Early PPA could be sign of things to come after 2020

GERMANY: Munich-based Green City Energy has signed a power purchase agreement (PPA) to supply wind-generated electricity from its onshore wind farms in Bavaria and Saarland to ecological printing firm Ulenspiegel Druck. Deals of this type remain rare in Germany.

Change of focus… Developers are looking at new models to make projects viable without state support (pic: GCE/Ackermann)
Change of focus… Developers are looking at new models to make projects viable without state support (pic: GCE/Ackermann)

The PPA creates a direct supplier-to-consumer relationship, said Michael Renninger, managing director of Green City. The wind-generated electricity makes up 5-30% of an electricity product offered by Green City Energy, the rest coming from Bavarian hydro-power. The aim is to build a customer group for the wind farms’ output to secure their long-term operation without having to rely on state support mechanisms.

In parallel, the company is launching an investment fund for wind, solar and hydro projects in Europe designed to allow new projects to be financed through power purchase agreements, Renninger added.

Green City Energy’s approach could be widely emulated, although PPA contracts are unlikely to really take off in Germany until about 2020.

Future potential

"If we look specifically at Germany and onshore wind, it is very much a case of future potential," said Andrea Grotzke, head of commercial and industrial business at renewable-energy firm BayWa RE.

"The levelised cost of energy for onshore wind — the cost of building and operating a wind farm over an assumed lifetime — is continuously decreasing. At the same time, we are seeing the price for forward contracts at the power exchange increase. This means the PPA price we could offer is becoming more and more competitive. We think all these factors will combine in around two years’ time to make PPAs viable and very attractive to the German market."

Until around 2020, a surge in PPAs is unlikely because projects can still rely on Renewable Energy Act support, consultancy Energy Brainpool predicted in a January white paper. But innovative municipal energy utilities, large industrial electricity users, and computing centres may start to secure some of their electricity needs from wind and other renewables projects with PPAs in the longer term, it said.

From 2021-2030, the outlook changes. Successful onshore wind bids in last year’s German auctions of €22-58/MWh were so low that projects will source most of their revenue from the wholesale electricity market over the 20-year support period anyway, Energy Brainpool pointed out.

A lot of onshore capacity will come out of the 20-year support period — around 3GW in 2021 alone — and aim to continue operating. By around 2025, rising wholesale electricity market prices and falling project costs will start to make unsupported projects viable to be built. PPAs with appropriate hedging against price risk will then play a decisive role in the long-term marketing of wind and other renewables generation, according to Energy Brainpool.

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