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published on 20th August 2021
The development of electricity prices suggests a new high in the offing. This gives rise to clear opportunities and recommendations for Corporate PPAs, which – due to their multi-faceted nature – can improve sustainability and secure more stable electricity prices for enterprises. The current situation on the German electricity market is unfolding with a speed that could not be expected. Or could it? Even if the electricity prices on the electricity exchange (EEX) develop only partially in line with general expectations, every German (or European) company will have a clear interest in considering new ways of purchasing energy.
The electricity spot market is currently affected by diverse factors which significantly influence the electricity price:
In view of the Green Deal and the tighter climate protection targets set for the EU in the European Climate Law (55 per cent CO2 reduction by 2030), a further drop in the availability of certificates, and an increase in financial investors in the CO2 market, it is to be expected that the CO2 price will continue to rise. There are even talks about 100 euros per tonne in the short or medium term. This is the toll to pay for the energy policy of the recent years, which has quite significantly hindered the renewable energy expansion, for example, by creating hurdles for wind energy (the 10H rule), implementing restrictions regarding areas eligible for photovoltaic power plants, and imposing the EEG surcharges on power plants generating electricity for self-consumption. If coal-fired power plants are eliminated from the market due to high emissions factors and are largely replaced with gas-fired power plants, the prices will remain high.
This is illustrated by the current price development on the electricity market and the current figures and trends for 2022.
The chart shows the rates of the Baseload Year Futures for the year of supply 2022 (purchase 2019, 2020, 2021); it can be seen that the prices for electricity currently purchased for 2022 are already significantly higher (the values go nearly parallel to the price curve for CO2 emission rights for 2022). The electricity price for baseload futures 2022 is thus currently about 65 euros.
It is difficult to tell where this road will take us in 2022. At present, however, there are clear tendencies showing that the price level on the electricity market will be higher than in the last five to ten years
The question is now whether it wouldn’t be better if a company actively purchased (green) electricity itself on the electricity market through direct electricity contracts (PPAs). This is made possible especially by green power PPAs. Although this approach seems unusual, given the expectations for the electricity market described above, the opportunities currently seem to outweigh the risks.
A green corporate PPA enables purchasing a percentage of the electricity you consume at largely stable prices over a certain period of time (5, 10 or 15 years) and thus hedging your electricity costs at least proportionally against electricity price increases. In some scenarios, it is possible to even save on electricity tax or grid fees, which thus generates even further savings.
Essential, however, is the decline in PV costs, for example. Deals to the tune of 5 to 6 ct/kWh and below the above electricity price level are not improbable. Of course, there are various factors that should be taken into account in the economic considerations:
Various large companies in Germany (and Europe), such as Mercedes-Benz, Fraport, Deutsche Bahn and VW, have resorted to green corporate PPAs for some time now, as they are interested in reducing their own CO2 footprint for strategic reasons and have certainly also recognised the opportunities for stabilising their own electricity costs. There are rather fewer projects than before taking place in the direct vicinity[BE1] , which also benefit from the sometimes considerable electricity cost privileges (on-site PPA). It is precisely here that Rödl & Partner sees considerable potential, partly due to new PV technologies or through partnerships with local commercial enterprises or municipal utilities.
The options (including virtual PPAs) should be examined individually for every site, and as early as possible, because demand for green electricity (and thus also for the technology) will increase significantly in the coming years – and this also increases the opportunities for the renewable energy sector. Green corporate PPAs are an excellent opportunity for implementing projects outside the EEG and thus for freeing yourself from the shackles of land use, etc. In the case of pure off-takers, the creditworthiness of the end consumer naturally comes to the fore. But especially in cooperation with municipal utilities, which can then also supply the residual electricity, there are good opportunities for taking the next step on the market. In the short to medium term, it will be standard practice to master and implement such sales models.
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Kai Imolauer
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