New upwind expected: HCOB study on the potential of corporate PPAs

February 2021 – The growing business with power purchase agreements (PPAs) has experienced setbacks caused by the coronavirus crisis. However, the long-term outlook for this special energy segment, in which individual companies conclude direct supply contracts with wind or solar parks, is promising. A study now published by the Hamburg Commercial Bank highlights the future of PPAs.

barrels on a pallet

A look at the raw data is sobering at first. A total of 1.8 gigawatt of Power Purchase Agreements (PPAs) were signed in 2020, whereby solar power was the strongest green energy source for the first time. In the previous year, the figure was 2.5 gigawatts and in 2018 at least 2.3. But the decline in 2020 did not mark a permanent trend reversal for the fairly new and very specialized energy segment of PPAs, as the recently published study update “Corporate PPA. Green electricity for corporate consumers” from HCOB shows.

The impact of the COVID-19 pandemic can be felt

The Covid-19 pandemic has hit the PPA market on more than just the supply side, where many projects have been and are being pushed back as investors take cover for now. “The pandemic has also had a significant influence on the demand side. This is because the prices of electricity in Europe dropped drastically, and buyers were acting more cautiously due to the dynamic developments during the pandemic,” said Inka Klinger, Global Head of Infrastructure at HCOB.

windmill on a rapeseed field

At the same time, the bank's analysts see good long-term prospects for power purchase agreements. The trend towards sustainability and therefore also green electricity continues unabated. It is not only companies and their employees, but customers who are taking an ever more critical look at their carbon footprint and increasingly opting for renewable energy sources. However, since classic providers are rarely able to satisfy these demands with the power mix they offer, individual power purchase agreements are an innovative solution as a link in the chain between the green electricity sources and the buyers.

What is innovative here is that, instead of buying the green electricity – as was previously already possible – “anonymously” via the market, PPAs offer a direct relationship between the electricity-producer and his buyer of the green energy. This is made possible by various forms of supply and purchase agreements – from direct contracts to forwarding contracts to virtual power purchase agreements – between an energy provider and an energy consumer.

"For us, sustainability also means being future-proof, which is why we are happy to provide expertise to our customers in this forward-looking sector.”

Dr. Nicolas Blanchard, Chief Clients and Products Officer at the Hamburg Commercial Bank

“Because of the clear fall in state subsidies safeguarding of revenue for electricity producers via long-term power purchase agreements are ever more important. The challenge now is for the individual projects, with their wide-ranging time spans and the various underlying conditions, to find exactly the right PPA partner,” says Klinger.

This is precisely where the Hamburg Commercial Bank comes in. “We support our customers by bringing them together with institutional investors and banking partners. We have been active in project financing for sustainable energy production for decades and are therefore perfectly connected in the industry,” says Dr. Nicolas Blanchard, Chief Clients and Products Officer at the Hamburg Commercial Bank. In his view, PPAs continue to be an important growth market “because they increasingly enable companies to cover their energy requirements with renewable energies. For us, sustainability also means being future-proof, which is why we are happy to provide expertise to our customers in this forward-looking sector.”

factory building

Revised EU regulation facilitates sales and brings further potential

Sweden, Norway, the UK, Spain and Finland currently dominate the PPA market in Europe. In Germany, the business is still in its infancy. “But the trend is clear: the costs of generating electricity from solar or wind power projects in Germany are continuing to drop, and with the continuously growing demand from companies for green electricity, it's only a matter of time before PPAs pick up speed.”

The European Union renewable energy guideline “RED II” should provide for a further upswing in Germany as well. This gives alternative energy sources additional impetus to actually implement the ambitious climate goals in Europe by the middle of this century. “From this year, RED II will remove the final hurdles that have been standing in the way of direct marketing for green energy using PPAs,” says the expert Klinger.