PPA – the megatrend in renewable energy marketing
Axpo has a leading role in the international PPA business. But what is a PPA, and why is demand growing so rapidly?
PPAs combat climate change
Long-term power purchase agreements (PPAs) are one of the most important areas of growth in the energy sector. Following the reduction or elimination of state subsidies and sharply falling production costs for new plants, PPAs for renewable energies have become a megatrend in many parts of Europe. These agreements enable the development of new green electricity generation without relying on subsidies, help power the energy transition, and support the fight against climate change. Many plants would not exist without PPAs.
Domenico De Luca, Head of Trading & Sales at Axpo, explains: "In many countries in which Axpo is active, renewable energy investors and producers are looking for power consumers who will give their projects investment and price security. At the same time, a growing number of energy intensive industrial companies are seeking to procure electricity from renewable sources on a long-term basis, in line with their sustainability strategies. PPAs are a driver of the energy transition and Axpo plays an important mediating role between producers and consumers. We intend to continue expanding this business in the future."
Under its ‘Ambition 2030’ initiative, Axpo has set itself the goal of quadrupling its long-term purchase and supply contracts for electricity from renewable energies by the year 2030.
How big is the PPA potential?
The European Green Deal sets ambitious targets for 2030: reducing CO2 emissions by 55% and 32% more renewables in the energy mix. Based on ENTSOE’s 2022 scenarios, Axpo has calculated that, on average, wind farms and solar plants with an installed capacity of 60 gigawatts need to be built each year to meet the EU’s 2030 Green Deal targets. A huge amount, representing a 270% increase in installed capacity. Investors and producers of green electricity are increasingly looking for buyers to ensure price certainty in their projects. On the other hand, more and more companies want renewable energy to decarbonise. This is where Axpo comes and provides on-the-ground support as well as effective, sustainable solutions.
What is the PPA situation in Switzerland?
To date, there are very few opportunities for PPAs in Switzerland as electricity is mainly produced from a mix of nuclear and hydropower and there is a very low number of large-scale wind and solar installations in the country.
At the beginning of 2021, however, Axpo concluded the first ever PPA in Switzerland for AlpinSolar, the largest alpine solar plant in Switzerland, located on the Muttsee dam. Supermarket chain Denner will buy the plant’s solar power for 20 years under a long-term corporate PPA. Without this agreement, AlpinSolar could not have been developed.
Domenico De Luca comments: "In comparison to other European countries, the Swiss PPA market is still at an early stage. However, we are seeing a steady increase in demand here, particularly from energy-intensive industrial companies that want to source their power needs from renewable energies. Axpo is ready to support these companies."
What role does Axpo play in the international PPA business?
Axpo’s deep PPA expertise has been helping its corporate customers reduce their CO2 emissions for more than 15 years. Leveraging its strong presence in some 40 markets in Europe, the USA and Asia, Axpo has taken a leading role in the international PPA business.
PPAs have been well established for many years, particularly in Scandinavia and the Iberian Peninsula, and Axpo is among the leaders in this area. An increasing number of PPAs are also being concluded in other European countries such as Poland, France, Benelux, the UK and Italy. In contrast, Germany was not an attractive market for PPAs for some time. However, this has been changing since the beginning of 2021 with the expiration of EEG subsidies for many plants.