European PPA market breaks records as number of deals rises 66%; Czech market is only just emerging

The European market for long-term direct electricity sales agreements (PPAs, or Power Purchase Agreements) grew by 40% last year in terms of installed capacity (to a total of 16.2 GW) and by 66% in terms of the number of contracts concluded (to a total of 272). The average electricity selling price for the full year settled at EUR 58/MWh, while by the end of last year it was already around EUR 50/MWh. The PPA market in the Czech Republic is still in its infancy, but it could soon begin to develop. 

The European market saw a post-crisis record both in the number of PPAs concluded and in the volume of contracted capacity, according to a report by PexaPark. PPAs have grown in popularity due to interest in securing stable electricity supply prices, as fixed-price PPAs protect buyers from fluctuations in market electricity prices, interest in electricity prices lower than market prices, and, last but not least, buyers' efforts to meet corporate ESG targets.

Efforts to meet corporate ESG targets can also be seen in the share of corporate PPAs (i.e. contracts where the buyer is not an electricity trader, but a commercial company using the electricity for its own consumption). These accounted for exactly 80% of all PPAs concluded.

Last year was significant for PPAs primarily because of the decline in electricity selling prices. To estimate these prices, Pexapark compiles the PEXA EURO Composite index, which fell from around EUR 80/MWh at the start of 2023 to EUR 50/MWh at the end of the year. On average for the full year, the electricity price reached EUR 58/MWh. The decline therefore essentially mirrored the fall in wholesale markets, which are an alternative for consumers purchasing electricity.

Germany and Spain are the largest markets. Contracts remain scarce in the Czech Republic

The German and Spanish markets were the most active for PPAs last year. Pexapark recorded a total of 41 PPAs concluded in each market. In both countries, PPAs secured electricity supplies from sources with installed capacity of around 3.7 GW.

In the Czech Republic, the PPA market is only gradually developing. Publicly available information exists on two corporate PPAs. The first is a corporate PPA concluded between Ambient Energy (as producer/supplier) and ŠKO-ENERGO (the buyer). The second is a contract through which Jarošovský Brewery secured electricity supplies.

There are generally no legislative barriers to concluding PPAs in the Czech environment. The issue is rather the lack of new renewable energy projects and the frequently differing views of sellers and buyers on the price of electricity supplies.

However, the situation in the Czech Republic may soon change. After a multi-year pause, operating support has been reintroduced for wind power plants. Although operating support has still not been introduced for solar power plants, large-scale solar parks are also being built after many years, thanks to investment support from the Modernisation Fund. Given the absence of operating support, securing sales through PPAs may be one of the viable options for these projects.

European legislation could also help further development. As part of the new electricity market design, it is expected to focus, among other things, on supporting the conclusion of PPAs. For example, the European Union should publish a standardised and balanced PPA contract template, which would facilitate contract negotiations and thus reduce the costs of concluding a contract. Buyers should also be able to join together to conclude PPAs (pooling of demand).