Pexapark has attributed a slowdown in the number of power purchase agreements (PPAs) signed in most leading European markets to a lack of price consensus between buyers and sellers.
There is currently little to no overlap between the bids of buyers and sellers of power purchase agreements (PPAs) in some of the key European markets, analysis by the Swiss-based price intelligence platform shows. Pexapark.
In its latest report, Pexapark applies its tradable price range model, which identifies the range within which PPA deals can realistically occur by mapping the overlap between the highest buyer bids and the lowest seller bids, to shed light on the lack of price consensus in Germany, Britain, France, Spain, Portugal and the Nordic region.
During the third quarter of this year (Q3), Pexapark noted that such PPA prices did not overlap in Germany, leading to German PPA activity dropping to three announced deals for 169 MW. Pexapark says the solar gap was driven by continued lower assumptions from buyers, who are pricing in a greater risk of oversupply and negative pricing.
There was also no overlap in tradable prices recorded in the UK during the third quarter, which Pexapark attributes to the high prices of the Contracts for Difference programme, which significantly exceeds sellers’ expectations of companies’ willingness to pay. A similar prospect was seen in France, where a standstill is being created as developers base their listing prices on higher government auction benchmarks, while buyers request bigger discounts.
Solar PPAs are also declining in the Iberian markets of Portugal and Spain, the Pexapark analysis adds, with the region facing increasing capture and cannibalization risks, alongside increasing cuts in Spain. Meanwhile, Pexapark says business buyers in the Nordic region are becoming increasingly price sensitive and less willing to pay the premiums needed to make projects profitable, bringing new developments to a near standstill.
Pexapark highlights Italy as a current outlier, with the country still enjoying investor confidence thanks to a long-term structured regulatory framework. While overall PPA capacity is declining, the number of deals increased in the third quarter, with the battery energy storage systems (BESS) market seeing robust activity.
COO and co-founder of Pexapark, Luca Pedretti, noted that the challenges observed in the third quarter show the discrepancy between price, driven by developer costs and regulatory benchmarks, and value, driven by forward prices, which entail risk and buyer appetite.
“When bid ranges fall below the minimum bid range, trades stop,” Pedretti explains. “This is not due to a lack of ambition – it is a symptom of poor information and understanding of prices by various counterparties.”
Pedretti added that the tradable price range forces an honest conversation around where deals can actually be made. “To scale up renewables fast enough to meet energy transition goals, we need to stop debating value and start transacting with more price certainty,” he added.
Pexapark’s latest report also adds that, against the current backdrop of market illiquidity, offtake arrangements linked to BESS are becoming increasingly popular in Europe, with market participants considering co-located storage crucial to alleviate the volume and price risks associated with renewables.
The growing need for solar projects to be co-located with storage to achieve PPA bankability has been highlighted by both research teams And industry experts the past few months.
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