Increased pressure on corporations over their green credentials and a phase-out of government incentives sent the number of renewable power purchase agreements (PPAs) in Europe soaring more than tenfold in six years, according to global law firm DLA Piper.
Research carried out by the firm, using data from inspiratia, shows the number of green PPA deals signed in Europe increased from just four in 2013 to more than 45 as of July last year. Since 2013 inspiratia’s database has recorded more than 18GW of subsidy-free projects, which have either signed a PPA with a utility/energy trader, or a corporate.
In its report, Europe’s subsidy-free transition: the road to grid parity, DLA Piper says while the shift towards renewables was enabled by governments through support mechanisms such as feed-in-tariffs, the baton has now passed into the hands of the private sector.
The report says a transition to subsidy-free projects led by Sweden, Norway and the UK is now being closely followed by promising deal flows in Spain and Italy. Countries such as Germany, Portugal and France are at an earlier phase of activity.
“Corporates across the globe have been under increasing pressure from consumers and investors to green their businesses leading them to radically change the way they purchase electricity, either as signatories of PPAs or even, in many cases, as owners of renewables projects,” said the law firm.
“Renewables projects have blossomed around the world in the last decade driven primarily by government subsidies. Europe has been at the forefront of this transition.
“However, this phase of the transition to renewables is set to come to an end as capital costs have declined sufficiently to enable such projects to be economically viable on the basis of grid-parity with fossil fuels in several European markets.”
DLA Piper added that solar PV is the most notable success story when it comes to the role that capital cost reductions have played in reducing the levelised cost of energy in the renewables sector.
Though common in onshore wind, the shift to PPAs is only starting to emerge in the offshore sector with Orsted pioneering the concept in February 2019 via a ten-year deal with UK utility Northumbrian Water to offtake power from the 573MW Race Bank project off England.
Last month the Danish wind giant inked a ten-year deal with German high-tech materials specialist Covestro which will buy production from the planned Borkum Riffgrund 3 offshore wind project in the North Sea. Covestro will offtake 100MW of the wind farm’s total 900MW capacity.
Europe has been slower than the US in taking up corporate PPAs, according to DLA Piper.
But industry body WindEurope has said corporate sourcing of renewables is now rising rapidly, with 7.5GW of PPA deals signed over the past five years, and 1.6GW worth by October 2019 alone, by when it estimated that some 13 European countries had inked agreements.
“At first glance it may appear that the role of policymaking would take a back seat with a subsidy-free and market-driven environment,” said Natasha Luther-Jones, DLA Piper global co-chair of energy and natural resources.
“However, governments and regulators still have a clear role to play in a grid-parity world. For example, regulators still have the power to affect investment decisions through market design, tax frameworks, and grid legislation.”