DENA Empowers Sustainable Energy Demand with PPA

The significance of Power Purchase Agreements (PPAs) for businesses is steadily growing. As a central component of the future European market design, PPAs offer companies the opportunity to strengthen additional investments in the energy transition, mitigate price risks, and support the decarbonization of production. The Renewable Energy Market Offensive reveals the key areas that need to be addressed now to rapidly and robustly develop the PPA market in Germany.

Berlin, July 10, 2023. Power Purchase Agreements (PPAs), also known as "green power supply contracts," enable companies to purchase renewable energy directly from producers at a pre-agreed price over the long term. This not only strengthens additional investments in the expansion of renewable energies but also provides planning security for the producers. The reform of the European electricity market aims to structurally strengthen the PPA market. PPAs are intended to become a central source of financing for renewable energies. Member states are called upon to actively support this market development.

The impetus paper "Green PPAs in Germany: Where are we and what needs to be done now?" of the Renewable Energy Market Offensive shows the current state of the market and the timely impulses that must be set for green and cost-effective electricity. In their paper, the Renewable Energy Market Offensive identifies nine central action areas in the fields of market design, investment security, and business models that must be addressed to strengthen the energy transition and transformative industrial policies.

Tibor Fischer, Head of Renewable Energies at the German Energy Agency (dena) and spokesperson for the Renewable Energy Market Offensive, states: "PPAs are a key instrument for companies aiming for a sustainable and climate-friendly energy supply. It is now crucial to set the right market signals and make clear accents for market-driven expansion. Our impetus paper shows what has been achieved so far and which central measures can quickly strengthen the business model."

Market Design: Strengthening the PPA market through rapid implementation of EU requirements

The upscaling of the PPA market depends on a comprehensive framework and the interplay of supported expansion. To strengthen the PPA market, the EU funding requirements must be implemented quickly. It is essential to ensure that the interaction with the existing market premium models and future Contracts for Difference (CfDs) does not weaken PPA marketing. Also, regarding the possible introduction of a bridge and industrial electricity price, market-driven expansion must not be jeopardized, and necessary capital must not be withdrawn from the PPA market.

Investment Security: Tax incentives and minimizing default risks

From the perspective of investing companies and the current economic framework, it is essential to quickly receive tax incentives for investments while minimizing the risk of payment defaults. With regard to the mandatory financial reporting for many companies, it should be clarified that physical PPAs are considered financial derivatives permanently. In the long term, the current regulations for virtual PPAs should also be adapted at the European level.

Business Models: Promoting local power supply contracts

Concerning specific business models, it is crucial to strengthen pooling models and local generation and consumption communities, establish origin certificates as a value component for producers and consumers, and minimize transaction costs by developing market standards, including for smaller market participants. Particular attention should be given to incentivizing local power supply contracts, for example, through lower grid fees.