Germany’s plans to introduce a cap on power revenues and cut energy bills for one year will dampen interest in signing new power purchase agreements (PPAs) for the duration of the measures, according to analysts of consultancy Energy Brainpool.
On Tuesday, a draft law spelled out the German government’s plan to skim off 90% of windfall revenue from power producers above production costs and to limit the price of 70% of the power consumption of large industrial companies – typical PPA buyers – to EUR 130/MWh. The measures are designed to end in 2023 and 2024, respectively.
In contrast, the latest prices for onshore wind and solar PPAs in Germany with a duration of five years and starting from January was EUR 206.65/MWh, according to QWatt data.
As a result, Tobias Federico, managing director of Energy Brainpool, expected little interest in such contracts.
German power prices have traded at record highs this year – with the front-year contract hitting an all-time high of EUR 1,050/MWh in late August, due to skyrocketing gas prices driven by the curb in Russian gas supplies in the aftermath of its invasion of Ukraine and related Western sanctions.
“It will very likely put the PPA market on hold, as well as the forwards and futures markets,” said Federico.
“There seems to be no need any more to hedge against higher prices,” he said, referring to the buyers’ side.
Meanwhile, Matthias Stark, power market expert with German renewables lobby BEE, saw problems on the sellers’ side of PPAs due to the revenue cap.
“They can’t really act outside the day-ahead market as the operators have a higher risk when they sell at a fixed [PPA] price level,” he said, pointing to the planned calculation of surplus revenues that did not properly reflect costs for longer-term contracts of fluctuating renewables generation.
Existing PPA agreements, however, will be protected by the cap, said Nicolai Herrmann, analyst at Enervis consultancy, and he expected most operators to be able to remain profitable.
Several solar and onshore wind PPAs for 10 to 15 years’ duration were recently signed at close to EUR 130/MWh in Germany, QWatt data showed.
“There will be enough money left in the market to build projects,” he added.