Despite a sluggish start, Europe's market for corporate renewable power-purchase agreements (PPA) will expand in the near future, according to US consultancy FTI Intelligence, part of FTI's Clean Energy practice.
In its latest report, the firm states that Europe's energy market has remained dominated by state-owned utilities even though new regulations and distributed renewable energy sources now allow for the direct sale of electricity to customers.
FTI notes that the US corporate PPA market is thriving with 5.6GW of contracted capacity at the end of last year. Tech companies like Google, Microsoft and Amazon have led the push to purchase clean energy to run their operations, but companies in other industries are beginning to sign PPAs as well.
There are some instances of corporate PPAs in Europe, like Airports Worldwide agreed in April to power Belfast International airport with solar. But FTI notes they are few and far between: Europe installed 22.3GW of renewable generation in 2015 and has only 650MW of cumulative contracted capacity.
There is no regulation preventing corporate PPAs from being signed in Europe, the report said, but there are other regulatory and market factors that make the contracts “either economically unviable, as there are alternative arrangements which are more beneficial, or difficult to execute, due to physical and regulatory limitations”.
One of those factors is linked to government subsidies. Feed-in tariffs allow generators to sell electricity to the grid at a predetermined price. They were implemented to help make renewables cost-effective compared to cheaper fossil fuels, and their influence on PPAS should diminish as renewables become more competitive and countries roll back support schemes.
Feed-in tariffs also differ from US state support for renewables, which is given through tax credits. This partly explains why PPAs were adopted more quickly in the US.
Another factor limiting corporate PPAs is that grid operators in some European countries like Belgium and Germany are required to give priority to a renewable source of energy. This gives certainty to IPPs that their electricity will be purchased, reducing the need to pursue PPA contracts.
There are other factors contributing to the slow growth of Europe's PPA market, such as a preference for consumers to sign short-term contracts and a lack of knowledge or expertise of the energy market for smaller companies. But FTI's report states that the market is likely to begin growing.
FTI expects the European PPA market to grow to 7GW of cumulative contracted capacity by 2020, with Google's recent agreement to purchase 236MW of wind power in Sweden and Norway an early sign of this. Google and other US tech companies are acting as pioneers for Europe's corporate PPA market, proving the business model works in the European Union.
Increasing environment standards will play an important role as well, the report said, while better interconnection between countries should create a market friendlier to corporate PPAs.
“There are currently clear signs that the market for European corporate PPA will expand,” the report concluded. “We have seen the early stages of market growth being kick-started and expect the European market to follow a similar trajectory to the growth the US market has enjoyed.”
*Click here to read FTI’s full report: Energy Insights, The rise of the Corporate PPA in Europe?