from £51/MWh to £62/MWh.

However, it also shows that due to record high prices, long-term baseload price forecasts have increased considerably, meaning the scope for future energy savings can be even greater than before. Predicting energy prices is no mean feat, as the past few years have shown. However, even in worse-case scenarios the financial benefit (the area shown by the shaded area) can still be significant.
 

Figure 2: UK PPA prices against forecast baseload prices at Q2-2022, 2010-2032


Looking into the Future

Without a crystal ball, it is impossible to know the exact time to enter a PPA to secure the maximum energy cost savings. However, with market pricing becoming more volatile and likely to remain high into the long-term, the benefit of securing a power purchase agreement is more apparent now than ever. 

There are some consultants suggesting that baseload prices in the UK might remain above £100/MWh until 2030, adding to uncertainty around how much corporates might be paying for renewable energy in the future. A PPA locks in a fixed price at a below-market rate that will ensure green credentials, accounting certainty, and potential financial benefits for up to 15 years.

What’s best for your business?

Creating a PPA that maximizes cost reduction and pushes you toward renewable energy targets requires a structured approach. There’s no one-size-fits-all when buying clean power.  For corporate energy buyers simply trying to find the best clean energy deal for their company, Zeigo has hundreds of projects and a streamlined digital tendering process.

If you are interested in a demo of the digital procurement platform, fill in the contact form below.

 

Legal Disclaimer: Past performance is not indicative of future results. Hypothetical performance results have many inherent limitations. No representation is being made that any program will or is likely to achieve profits or losses similar to those shown. Swaps, futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.

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