Author: Beatriz Negreiros
On 29 June 2023, we hosted the webinar The Recent Trends and Developments in the Nordic PPA Market. For the informative discussion, which anticipates the new edition of the Solarplaza Summit Nordics, happening in Copenhagen on 28 September 2023, we received insights from expert speaker Mikkel Kring, Partner at Our New Energy. During the webinar, our speaker provided us with his insights on how Power-Purchase Agreements (PPAs) are being signed in the Danish, Swedish, Finish, and Norwegian solar markets, and how these are setting trends for the rest of the European continent’s PPA landscape overall. The webinar was moderated by Nicola Kopij Zanin, Project Manager at Solarplaza.
Afterward, Kring touched upon Denmark’s case, as the country is leading the Nordic region’s PPA race. In this market specifically, corporate PPAs are projected to be contracted within price ranges of €50 to €70 / MWh over the next year. However, the situation is similarly flourishing in other Nordic countries; the year 2022 set a remarkable milestone for PPAs in the region, with the signing of 799 MW of contracts. Furthermore, a large volume of PPAs is anticipated to be contracted in 2023 as well. However, the market’s future is not without its challenges; whilst spot and futures prices have experienced a decline, the reduction in capital expenditure (CapEx) has not been as significant. Consequently, power purchase agreement (PPA) prices are reaching levels that pose challenges to the feasibility of project business models. Kring points to the declining capture rates (a result of increased solar capacity deployment) as a cause of concern for the industry. The situation, he warns, raises an important question; who will bear the associated risks? Nevertheless, there is still optimism to be found among the field’s professionals, as the hope is that, with flexible tools such as batteries and storage capacities, prices will stabilize once and for all. In the coming year, the market is hopefully anticipating a crucial consolidation of demand, surpassing the available supply.
For those in attendance at the webinar, Kring then addressed the burning question:
There are plenty of reasons why, he argued. Namely…
✔️ The pressure to ‘go green’ (and meet the aforementioned ESG requirements…);
✔️ The fact PPAs are still priced below forecasted future prices;
✔️ The risk mitigation sensitivity of PPAs;
✔️ The PPA contract’s bespoke nature (as they can be customized to the corporate’s needs).
And, lastly; trust. When the corporate entity initiates contact with the generator - rather than the other way around -, there is a greater level of trust and a higher likelihood of reaching the PPA contract’s end. This approach also expedites the entire process. Still, corporate PPAs face an important limitation - the fact that many mid-sized corporates lack sufficient credit ratings to grant the Balancing Responsible Party (BRP) taking on such risk. However, Kring assured, discussions at a European level are being held to find a way to mitigate this issue.
For the time being, our speaker shared that baseload PPAs remain corporates’ favorites. This is due to their production profile, under which the same amount of power at any moment in time is delivered at a fixed price. But, on average, there is only a 26% match between generation and production profiles, leaving a large portion of it exposed to market fluctuations. This, of course, poses new, and difficult-to-quantify, risks for baseload PPAs.
We concluded with an overview of the main contract structures in the Nordic PPA market.
Generator with corporate: In this case, a physical PPA is established using the same BRP for both the generator and the corporate. This arrangement allows for a streamlined invoicing process (typically resulting in a monthly invoice). This level of transparency facilitates compliance with accounting rules and corporate standards.
Generator with supplier: Through this mechanism, the supplier acts as a middleman, signing a PPA simultaneously with both the corporate and the generator.
In conclusion, the insights shared by expert speaker Mikkel Kring at our webinar The Recent Trends and Developments in the Nordic PPA Market, held on 29 June 2023, serve to reinforce the Nordic PPA market’s influential nature. This market is anticipated to establish a benchmark for other European markets, given its advanced maturity in such arrangements that others currently lack. Scandinavia is where they are looking to learn.
Interested in learning more about the Nordic solar market alongside experts such as Mikkel Kring and many more? Then considering coming to Copenhagen on 28 September 2023 for the new edition of the Solarplaza Summit Nordics. That way, you will never miss out!