Spain largest PPA market in Europe last year with almost 4 GW of deals


According to Swiss consultancy Pexapark, around 11 GW of power purchase agreements were closed in Europe last year. For 2022, the analyst expects shorter deals and the presence of more new entrants.


Zurich-based renewable energy consultancy Pexapark expects that the recent hike in electricity prices will put a strain on power purchase agreements (PPAs) of 10 years or more and believes that, at the same time, the current market turmoil heralds the era of short-term PPAs.

In the European PPA Market Outlook 2022 report, company experts stated that the price environment of the fourth quarter of 2021 will be remembered for many years and its true effects will begin to be felt in 2022.


Pexapark estimates the volume of PPAs concluded in Europe in 2021 at 11.1 GW. PPAs for companies represent 6.5 GW, and Spain is once again the leading market with almost 4 GW.


“Spain dominates the flow of agreements for another year, with a total of almost 4 GW of contracted capacity — a third of the year's aggregate capacity — through 34 PPAs that were included in our Tracker. The country surpassed its 2019 record,” the consultancy said. “The state intervention, initially very drastic, once again reminded investors that energy markets have a very political basis, even for projects without subsidies.”


However, many market players are recalibrating their prices. As a result of the fourth quarter price hike, the main approach that utilities use to manage the risk of their PPA portfolio was severely affected and the price correlation between hedges and PPAs was broken.


Due to the current situation, utilities increased their discounts in an unprecedented way, up to 40% and drastic changes are coming.

“We have observed that the increase in price discounts for PPAs with remuneration based on production (pay-as-produced) has triggered an increase in the demand for PPAs with shorter terms, as well as for base load contracts,”

said Luca Pedretti, director of operations at Pexapark.


This not only represents a strong departure from the typical risk profile of conventional renewable investments, but also has implications for the plant's day-to-day operating model. “In response, renewable funds and investors are creating what we consider to be the next generation of utilities,” explained Pedretti.


Pexapark anticipates that actively managed PPA investments in the short term could dwarf the existing PPA market in the long term, in terms of volume. In short, the consultant foresees three clear trends for this year: the pressure of the long-term PPA market –10 years– will languish in absolute figures; there will be a rise of new utilities led by new and large investment funds in renewables; and there will be an increase in large corporate buyers.


The market is maturing and renewable energy investors and operators will be larger, more diversified in terms of technologies and markets, and will become more expert at managing energy risk.

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