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Five Power Purchase Agreements (PPA) Trends to Watch



Five Power Purchase Agreement (PPA) Trends to Watch

Published:  August 30, 2023

Power Purchase Agreements (PPAs) are contracts where one party agrees to purchase electricity directly from another, usually a generator of renewable energy. Corporations often use PPAs as a tool to reduce and lock in energy costs, support renewable energy, reduce their carbon footprints—and get a competitive edge.

Renewable PPAs play a big part in the energy market of Europe. If you're a business in this region, understanding current PPA trends can help you reduce your energy costs and reach your sustainability targets. 

We have identified five key trends surrounding PPAs that savvy businesses need to be aware of if they want to mitigate their power market exposure and maximize their return. 

Trend 1: Persistent high corporate demand for renewable energy

Companies are prioritizing renewable energy. Many are aggressively looking for ways to leverage PPAs, leading to consistent demand with no end in sight—now is the time for companies to get in the game and avoid missing out on good opportunities. 

So, what's driving this demand? A few key factors stand out. 
●    First, PPAs can help companies reduce their energy costs. By locking in a price for power, they can avoid the ups and downs of the energy market. 
●    Second, companies are more aware than ever that their operations have an impact on the environment. PPAs offer businesses a direct path to greener energy and reduced carbon footprint. 
●    Finally, many organizations view PPAs as a way to show customers, employees, and investors that the company is committed to sustainability. 

Trend 2: The emergence of discount-to-market structures

A discount to market (DTM) structure is a type of PPA where the buyer pays a price that's lower than the current market rate. 

DTM structures can help buyers manage the risk of energy price fluctuations. If the market price goes up, the buyer still gets to pay the lower DTM price. This makes DTM structures a good option for companies that want to lock in a discount to market at the expense of a potential financial gain.

This trend isn't just affecting buyers. It's also changing the game for sellers and other players in the market. Be aware that to stay competitive in a market where DTM structures are becoming the norm, you’ll want to assess and adjust your strategies on an ongoing basis with PPA experts. 

Trend 3: A year of decreasing PPA prices

The past year has seen a downward trend in PPA prices across Europe. This means companies are now paying less for the renewable energy they're buying through PPAs. 

The decrease in prices has made PPAs an even more attractive option for businesses looking to go green. 

Trend 4: The prevailing regulatory and legislative uncertainties around renewable energy

In Europe, regulatory and legislative developments can impact how PPAs are designed and executed. It’s imperative to understand these changes in order to address opportunities and mitigate risks. 

For example, some governments are creating new rules to support renewable energy. This can open up new opportunities for companies to use PPAs. But other governments are making it tougher. They might add new taxes or fees, or they might put limits on how much renewable energy a company can buy.

This uncertainty can affect the price of power, the structure of contracts, and the balance of power between buyers and sellers. 

Trend 5: A shift towards less seller-dominated markets

Until recently, sellers held most of the power. They set the terms and prices, and buyers had to take it or leave it. Now, we see that buyers are gaining more influence. They're demanding better terms, lower prices, and more flexibility. And in many cases, they're getting what they want. 

Wrapping up the power play

Companies in Europe can now reduce and stabilize energy costs while also helping protect the environment. By harnessing the power of PPAs, businesses can secure a steady energy supply, stabilize costs, and support renewable energy generation, all of which contribute towards a more sustainable future.

Yet, like any other market, the PPA landscape in Europe is in a constant state of flux, influenced by various economic, legislative, and environmental factors. Consequently, businesses aiming to leverage PPAs must stay abreast of emerging trends and shifts in the market to make well-informed decisions. 

Whether you're a seasoned veteran in the realm of renewable energy procurement or a newcomer looking to make your first foray, understanding these trends is essential if you want to make informed decisions and stay ahead of the market. 

Learn more about how PPAs can help your organization control energy costs and support decarbonization.