PPAs are medium-to long-term contracts that allow electricity prices to be fixed and which guarantee the investor conditions of financial stability to proceed with the investment. Looking ahead, they can be a solution to high prices on the energy market and are an attractive instrument when they are used to buy and sell 'green' electricity to promote the spread of renewable energy.
In 2021, the European Commission approved renewable energy purchase agreements (PPAs) as a response to the increase of energy prices, not only for large companies but also for self-consumption.
The main advantages of PPA contracts are:
- savings on investment costs for the construction and maintenance of the plant;
- a key tool to obtain bank financing, thanks to a third-party that buys the energy to be produced by the plant for a number of years;
- access to energy at competitive prices;
- consumption of electricity at a stable and/or predictable price;
- better planning of the long-term cost structure;
- the ability to make investment decisions based on profitability in relation to risk;
- the guaranteed supply of renewable energy;
- the possibility of achieving corporate sustainability goals and improving brand reputation.
Large European companies try to offset their emissions in Europe with green certificates obtained through projects on the territory through virtual PPAs (VPPAs). These companies do not seek aggressive pricing. Their goal is to achieve stability through a fixed price for the cost of energy in the long term.
According to an analysis by the EY Renewable Energy Country Attractiveness Survey, in 2021 Spain, with almost 4 GW of PPAs signed in Europe, accounted for 61% of all long-term PPAs signed on the continent, well ahead of the UK (3 GW), while in the rest of Europe each country did not reach 1 GW.
The PPA market in Spain is a success story compared to other EU countries. At this time of uncertainty, this contract has guaranteed stability for the consumer in a context of volatile prices. The strength of this type of contract is the presence of a maximum and a minimum value that guarantees a certain stability. The parties agree in advance on a fixed percentage discount on the price of the MWh pool and, if the market price falls below the floor clause, the buyer has to pay the amount of the floor clause to the developer.
One of the fundamental reasons for the interest in the development of these PPA contracts in Spain has been the current regulatory framework which leaves ample room for the parties to define the terms of the contract autonomously. Bilateral power purchase contracts are regulated by Directive (EU) 2018/2001, Law 24/2013, and RDL 2019/1997. Recently, the measures adopted in RDL 24/2020 also facilitate the negotiation and implementation of PPAs. In addition, long-term supply schemes under the self-consumption method are starting to be developed in accordance with RD 244/2019.
In Italy, not many national operators have resorted to it yet, mainly due to the complexity of managing long-term contracts at fixed prices, the slowness of the administrative procedures required to construct the plant, and the public incentives that have been preferred by producers in the past. This purchase-sale model is however becoming increasingly common.
The PPA Notice Board was recently set up at the GME, pursuant to Article 28 paragraph 1 of Legislative Decree 199/2001, with the aim of promoting meetings between parties potentially interested in entering into PPAs, and to enable the fulfilment of the obligation to register the same contracts concluded between operators. The Notice Board, in fact, consists of the:
- classified ads section, in which traders interested in proposing or searching can publish, in an anonymous and non-binding way, their own sale or purchase adverts, while traders interested in these adverts can view them and express their interest;
- contract registration section, under which sellers fulfil their obligation to register long-term contracts for the purchase and sale of electricity from renewable sources concluded.
Among the operators that have made use of PPAs in Italy are:
- Ferrero, who signed a 10-year Virtual Power Purchase Agreement (PPA) with Falck Renewables for the production of 100% renewable green electricity through the installation of two photovoltaic plants in Sicily.
- Canadian Solar in joint venture with Manni Energy of Verona, Italy, who signed a contract (PPA) with Trailstone for a photovoltaic plant in Sicily with a ten-year duration, at a fixed price plus a mark-up sharing mechanism. The PV is owned by the joint venture under market parity.
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