New deal could herald PPA boom in the Baltics

ICIS Editorial

16-Apr-2021

LONDON (ICIS)—With the agreement of the third Baltic power purchase agreement (PPA) in the space of less than 18 months, financing green power through PPAs is fast becoming a favoured model for developing green power in the region.

LITHUANIAN WIND

On Wednesday, Estonia’s state-owned utility, Eesti Energia, and Danish developer, European Energy, agreed a ten-year PPA for the purchase and delivery of a total of 3.8TWh of renewable energy from 2023.

The power will come from three wind farms in Lithuania, totalling 180MW of capacity, which are currently under development by European Energy.

The PPA is the third in the Baltic region and the largest so far.

The PPA financing structure is gaining traction as an increasing number of Baltic corporate consumers are interested in buying fixed-rate green energy.

In 2021, over 100 agreements have been signed with large companies all over the Baltics, according to Eesti Energia, corresponding to a total volume in excess of 2TWh.

TRENDING

Wednesday’s deal is the largest yet in the Baltics and the third since 2019.

2020 saw two Baltic PPA deals: Eesti Energia agreed a 10-year 70MW deal, starting 2022, with Lithuanian wind developer E-energija. This followed the pioneering 300GWh Lithuanian Akmene One project, which is a 12-year scheme.

According to Jonas Lau Forsberg Nihøj, director of trade at European Energy, this deal could very well be the beginning of a boom in Baltic PPAs.

“There’s been some hesitation surrounding the Baltic states because of uncertainties with regards to regulations and because of investors lacking the experience of doing business in the Baltic region. Finally, the market for offtakers of power is comparatively small,” Nihøj said.

“However, the financial case for Baltic PPAs is good. It is possible to develop green energy projects which will produce power at the same price or cheaper than projects using conventional fuels, which makes it a win-win situation for all involved. We’ve been first movers, but this is only the beginning of PPAs in the Baltics,” Nihøj added.

Though there are various schemes for subsidies for wind in place across the region, these are of very limited importance, according to Nihøj. ‘

“Subsidies are a bit of sugar coating, but they are not important for financing purposes. We do not consider them as part of the package.”

AN OBVIOUS NEED

According to ICIS analytics, the Baltic region will maintain a power deficit throughout the decade and will need to import 3.1TWh worth of energy in 2021 alone.

If the PPA model catches on, chances are that this deficit can be reduced faster than anticipated and in a manner which happily coincides with the wish for more renewable energy.

As subsidy schemes are phased out or – as even deemed illegal, as has just been the case in Lithuania – this is even more pertinent.

And change can come about fairly quickly. A typical PPA onshore wind development is completed in 24 months, while a PV deal can be done in 12 months, Nihøj explained.

Lithuania currently has installed capacity of around 600MW of onshore wind, so the new 180MW farms will make up a significant part of the country’s future wind generation.

By Anne-Louise Petersen

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