Given the previous period of relative stability in the PPA market and current geopolitical conflicts, the price increase, according to Zeigo's Head of Energy Markets Freddie Lyon, came as no surprise.
PPA offer prices in the United Kingdom jumped 17.6% from an average of 51.64 pounds per megawatt-hour in the fourth quarter of 2021 to 60.75 pounds per megawatt-hour in the first quarter of 2022.
The Ukrainian-Russian conflict has exacerbated existing issues around the cost of shipping, EPC services, logistics and commodities, said Lyons. The cost of building new solar and wind farms has increased as a result of these factors, which had an influence on the price of a long-term PPA contract.
Meanwhile, , many energy purchasers are forced to react to increased price volatility and seek near-term solutions when attempting to rapidly sign a new supply contract. According to Lyons, short-term operational deals appear to be in more demand. The average PPA duration on Zeigo's platform has decreased from 11.6 years in the fourth quarter of 2021 to 9.5 years in the second quarter this year.
Compared to corporations that have been ready to participate in higher pricing, utilities strive to control price risks by breaking long-term PPAs into shorter wholesale market deals, known as stack and roll hedging
On the other hand, PPA activities have decreased in March as a result of the price surge. During this period of uncertainty, both buyers and developers are hesitant to engage or price a contract, explained Lyons.
He predicted that the situation would gradually ease in the following months as wholesale electricity prices began to fall and market participants become more used to the new market conditions.
He went on to say that Europe’s dependency on Russian gas has to be addressed, with boosting LNG regasification capacity and diversifying import suppliers. A European renewable power infrastructure will be critical in the long run for delivering low-carbon solutions while also localizing supplies and ensuring regional energy security.
