Italy's Ferrero is famous for its red-and-white Kinder chocolate eggs. But ...
MILAN/MADRID - Italy’s Ferrero is famous for its red-and-white Kinder chocolate eggs. But soon it may hope to be able to slap more green on the wrapper.
These complex contracts are effectively insurance policies for renewable project developers against the risk of falling power prices, with the premiums paid by companies like Ferrero to support sustainable energy even though they remain plugged into fossil fuels. Many firms now fund schemes such as planting forests to offset emissions, but shareholders and authorities want companies to underwrite the direct addition of new renewable generation to grids.
“The big development in renewables in Europe in coming years to meet 2030 targets will mainly be through PPAs,” says Antonio Cammisecra, head of green business at Europe’s biggest utility, Italy’s Enel.Companies in EMEA struck PPA deals for clean energy projects with a total capacity of 2.3 gigawatts last year, according to data from Bloomberg New Energy Finance. The level more than doubled from 1.1 GW in 2017.
The contracts are offered by middlemen, known as offtakers, often big energy trading companies like Switzerland’s DXT and utilities like Enel. Without such an agreement, a new renewable project, exposed to the ups and down of the wholesale power market and unable to count on generous subsidy schemes that once held sway across Europe, could struggle to raise bank finance.For corporate customers, locking in large supplies of power for years can guard against rising prices, but can prove unfavorable if markets move lower. The converse is true for developers, who can lose out on income should prices rise.
As a result, only a few long-term PPAs - usually measured as more than 10 years - have been sold on the continent, many to companies with experience of the U.S. market. They include German carmaker Mercedes-Benz and Nike.“In Europe there is no liquid long-term forward market for power beyond 2-3 years so without price signals there is the risk of booking a loss,” said Antonio Gozzi, head of steel group Duferco, which last month signed Italy’s first corporate PPA deal for wind power.
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