Europe’s wind energy sector needs to take the initiative on managing long-term risks in order to see sustained uptake of wind energy power purchase agreements (PPAs), according to financial investment firm Augusta & Co.
Some 140 MW of wind PPA contracts were signed in 2018 across central Europe, according to Augusta, but significant growth is predicted. In order to maximise the market’s potential, sellers should take the lead in managing long-term risks such as price forecasting and buyer inexperience.
At a recent industry event, Augusta highlighted the importance of providing simple, attractive deals to off-takers as a way to secure interest from prospective buyers. The company has outlined three core challenges faced by the industry – accurate power price forecasting; assessing the convenant strength of smaller buyers; and tackling buyer inexperience.
Any long-term PPA deal relies upon power price forecasting, Augusta says. While wind resource estimates are now very accurate, when it comes to power pricing, the market needs to do more than just ‘buy the curve’ from technical consultants in order to safeguard returns and guarantee successful deals. Further market sophistication is required in modelling of long-term power pricing, but, in the short-term, the onus is on sellers to manage this risk.
Another challenge for PPA-driven growth is finding new buyers beyond the large data centre owners that have spurred on previous deals in the Nordics. This means that, as well, as considering a wider range of off-takers - including investors - power producers need to have an acute awareness of their buyers’ commercial strength and longevity.
In addition, many potential buyers in Europe still lack the experience in energy procurement to match their green ambitions and negotiate a deal to meet their needs – again putting the onus on sellers to develop bespoke structures, Augusta says.
Nonetheless, as power producers rise to meet these challenges, PPAs are expected to drive significant growth in the central European renewables industry. Replicating successful models used in Scandinavia will be a useful first step to success, according to Augusta.