ICIS-ONE European PPA price curves

Subscribers to ICIS Power can find out more about our underlying PPA methodology, including key assumptions and capture rates and how they compare against market prices and ICIS forecasts by visiting the European PPA Topic page

What is a Power Purchasing Agreement?

A Power Purchase Agreement (PPA) is a contractual agreement between energy buyers and sellers. They come together and agree to buy and sell an amount of energy which is or will be generated by a renewable asset. PPAs are usually signed for a long-term period between 3 and 20 years.

While a PPA can be a general agreement between two counterparts for the sell and purchase of electricity, they are predominantly used between a renewable generator and a company for the supply of green electricity. These contracts typically allow buyers to meet sustainability targets and hedge against future price risk, while guaranteeing the renewable generator (seller) a route to market and a long-term income.

Unlike traditional energy commodities, renewable PPAs exhibit a significantly lower transactional frequency. This scarcity is linked to the fact that PPAs are not mere commodities but complex derivatives with an underlying commodity. Their complexity arises from the intricate structures and market dynamics that influence their pricing, making it impractical to rely solely on statistical methods for price estimation.

What is a Baseload PPA?

A Baseload PPA is a contract signed between two parties where the buyer pays a predetermined fixed price for a predetermined electricity amount supplied by the counterpart. The nature of this agreement makes it such that the electricity delivered to the buyer is constant over the contract term and the obligation to deliver the predetermined amount falls on the supplier. This structure is often favoured by buyers for its stability and predictability.

What is a Pay-as-Produced PPA?

A Pay-as-Produced PPA is an agreement where the buyer pays for the actual electricity production generated by the renewable plant. In this agreement, the price is often tied to the variable output of the renewable plant and as such it can fluctuate based on a set of conditions (weather, location, plant technical characteristics, etc.). This agreement introduces an element of flexibility for the supplier while exposes the buyer to a volume risk.

ICIS-ONE PPA Forward Curve

The ICIS-ONE PPA Forward Curves are critical assets for businesses that want to reduce the uncertainty and volatility associated with energy prices while maximizing their return on investments or minimizing their procurement cost. By having access to accurate and reliable pricing information, companies can make informed decisions regarding renewable energy investments, ensure cost predictability, and mitigate financial risks.

Based on a seamless integration between the ICIS Power Horizon model and ONE PPA financial assessment, ICIS&ONE are able to provide sellers, buyers and power players updated and transactional PPA prices, reflecting the way such prices are typically calculated, benchmarking them against quotes from the market.

The ICIS-ONE PPA curves cover solar, onshore wind and offshore wind projects, tailored to your market and needs.

PPAs - Germany

In line with ICIS long-term forecasts, PPA prices exhibit a noticeable decline in the average yearly values across all profiles over the next 10 years. This trend reflects the gradual decrease in the cost of energy procurement over the years linked to the increase penetration of renewables and lower technology costs.

The German energy market, particularly in renewables, will keep growing over the next decade, with more competitive pricing and better integration of renewable sources into the energy mix. With renewable energy becoming increasingly cost-effective, project developers and investors will look for more routes to monetize renewable assets and differentiate their portfolio, while corporates and industries will look at integrating PPAs within their procurement strategies.

In terms of price dynamics, the current PPA price outlook sees:

Subscribers to ICIS Power can find out more about the underlying methodology and key assumptions used in renewables build out and demand by visiting the European PPA Topic page

German PPA Supply & Demand balance

PPAs supply is set to outpace demand over the next few years due to a mix of low demand from corporates (industries) and public support for renewables. As of 2029, we see a reversal of the supply and demand balance, with more projects looking for private capital due to the combination of a healthier project pipeline and gradual phase out of subsidy schemes.

On the supply side, Germany's Energiewende policy, which aims for a substantial increase in renewable energy capacity, is projected to add approximately 100 GW of new solar and wind capacity by 2035. This expansion will significantly enhance the availability of renewable energy PPAs, particularly as older conventional power plants are phased out.

We continue to assume that a sizeable share of the renewable addition will still be financed either via auctions or similar CfD mechanisms, that provide a more secure route to market for a lot of investors. However, the demand for PPAs is set to increase, especially driven by corporates (in the commercial space) and from green hydrogen developers.

PPAs Spain

The Spanish energy market, particularly in renewables, is already among the most mature markets in Europe, with competitive pricing and better integration of renewable sources into the energy mix. With renewable energy becoming increasingly cost-effective, it sets a positive outlook for sustainable energy adoption and long-term energy affordability.

Subscribers to ICIS Power can find out more about our underlying PPA methodology, key assumptions and capture rates and how they compare against market prices and ICIS forecasts by visiting the European PPA Topic page

PPA Supply & Demand balance

Supply of PPAs is expected to surpass demand overtime as the number of projects that are trying to secure finance increases. By 2026 we expect the balance to slightly tilt with PPA contracts becoming more common and flexible, and demand from green hydrogen picking up.

The market will remain tight till the end of this decade and will then revert back to be long after 2030, when hybrid renewable plants (PV-wind-batteries) will start to be more common and will rebalance the market.

From a generation point of view, demand for short-term PPAs already outpaces potential supply, and the market will still be tight for the next 5-to-6 years, given the high volatility expected.

After 2030, the abundance of new projects and the end of subsidy schemes will add a significant amount of green energy in search of additional buyers.

Subscribers to ICIS Power can find out more about the underlying methodology and key assumptions used in renewables build out and demand by visiting the European PPA Topic page

Authors:

Matteo has extensive analytics expertise in power, gas, carbon and energy planning. Matteo has responsibility for ICIS energy analytics strategy and operations including research and analysis, product ideation and development, and market engagement.

Sebastian leads a team of analysts focused on the development and operation of energy market models, principally power, carbon and hydrogen. He holds a PhD (Dr.-Ing.) in Energy Economics and Operations Research from Technical University, Munich.

Matt overseas the output of ICIS’ power team across 28 European markets, from short-term developments to long-term forecasting out to 2050. He provides quantitative and qualitative analysis, with particular focus on EU regulatory developments.

With the support of Our New Energy