By Rachael Burnett, Montel
A prevailing shortfall in supply means corporates seeking power purchase agreements (PPAs) in Europe must increasingly bid into seller auctions, consultancy Altenex Energy says
It is becoming increasingly common for sellers to issue “reverse tenders”, where prospective offtakers propose PPA prices, and negotiate a deal with the company that makes the most competitive bid. There has been a shift from a buyers’ to a sellers’ market for European PPAs in the past 18 months as the energy crisis has spurred demand for deals, Corina Melchor, clean energy advisor at Altenex, said. “It used to be a buyers’ market [where] sellers were vying for buyers to sign and buyers had the upper hand and were able to pick between different projects.”
A lot of new offtakers have come into the market seeking long-term price certainty, particularly heavy industry, “because energy costs are such a big part of their cost stack and they want to mitigate that”. Availability of projects has not been able to keep pace with this rise in demand, partly due to permitting delays. “Now buyers are going to sellers and asking for projects and PPAs, the power dynamic really has shifted,” Melchor said.
Energy companies with projects at an advanced stage of development are increasingly conducting reverse auctions – giving the specifications of the project, its location and load forecast – with buyers bidding a fair price. “It used to be an auction for buyers to procure from a choice of projects, now it’s the opposite.” This has also highlighted the need for advisory services that can inform buyers on an appropriate bidding level, a “Goldilocks price – not too high and not too low”.
PPA sellers consider the bids “as a whole”, including what each buyer has to offer in terms of credit and name recognition. “It’s not just about price but also creditworthiness, the buyers’ story and potential to sign further deals.” Contract structure and length is typically set by the seller. Many reverse auctions are “massively oversubscribed” with bids totalling three to seven times the volume offered.