26.11.2020 | Axpo Deutschland plans to use the experience gained in other countries in 2021
For more than 15 years, Axpo has been one of the pioneers in the field of Power Purchase Agreements (PPA) in Europe. In an increasing number of countries, PPAs for renewable energies are becoming a megatrend. Germany is still lagging behind somewhat - one of the reasons for this is the Renewable Energy Act (EEG) with its generous feed-in tariffs. But this is likely to change soon.
In a few weeks, the year 2020, largely shaped by the Corona pandemic will be over. The effects of the pandemic will continue to be felt everywhere in the coming year. And yet the year 2021 marks an important turning point: In Germany, the first wind farms and solar plants exit the feed-in tariff regime of the EEG.
According to the EEG, operators of solar plants and wind farms in Germany receive a legally guaranteed remuneration for 20 years for feeding green electricity into the grid starting from the time of commissioning. Since numerous EEG plants were commissioned around or before the year 2000, the year in which the EEG came into force, the first of them will lose their entitlement to the EEG remuneration in 2021.
For plant operators, the question comes up how they can continue to finance their plant and ensure its operation after the end of the 20-year subsidy.
Johannes Pretel, Head Origination at Axpo Deutschland, knows the answer: "We see a clear trend that more and more plant owners are interested in PPAs. Over the past 20 years, the EEG and related feed-in tariffs have not made it attractive for investors in renewable energies to look for existing market-based instruments, like PPAs. This is now changing, and we at Axpo are ready to conclude significantly more power purchase agreements in Germany as well".
The market for PPAs in Germany is still comparatively underdeveloped, but the potential is large, since numerous facilities will be brought to the open market in the post-EEG era. A prerequisite for this, however, is that the German government supports market based contract models, like PPAs, instead of extending the subsidies.
Johannes Pretel explains: "One measure that would make it possible for the industry to conclude PPAs and thus make Germany more competitive as a location for green-labelled electricity would be, for example, government support for those industrial companies that procure renewable electricity".
A relief on taxes and duties if an industrial or commercial company concludes a so-called corporate PPA could help scale PPAs in Germany, with the additional benefit that German companies learn about green market-based procurement. Companies with high energy consumption in particular are increasingly striving to reduce their ecological footprint, lower their electricity costs and secure stable electricity prices in the long term.
"We at Axpo help companies to achieve their sustainability goals. Axpo is one of the leading international providers in the field of at times highly complex, tailor-made PPAs in Europe and the USA and the PPA pioneer in many countries. We can also build on this experience in Germany. Nonetheless, openness, flexibility and creativity is also required by companies willing to get involved in PPAs, as with all new ways of doing business", says Johannes Pretel.
This applies to both the buyer and the producer side, of course. Thanks to PPAs, investors and green power producers have the opportunity to cushion the power price risks and to stabilize long-term investment and therefore make small and large projects bankable.
Plant owners exiting the EEG feed-in tariffs would be well advised to consider which options are suitable for their plant three to four months before the guaranteed compensation expires.
In general, the price level on the electricity market is particularly important for PPAs. If renewables at the given market price in a given market do not earn enough money to pay back their loans, there is a problem with the realization of the project in the first place. Axpo therefore expects more PPAs in a higher power price environment, if there is no state-support for green power procurement.
Nevertheless, the topic of PPAs is so complex that many questions cannot be answered quickly. This applies to electricity consumers, investors and generators alike.
Johannes Pretel states: "At Axpo, we are committed to transparency and openness and, in the spirit of "education", we inform all those involved, from the bank and the producer to the medium-sized company or large corporation that wants to have more green electricity supplied, about the possibilities for PPAs in Germany. We regularly exchange information with our business partners and are happy to share our knowledge. And we also learn a lot from our business partners when we craft specific deals together.”
In addition to the numerous PPAs signed by Axpo’s experts in other European countries, Axpo Deutschland already has its own first examples of PPAs in its home market: last year, Johannes Pretel's origination team signed its first long-term purchase agreement for a solar plant.
The agreement with a ground-mounted solar plant in southern Bavaria, which produces around 1,570 megawatt hours (MWh) of electricity per year with an installed capacity of 1.5 MW, was one of the first PPAs ever in the German solar market. Axpo Germany purchases the electricity from the solar plant during the first five years at a defined price and will market it in the long term.
Axpo’s green power experts in Düsseldorf and Leipzig want to expand the business, especially from 2021 onwards. With its existing know-how in the procurement, marketing and structuring of energy in the German market, its close ties to industry, municipal utilities and distributors, and its Europe-wide PPA experience, Axpo Deutschland believes it is excellently positioned to play a leading role in the German PPA market.
Johannes Pretel concludes: "When the time comes for PPAs in the German market, we will be among the top three providers."
Due to the reduction or abolition of state subsidies for renewable energies and the sharp drop in the Levelized Cost of Electricity (LCOE), PPAs have become a megatrend. The demand for PPAs and innovative energy services will continue to grow as renewable energies are rapidly expanded. According to a study by Axpo, installed capacity in Europe is expected to grow by 116 GW (50 GW solar, 32 GW wind onshore, 25 GW wind offshore) by 2030. Of these, around 58% of projects are likely to be open to PPAs. For comparison: Germany currently has just over 100 GW of wind and PV capacity installed.
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