ICIS Power Perspective: Outlook for utility PPAs in Europe

Author: William Peck


This story has originally been published for ICIS Power Perspective subscribers on 09 August 2019 at 15:34 CET. 

The utility or supplier power purchase agreement (PPA) market is surging this year, with renewable capacity signed to deals on track to roughly double compared to 2018, according to our new utility PPA statistics page, launched on 9 August 2019.  We looked at the deals from the sellers’ and buyers’ perspective and analysed the future growth prospects for the market.


  • Utility PPAs are long-term contracts between a renewable generator and a utility or wholesale reseller for the supply of electricity
  • In contrast to corporate PPAs, the offtaker does not use the electricity itself. It either delivers it to its residential or corporate clients, or sells it on into the wholesale power market
  • As with corporate PPAs, the offtaker can beef up its green credentials and hedge against future price risk, while guaranteeing the renewable generator a route to market and a long-term income
  • Corporate PPAs have become more prominent in the public consciousness, but utility PPAs have made up the majority of publicly reported deals over the past 18 months

  • The Nordics have dominated the corporate PPA market due to a favourable regulatory backdrop, a concentration of creditworthy industrials, and a cool climate and abundant power supply that makes the area perfect for data centres
  • This year, the corporate PPA market has diversified geographically as the economics improve for subsidy-free projects, but large Nordic power users have grown close to fully hedged for the next few years
  • The utility PPA market by contrast has become quite consolidated due to strong growth in Iberia and the UK, where some renewable sources have no subsidised route to market


  • There are several reasons for the faster pace of growth for utility PPAs since 2018:
  • Bankability
    • The higher the credit rating of the offtaker, the cheaper the cost of capital, bringing down the price that a PPA can be signed for. Large utilities are some of the more creditworthy organisations around
    • Contract lengths of around ten years are required to finance new-build renewables projects, so the generator and especially the lender must be confident in the offtaker’s business prospects for the long term. Corporate PPAs require renewables developers to research other sectors, whereas they will be more familiar with the business of wholesale energy buyers
  • Demand
    • Offshore wind capacity is expanding rapidly, but projects tend to be larger due to the greater cost of installation
    • Most corporates are not large enough to take the power from a 300-700MW project
    • Utilities and resellers can take this amount of power and distribute it to a range of different sources, meaning they have dominated the PPAs for offshore wind projects (see graph below)
    • Corporates can join together to sign large PPAs, but this is an additional layer of complexity and not many of these types of deals have been signed
  • Sector experience
    • Inattention sometimes paid to energy spend, a small line item for most organisations, is a key factor restraining the corporate PPA market, which is obviously not the case for utilities or resellers
    • A lack of confidence or experience with energy markets on the part of corporates similarly does not apply to utility buyers, which are comfortable with price volatility and long-term hedges. Utilities signing PPAs essentially get to cut out a link in the chain, as many corporates require trading expertise to manage the costs associated with shape, balance and volume of renewable power supply


  • As discussed previously, a key benefit to signing a PPA on the part of the buyer is showing off the green nature of the power to environmentally conscious customers. This will enable utilities to retain their existing business models, fighting back against being cut out of the equation when deals between generators and large energy users are signed
  • A PPA has several advantages compared to the option of developing renewables assets in house
    • In cases where the utility or reseller would need to secure capital to build assets, instead signing a PPA makes this cheaper as money lenders consider the return less risky
    • Even in cases where the utility or reseller has the capital to develop a project, signing a PPA enables the utility to avoid costs that might incur from project delays and other factors. Building renewables assets and the commercial sale of power are very different businesses. Some organisations will have significant expertise in both areas, but other buyers and sellers will benefit from focusing on their core area
    • Supply outstrips demand in the corporate PPA market. Utilities can take advantage of this by switching over to the demand side of a PPA and getting better terms. For resellers whose income derives from buying and selling on the wholesale market, signing a below-market PPA could increase profits

William Peck is Senior Market Reporter at ICIS. He can be reached at William.Peck@icis.com

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