The European market for renewable energy power purchase agreements (PPAs) went on a rollercoaster ride in 2020, and Amanda Niklaus, PPA transaction manager at Switzerland-based advisory firm Pexapark, was in the front carriage.
After strong demand in the first two months of the year, the pandemic hit – and power prices fell off a cliff. “There were lenders considering lending on a merchant basis [based on the revenues renewables projects could earn from trading in power markets]. That was a wake-up call.”
However, the short-lived turbulence in the market vindicated Pexapark’s approach, Niklaus says. “We are in the business of energy risk management – it helped us make a better case that power markets are extremely volatile, so it is very important to have a risk management strategy in place.”
According to figures from Pexapark, an advisory and software company specialising in PPAs and energy risk management for renewables, PPAs covering a record 8.9GW of capacity were signed in Europe last year. The majority – around 5.2GW of capacity – were struck in just three months, either before the pandemic struck in March or in December.
According to figures from Bloomberg New Energy Finance, the global corporate PPA market grew 18% in 2020, to 23.7GW of clean energy capacity, despite the challenging market conditions. This follows a 44% rise between 2019 and 2020.
Power price volatility ‘here to stay’
PPAs are a key means by which buyers and sellers can manage price uncertainty. “Price volatility is here to stay,” Pexapark co-founder and chief operating officer Luca Pedretti wrote in a recent report. “To manage the challenges imposed by the PPA market, market players have started to invest heavily in building their energy risk management capabilities.”
This creates opportunities for advisory firms such as hers, Niklaus says. “It is a very dynamic market at the moment – if you look away for three months, you wouldn’t know what was going on.”
Part of the dynamism is being driven by the growing sophistication of investors, says Niklaus. “Funds that are investing across different countries, they are able to see the bigger picture – they are asking how their risk looks on a portfolio basis, as opposed to looking at one single asset at a time.”
Policy remains a key driver of investor interest – or risk aversion – she notes, observing that concerns about forthcoming regulatory changes in southern Europe have seen last year’s rush of investment into that region slow in recent months. Meanwhile, continuing declining technology costs and power market conditions are also influencing investment flows, with investors particularly looking to Germany’s solar sector.
“In terms of the levelised cost of energy, solar has reached a price in Germany that is now interesting,” says Niklaus, which, in combination with the attractive PPAs that can be negotiated by developers in that market, means investors are making commitments despite the complete lack of subsidy support for such projects.
More broadly, Niklaus reports an increasingly “nice mix” of PPA buyers, including companies outside the energy sector as well as power utilities. She also notes that the gap between the needs of project developers and the preferences of PPA buyers is narrowing.
Typically, to raise debt against a project, a developer will have to lock in a PPA that provides revenue certainty for much or all of the tenor of that debt – which might be for seven or ten years. Negotiating a PPA with a company that is used to contracting its power on, say, an annual basis has been challenging.
“There has been a disconnect between the needs of investors and financiers, and the needs of corporate buyers,” she says, “but there has been a bit of a shift. We are seeing better understanding from the corporates.”
For some buyers, their view of forward prices is encouraging them to lock in prices. There is also a greater awareness of the product, particularly with a growing number of US companies bringing practices from North America to Europe. The lack of government-mandated feed-in-tariffs in the US made PPAs essential to get many projects off the ground. “We are seeing a lot of American companies who signed PPAs in the US saying ‘OK, let’s implement the same in Europe’,” says Niklaus.
Niklaus was talking to Energy Monitor as part of a series of interviews conducted in partnership with the Global Wind Energy Council (GWEC) to mark International Women’s Day on 8 March. In common with similar industries, renewable energy remains a male-dominated sector, presenting challenges and barriers to women looking to build a career within it.
For Niklaus, the main challenge is the additional scrutiny which her relative novelty to the sector brings. “Anything you do has the tendency to stand out,” she says. “If you do something well, then great, but if you make a mistake or if you are unsure, then that also stands out.”
Her response, she says, is perhaps to work harder to identify allies among her peers and superiors, and to more consciously seek support from her team members. “That has helped me a lot,” she says. “Most people are responsive.”
She is also keen to reciprocate. Niklaus has joined the GWEC’s Women in Wind Global Leadership Programme, and has just completed a year-long mentorship programme. As well as helping her mentee handle some of the challenges she faced as she started her career, Niklaus also benefitted. “I learned from her experiences, as well being able to share my experience of dealing with similar situations,” she says.
This interview is published in conjunction with the GWEC to celebrate International Women’s Day and women working in the renewable energy industry. You can see the video version here.