27 September 2022
Corporate Power Purchase Agreements have proven to be an important driver of the energy transition and enhancing energy security. They are essential for the EU to achieve energy independence and its own REPowerEU targets.
The draft emergency energy prices regulation that is currently being discussed, will in its current version undermine the blossoming PPA market. The law lacks the right provisions for a clear implementation of the proposed revenue cap, resulting in a high risk that PPA contracts are wrongfully affected by clawback measures – for instance, when the cap is applied immediately to revenues from the electricity market. It will also make it very difficult for new PPAs to be signed, at a time that Europe needs to invest in renewables as much as possible. Instead of giving strong investment signals, the new rules will fuel uncertainty.
Furthermore, EU Member States could undermine the PPA market even further if they follow through with a proposal to remove provisions that support PPAs (article 8 of the regulation).
Stable and common rules are essential. The revenue cap of €180/MWh should apply EU-wide to provide certainty to businesses that purchase or produce renewable energy. Divergent revenue cap levels around Europe would create significant business uncertainty for all parties involved in long-term energy contracts. They would also create problems when negotiating cross-border PPAs that represent a significant portion of the market share and are becoming increasingly popular.
Against this backdrop of uncertainty, PPAs require a stable regulatory framework to encourage investment and support long-term planning. Without this, the development of the PPA market risks a considerable slow-down. The 24 GW currently contracted via PPAs testifies to the importance of such long-term contracts, representing about 5% of the renewable energy market in Europe and growing. Governments must take all this into account.
To safeguard the PPA market and to protect consumers, the RE-Source Platform makes the following recommendations:
- Retain Article 8 in the Proposal for a Council Regulation on an emergency intervention to address high energy prices. PPAs need wording that supports their usefulness and the removal of administrative & market barriers.
- Provide clear guidance on how the revenue cap will be implemented in practice. Implementation must look at the revenues that producers receive after accounting for PPAs, not immediately after the settlement of exchange of energy but for instance rather on a quarterly basis. (Article 6, paragraph 3).
- Take hedging operations of virtual Power Purchase Agreements into account, which represent a large share of the PPA market.
- Require consistent application of the EU-wide revenue cap of €180/MWh to all forms of “inframarginal” electricity in all Member States.
PPAs can play an immediate role in solving Europe’s energy crisis. There is only one chance to get the emergency regulation right. Having sound provisions to ensure that consumers and the PPA market are not damaged by the revenue caps and proactively supporting corporate renewable energy sourcing, are crucial. The RE-Source Platform urges EU Member States to modify the regulation to protect and promote PPAs, rather than putting them at risk.