Despite electricity prices declining from their recent elevated levels, as at January 2024, average electricity spot prices across Europe were still north of 90 €/MWh, enough to service debt in the current high interest rate environment, and yet still deliver healthy returns to investors.
Given the phasing-out of both nuclear and coal-fired plants, more ambitious decarbonisation goals and soaring carbon certificate prices, electricity prices and the associated Guarantees of Origin (GoOs) look sticky at current high levels, barring additional energy supply shocks. Eventually, the current backwardation in electricity prices should subside thanks to the expected re-emergence of energy traders willing to assume more risk. This said, the macroeconomic factors discussed in this paper have shifted the risk-return profile for developers and financiers for the long-term and we expect to see the following developments in the coming years:
1 – Corporate buyers increasingly participating in the renewable energy market
2 – Increased need for price risk management and hedging expertise
3 – Lenders and investors being more willing to finance projects adopting short-term PPAs and merchant revenues
4 – Lenders showing more appetite for short-term debt solutions