In recent years, under the promotion of emission reduction targets, energy companies have been vigorously guided to develop and build renewable energy power stations, allowing power generation companies to sign long-term power purchase agreements (PPAs) with power consumers and setting prices independently according to the spot market price of electricity, becoming a multi-national energy company in Europe and the United States. important path to transformation. For example, Cero Generation, a subsidiary of Australia’s Macquarie Group, recently signed a PPA with the Swiss utility company Axpo for the first solar power station in Switzerland. The bilateral transaction of photovoltaic green power has started, and the current agreement price is 0.045 euros/kWh.
However, under the circumstances of inflation, soaring electricity prices, and record high prices of renewable energy manufacturing end, even though the PPA price of renewable energy projects is much lower than the current electricity prices in Europe and the United States, the high potential development intention has not been transformed into reality , and even a large number of defaults have caused the PPA development model to be questioned.
Willingness to develop is low
It is understood that PPA is a new model of renewable energy power trading introduced by European governments after canceling photovoltaic subsidies. From 2014 to 2015, Spain and other European countries successively announced the complete cancellation of subsidies for photovoltaic power plants. The development of the European photovoltaic industry suffered a severe blow, and the growth of installed capacity was very slow or even stagnated. In order to promote the recovery of the renewable energy industry, PPA came into being.
The PPA allows companies that win bids for national renewable energy power generation projects to sign agreements with electricity sales companies or electricity consumers who are willing to purchase green electricity for a long time. The electricity price is determined through negotiation between the two parties and remains unchanged during the contract period. In recent years, the rise of PPA has prompted the development of renewable energy projects in Europe and the United States.
However, the PPA prices of renewable energy projects in Europe and the United States have continued to rise recently, and green power buyers believe that the economics of the projects have weakened, and their willingness to develop the market has gradually decreased. Statistics from renewable energy consulting company Pexapark show that since the beginning of this year, the PPA price of European renewable energy projects (including solar power, onshore wind power and offshore wind power) has increased from about 0.065 euros/kWh in early January to the end of June. 0.087 euros/kWh, an increase of more than 35%. It is worth mentioning that in May this year, the European renewable energy PPA price once exceeded 0.103 euros/kWh, hitting a record high.
According to the statistics of consulting service company LevelTen Energy, in the second quarter of this year, 13 European countries, including Italy, Denmark, Finland, France, and Germany, saw an upward trend in the PPA prices of renewable energy projects. Among them, the price of PPA in Italy increased by 22% year-on-year, and the price of PPA in Poland increased by more than 36% year-on-year.
Luca Pedretti, CEO of Pexapark, pointed out that PPA price fluctuations have put pressure on the renewable energy project development market. Although the demand for green power projects in Europe and the United States is still rising under the emission reduction target, the number of PPA transactions for renewable energy projects has declined significantly. In May, the number of PPA signings in Germany fell by 30% year-on-year, and that in Spain fell by more than 55% month-on-month.
Economics is questioned
Under normal circumstances, a price increase means that the market is improving, but why did the current round of PPA price increases in Europe and the United States release a negative signal? Flemming Sorensen, European Vice President of LevelTen Energy, pointed out that PPA price fluctuations are affected by multiple factors. One of the important reasons for the current round of PPA price increases is the rise in prices of photovoltaic and wind power supply chains. Taking the photovoltaic industry chain as an example, due to the shortage of raw materials such as silicon materials and high prices, the prices of silicon wafers, cells, and modules have all risen or remained high. , High labor costs in Europe and the United States have prompted a rise in PPA prices.
Data show that since the beginning of this year, due to rising material, transportation and labor costs, the cost of wind power and photovoltaics in the United States has risen by 7% and 14% year-on-year, respectively.
Luca Pedretti added: “Price fluctuations in the electricity spot market are also the main reason for the pressure on the PPA market this round. At present, electricity prices in Europe and the United States continue to rise, and the price fluctuations in the electricity spot market are violent and unpredictable, making it difficult for developers to accurately measure the rate of return. Market development Willingness is down, capital mobility is down.”
Gia Clark, senior director of LevelTen Energy, believes that for the US market, increasing inflation, complicated grid connection procedures for renewable energy projects, and unclear relevant policies are the reasons for the sluggish development of the PPA market in the country. After the price of PPA for solar power stations and wind power station projects soared, even if the U.S. Department of Commerce decided to cancel the tariffs on solar products in Southeast Asia, it would not be able to save the market in the short term.
Positivity is difficult to improve
Against the above background, a large number of PPAs in Europe and the United States have defaulted. According to data from German consulting company Aurora Energy Research, since the launch of the PPA mechanism, nearly 20 million kilowatts of renewable energy projects in Spain have withdrawn their PPA agreements after winning bids, and some projects have been put on hold or delayed.
According to LevelTen Energy, as the price of PPAs for renewable energy projects in North America continues to rise, large energy companies lack enthusiasm for signing PPAs. Renewable energy projects are capital-heavy industries with high requirements for cash flow. The PPA model is an important way for energy companies to obtain the required funds. This has led to great difficulties in the development of the renewable energy industry in North America.
Alan Hayes, head of energy transformation pricing at S&P Global Platts, an industry analysis agency, emphasized that European and American countries must accelerate the construction of renewable energy projects if they want to achieve their emission reduction goals. It is crucial to clarify the price of PPAs for the development of wind power, solar power, and hydropower industries .
The industry media “Photovoltaic Magazine” quoted experts as saying that the spot market price of electricity is constantly fluctuating, while the PPA price is fixed within the agreement time. Renewable energy project yields fell short of expectations. Under the circumstances that enterprises are not sure, the enthusiasm for entering the market continues to slump.
Gia Clark said that in the foreseeable future, the price of PPA will remain high and it will be difficult to return to the level before 2020. However, even under the trend of rising PPA prices, some companies still expressed interest in learning about renewable energy projects considering the importance of sustainable development.
Flemming Sorensen also expects that in the short term, renewable energy supply chain prices will remain high, “it may take months or years to be resolved, but this will not continue indefinitely”.