PPA push in Italy, Spain and Germany supports far curve liquidity

Author: Federica Di


LONDON (ICIS)--A combination of increased hedging against power purchase agreements (PPA) and enhanced visibility on medium-term transactions is likely to have triggered a ramp-up in over-the-counter (OTC) liquidity on the Italian, German and Spanish power far curves.

Trade on the Italian year+3 baseload OTC power product has been gaining traction rather steadily in the past years, moving from 306,600MW in 2015 to 1,243,920MW in 2020 so far, acording to ICIS data.

The shift in strategy has come as traders look to better manage risk from long-term renewable assets, which have increased with long-term PPAs gaining momentum.

PPAs are long-term contracts signed between a renewable generator and a utility or wholesale reseller.

Commenting on the trend, one market source observed that “in Italy many big players are now taking advantage of PPAs as if they were invented only now and they had not existed before.”

If Italy’s liquidity levels appear slightly lower year-on-year, this is likely to be due to volumes changing hands more frequently in December, when yearly virtual interconnector auctions take place.

Similarly, traded volumes on the Spanish year+3 baseload product had been on a firmly upward track from 2017 to 2019, when a push to corporate PPAs was observed in the country, while OTC trading activity seems to have been hit in 2020.

As for the European benchmark, the trading volume on the German year+3 baseload power contract has soared over 20% since 2018, although it had been recorded at higher levels in previous years, data collated by ICIS showed.

According to Dario Gallanti, Partner at leading PPA transaction service firm Our New Energy (ONE), what may look a novelty on the Italian market was already an established trend in the European landscape: “If we look at other EU areas, we realise that the type of medium-term transaction we have recently witnessed on the Italian forward market are not completely new.”

“Germany, the largest energy market in Europe, already shows significant liquidity on medium terms products as well as Spain, whose renewed interest for the long term has indeed been fired by a flourishing long-term renewables PPA market starting from 2018,” Gallanti said.


A study from transactional platform LevelTen Energy shows Italy has been a European country with the highest demand for renewable PPAs over the third quarter of 2020, surpassing both Spain and the UK, historically at the lead of Europe’s demand for similar deals.

As of today, data collated by ICIS showed Italy has signed a total of roughly 200MW of corporate or utility PPAs over the past two years.However, a total estimate of 8GW in renewable projects - 3GW of wind and 5GW of solar – is already in the permitting pipeline, Virginia Canazza, CEO of energy consulting firm REF-E told ICIS in May.

In Spain, which has been the main hot spot for Europe in terms of this type of deals, at least 11 PPAs have been signed so far this year, according to ICIS observations. Of these announcements, at least six are corporate PPAs (CPPAs).

Similarly, 2019 saw 19 PPAs being signed supporting 2.9GW of new capacity.

The volume of new renewable energy projects backed by a power purchase agreement in Germany was comparatively lower last year, with projects adding up to less than one GW.

While this was likely due to an attractive auction scheme along with low power prices, demand for PPA renewable projects is expected to grow.


Already noticeable, the trend could be accelerated as the European Energy Exchange (EEX) is planning on providing further visibility on the forward market.

“It should not come as a surprise that EEX included these three markets as the first ones where to implement their product extension at CAL+10,” Gallanti noticed.

Currently, the EEX only indicates price references up until the year+6.

While the Cal+10 project has not gone live yet, with its launch being exposed to further delays due to the ongoing coronavirus crisis, EEX confirmed to ICIS that Germany, Spain and Italy will be the first countries in the pilot project.

While the Cal+10 project has not gone live yet, with its launch being further delayed due to the ongoing coronavirus crisis, EEX confirmed ICIS that Germany, Spain and Italy will be the first countries to be provided with long-term price exposure by the platform.

“[Firstly], these are the core markets where we have significant market shares, [secondly], these countries either already see a lot of PPA hedging, as in the case of Spain, or there is a strong demand from the client base for PPA hedging, as in the case of Italy, but also of Germany, where demand looks on the rise,” an EEX spokesperson told ICIS on Wednesday.


There are strong indications that trading activity on the Italian, German and Spanish far curves may reach new heights in the upcoming years, when the countries’ renewable generation starts playing an even more substantial role within their electricity mix.

To meet the ambitious objectives set within the framework of the European Green Deal, the three countries will likely have to stimulate RES growth by hastening their transition to a post-subsidy support scheme, in which hedging long-term price risk will prove vital to stabilise revenues.

According to Gallanti, the trend could in fact be reinvigorated as “off-takers find in the forward market one of the most valuable tools to sell part of the position acquired through a PPA”.

This would eventually lead to virtuous cycle: “The more long-term renewables PPAs, the more secondary PPA, the more long term energy price signals, the more corporate will be willing to enter long term supply agreements.”