04.12.2023 | A pioneer in power purchase agreements
Combating climate change is changing the economy. For the energy transition, companies need much more electricity from renewable energies such as solar and wind power. But to build power plants, producers and investors need planning security. The best solution is long-term electricity supply contracts or power purchase agreements (PPAs), which have become an important part of the origination business in Axpo's Trading & Sales division.
The production of silicon wafers requires a lot of energy. At the German factories of Siltronic, the world's leading wafer manufacturer, based at Burghausen in Bavaria and Freiberg in Saxony, this energy has so far come mainly from fossil fuels. Starting in 2024, however, under a ten-year PPA Axpo will supply the company with electricity from photovoltaic systems in Germany. This will enable Siltronic to secure around a fifth of its electricity consumption domestically and reduce its CO2 emissions by 25,000 tonnes a year.
Switzerland's largest Alpine solar plant, which Axpo developed with Swiss utility IWB, has been fully operational since September 2022. Located 2,500 metres above sea level, the plant on the Muttsee dam generated more than 3 GWh of climate-friendly electricity in its first full year of operation, especially welcome during the cold winter months. The project was made possible by a successful collaboration with the Swiss retailer Denner, which has undertaken to purchase all the plant’s electricity production for the first 20 years of operation at a fixed price, using it to power its retail outlets and offices.
These two examples show why PPAs have experienced enormous international growth in recent years. They guarantee companies a reliable supply of electricity from renewable sources at a fixed price and provide a stable foundation for the investment decisions of electricity producers. In doing so, PPAs contribute to the urgently needed expansion of electricity production from renewable sources. The EU's decarbonisation efforts are another driver of PPAs. The EU Taxonomy Regulation, which has required institutional investors and large companies to provide information on the proportion of their activities that can be classified as sustainable since 2022, has led to a significant increase in demand for these agreements.
For Axpo’s Trading & Sales division, PPAs are an important part of their origination business. Axpo is a pioneer PPAs, positioning us in this market early on, and is now one of the leading international providers. In total, over the term of the contracts, we manage around 99TWh of renewable energy, mainly through PPAs, achieving extraordinary results thanks to our diversified portfolio and advanced risk management.
In the financial year 2022/23, the origination business achieved an overall gross margin of CHF 1,168 million (previous year: CHF 885 million), making a significant contribution to earnings.