Electricity markets across Europe have faced extreme volatility in recent years — from rock-bottom prices during COVID-19 lockdowns to sharp spikes driven by the Russia-Ukraine war.
Key Impacts on Renewable Projects:
- Increased balancing costs, reducing project revenues
- Higher initial and variation margins, making trading more expensive
- Elevated counterparty credit risks due to delivery defaults
- Reduced liquidity in forward markets, especially for contracts longer than three years
This volatility eroded long-term revenue certainty, making 10-year fixed-price PPAs nearly impossible to secure for a time.
However, by early 2023:
- Energy traders re-entered the market with 10-year PPAs, though often priced below spot due to backwardated markets
- Corporate offtakers began pursuing PPAs to lock in price certainty, even if their consumption didn’t perfectly match renewable generation patterns
- Some lenders began financing merchant projects—covering 50–60% of capital costs—helping more developments move forward without fixed-price PPAs
Later, regulatory interventions introduced revenue caps (e.g., €67/MWh to €180/MWh depending on the country), which increased revenue risk and raised borrowing costs. This prompted some developers to opt for lower-priced, long-term PPAs to ensure bankability.
Market Outlook
As of early 2024, average European spot prices remained above €90/MWh—enough to support debt servicing in a high-interest rate environment while still delivering returns. With continued coal and nuclear phase-outs and rising carbon prices, both electricity and Guarantee of Origin (GoO) prices are expected to stay strong. As market backwardation eases, long-tenor PPAs may once again become more widely available.