A lot has changed in the European corporate power purchase agreement (CPPA) market over the past six years, since I provided support to some first in-country and pan-European CPPA deals.

In 2017 the CPPA markets in Europe were dominated by buyers (or off-takers), because there were much less corporate buyers looking for long term renewable energy (RE) off-take than solar and wind projects offered by the sellers (or project developers). Many of these buyers have already signed their first CPPAs in the US and wanted to replicate the structure for their European operations. These companies benefited from the first mover advantage in our region.

Most of the CPPAs in the US are virtual PPAs, and the interest for this structure started to emerge in Europe five-six years ago. This structure provides flexibility for companies with operations in a number of European countries.

In those days, corporate buyers could achieve a reduction in the PPA price during negotiations, because of the convenient situation of being able to select from a number of competitive offers.

The European PPA market landscape has changed significantly since then. Corporate demand for PPAs has been soaring for many years now, as companies strive to procure RE in a more impactful way. One indicator of the tremendous growth in demand for RE among corporations is that the number of RE100 member companies was 100+ in 2016 and now we are just weeks or months away from breaching the 400 mark. Sustainability commitments, climate targets, growing market uncertainty and electricity price volatility are all driving up the demand for CPPAs.

Despite accounting considerations under the IFRS standards that are not applicable for companies under US GAAP, an increasing number of corporations headquartered in Europe decide on signing a pan-European VPPA. A trend that I expect to continue in the coming years, as well.

At the same time, some markets have started to experience scarcity of renewable energy projects available for CPPAs. There are not enough RE projects to cover the corporate demand in those markets, due to various reasons like delays in permitting or state auctions taking away projects otherwise available for CPPAs (the UK is a good is example for the latter where solar and onshore wind projects could compete in the CfD allocation round in 2022 for the first time since 2015). As a result, some countries have become a sellers’ market.

Project developers on the seller side should cope with increasing CAPEX and O&M costs, regulatory changes, supply chain challenges and increasing interest rate environment, as well.

The above mentioned circumstances led to changes in the European PPA market. PPA prices have increased significantly and sellers have more power during negotiations, just to name a few. Nowadays it’s increasingly common that sellers increase the PPA price during negotiations, particularly if they take longer than expected.

All these changes require flexibility both from buyers and sellers, in order to conclude PPAs. Besides working with an experienced PPA advisor, corporate buyers should focus on the following key success factors for signing PPAs:

–  flexibility during the negotiations
–  preparedness for market realities
–  active stakeholder engagement
–  fast decision making on project selection
–  smooth approval process.

Last but not least, new countries (e.g. Greece, Romania) are opening up for CPPAs which creates new opportunities for corporate buyers interested in PPAs.

Interesting times ahead!