Energy market turmoil in the fourth quarter of 2021 led to a surge of activity in the European renewable energy power purchase agreement (PPA) market, according to Pexapark.
The “European PPA Market Outlook 2022” report found that in 2021 volatility, driven by surging gas prices, led to a 58% growth in PPA activity with December witnessing the largest PPA increase volume-wise.
The annual report predicts that lasting impacts of the recent market turmoil, particularly in maturing markets, will test the availability and pricing for long-term PPAs of 10 years or more.
Pexapark said that this market uncertainty will “herald in the era of the short-term PPA and new baseload structures”.
It will also drive the rise of the “next generation utilities”, pushing investors to upgrade their operating models to comprise origination teams, portfolio management capabilities and risk management infrastructure.
Annualised volatilities of front year contracts, a key driver in PPA pricing, reached realised volatility levels of up to 250% last year, five times the level of usual spikes.
And as prices began to rise in September, PPA activity nosedived in October, with the closing of merely 125MW of PPAs across three deals.
This indicated that the merchant market actually prefers more moderate changes in price for long-term PPAs.
Despite the circumstances, activity rallied through December, with an impressive 3.2GW of PPAs signed over 21 PPAs.
Last year also saw corporates secure a greater number of PPAs than utilities, with the high-price volatility creating a more disadvantageous pricing situation for utilities.
In total, 2021 saw 6.5GW of disclosed contracted capacity for corporate PPAs, and 4.6GW for utility PPAs.
Amazon was the biggest PPA offtaker, responsible for 16% of the year’s contracted capacity and 30% of European corporate PPAs overall.
This is a trend that is likely to continue through 2022, according to Pexapark’s Market Outlook, with the rise of the “mega buyer” offtake segment.
Luca Pedretti, chief operating officer at Pexapark, said: “This year’s PPA market trends show that a more active approach to managing risk is becoming critical.
“And PPAs alone are not enough – from Sweden to Romania, Germany to Poland, renewables investors are increasingly going to need to ensure they have operating systems which empower them along the deal lifecycle to manage pricing, analytics, execution, and monitoring of price risk emanating from renewable energy investments.”