Pexapark, a Swiss renewable energy investment and consulting firm, said in a recent report on European PPAs that renewables “are the absolute winners of 2022 and the years to come in an environment of crisis and difficulties.”
Developers announced 16 PPAs totaling 1,881 MW of capacity in November, 24% more than in October and the highest volume of deals signed in 2022, in terms of megawatts.
Most of the increase came from two contracts signed by Microsoft in Ireland (900 MW), representing almost half of the total monthly capacity, and two PPAs for a 900 MW offshore wind farm signed by the German energy company EnBW. The composite price index for renewable PPAs increased by 7.4% month on month.
Poland saw the most significant increase in the index at 19.4%, while Portugal grew by 15.5%and Spain by 15.7%, due to higher futures prices. Germany was the only country to record a decline, with prices sliding 0.8% month on month due to falling domestic futures prices.
“However, regulatory uncertainty increases as EU member states begin to apply the much-discussed EU revenue cap at the national level,” Pexapark said.
In November, the European Union approved new provisions to intervene in the electricity market by capping renewables at €180/MWh. However, the proposed national revenue cap policies vary widely, with many lasting longer than foreseen in the EU regulation, which only apply until June 30, 2023.
Regulations of some member states apply a generic reference market price without calculating the actual net income. This can undermine existing PPAs, as producers may be taxed on income they have not earned.
The short-term PPA market could be negatively affected, with declining liquidity in the futures market, depending on the final regulations. Regulatory uncertainty may also complicate cross-border PPA pricing.
“Regulatory interventions make sense for consumers, but we have to keep in mind that interventions carry a higher perception of risk from an investor perspective, which translates into higher return expectations, higher costs, and, ultimately, a slower energy transition,” Pexapark said.