Wind energy power purchase agreements would achieve more uptake in central Europe if sellers manage the long-term risks, a new study from financial adviser Augusta & Co has found.
The report found that 140MW of wind PPAs were signed in 2018 across central Europe, but concluded that provision of long-term price confidence for off-takers will be vital for driving up demand outside of ‘hotspots’ such as the Nordic region.
Three core challenges are also outlined by the ‘European PPA Trends’ report.
The first is the need for accurate power price forecasting for long-term PPAs.
Augusta partner Mortimer Menzel said: “Forecasting returns now boils down mainly to power prices, rather than wind resource or turbine technology, and you need to develop a sophisticated risk analysis around those to not get into trouble.”
The second challenge identified by the report is assessing the ‘covenant strength’ of smaller buyers.
According to Augusta, “A challenge for PPA-driven growth is finding new buyers beyond the large data centre owners that have spurred on previous deals in the Nordics.
“This means that, as well, as considering a wider range of off-takers, including investors, power producers need to have an acute awareness of their buyers’ commercial strength and longevity.”
The third is tackling buyer inexperience. Demand for PPAs is expected to rise as companies across the board look at the range of clean energy options available, according to the study.
Menzel said: “The perception is there will be market off-take mechanisms, including PPAs and other hedging products, available for wind, as there should be.”
However, many potential buyers in Europe still lack the experience in energy procurement to match their green ambitions and negotiate a deal to meet their needs, he said, adding that this puts the onus on sellers to develop bespoke structures.
“Many corporates, although they may strongly desire a fixed-price power contract, even a long-term one, do not have the expertise to find, structure and execute one,” he said.