Investor optimism sparks PPA competition

In recent months, Cornwall Insight has issued several of our regular subscription reports from our PPA Insights Service covering both renewable and flexibility Power Purchase Agreement (PPA) markets, namely the Green Power Forecast, Renewable PPA Market Share and Flexible PPA Market reports. As part of these reports, we conduct surveys and have in-depth conversations with the participants in these markets. Below we discuss some of the key trends from our latest round of research.

Renewable PPA market

The PPA market for renewable generation assets has seen a significant rise in the £/MWh value achieved by generators, particularly in the short-term market (deals 1 – 3 years in length). This has been driven by higher wholesale power prices and is especially notable in the FiT market with a growing number of FiT generators opting for PPAs instead of the administered export rate.

Offtakers continue to enter and exit the renewables PPA market space, with our latest PPA Market Share report – issued in March 2021 – noting a net decrease of four offtakers since the previous report issued in September 2020. These exits were broadly down to consolidation and exits in the retail supply market instead of parties consciously moving away from PPAs. Generally, more parties are entering the market, especially smaller green suppliers looking to back renewable energy supply tariffs against green power purchased direct from generators, instead of or alongside the purchasing of REGOs.

As such, the renewables PPA market remains highly competitive with value retention levels for generators remaining high amid a competitive offtake market. Some offtakers have even reported that winning PPA bids in competitive tenders and auctions appear to be mispriced or loss-making. The two main reasons attributed to this trend are differing views on forward wholesale power prices, particularly regarding captured prices for intermittent renewables due to price cannibalisation, as well as wider strategic moves which can include sourcing green power to back renewable supply tariffs, securing green certificates such as Rocs and REGOs or strategic business decisions to gain market share in the renewables PPA space. We update these pricing benchmarks each quarter, with our Green Power Forecast report providing a full in-depth breakdown of these benchmark levels.

Market participants have noted that there is a high level of interest in long-term (5 – 15 years) fixed price PPA deals. However, concerns surrounding price cannibalisation remains a barrier to securing these longer-term deals. The difficulty in hedging prices for delivery in later years of contracts has made these deals hard to close according to market participants, with only a small number of offtakers able to offer long-term fixed prices. Increased interest in corporate PPAs continues to be noted, but a gap in expectations between offtakers and corporates remains according to our survey and slim price benefits create difficult negotiations. Looking ahead, developers of new-build assets are continuing to assess their best route to market options ahead of the fourth CfD allocation round. Many offtakers are being approached by these project developers; however, developers are also weighing up the CfD versus alternative routes to market such as corporate PPAs and utility PPAs.

Flexible PPA market

Flexible asset PPAs, which we define as PPAs for front of meter battery and gas assets, are fundamentally different to those available to renewable assets. This is due to the focus on optimisation across numerous flexibility revenue streams, often stacking or jumping between different flexibility services.

Our research found that profit-sharing arrangements continue to be the most popular PPA structure, where the offtaker has responsibility for trading and optimising the asset with a percentage share agreed on returns. While these arrangements tend to have a fixed percentage profit share, tiered profit-sharing agreements are also available where differing values are passed through at different profit ranges. High wholesale power prices observed over the past quarter have been profitable for a number of providers and have reportedly sparked more investor optimism.

Minimum revenue guarantees or floor price arrangements remain a popular request from asset developers in PPA deals, in particular for battery assets looking for debt financing. However, despite slightly higher floor prices being reported in our research, there remains an expectation gap between generators and offtakers. Our full Flexible Asset PPA Market Report provides floor price range and revenue share benchmarks to provide transparency in this area for offtakers and generators.

Additionally, our research found that being able to access all flexibility revenue streams is important for generators, with many noting the importance of being able to jump between revenue streams to secure those which are most lucrative. This is particularly important now that many services are procured at the day-ahead stage and as the ESO is allowing the stacking of Dynamic Containment and Balancing Mechanism (BM) revenues. As such we noted more participants gaining access to the BM with many assets/ parties entering via the Virtual Lead Party method.

Our PPA Insights Package provides an all-in service for generators, offtakers, flexibility providers and investors operating in the PPA market. For more information, please contact Tim Dixon at

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