Power purchase agreements (PPAs) are considered a key financing instrument for the market-driven expansion of photovoltaics. According to analysts at Wood Mackenzie, 2024 new PPAs with a total capacity of 19 gigawatts (GW) were signed across Europe in 2024, led by Spain and Germany.
Last year, PPAs for renewable energies with a volume of 3.6 GW (an increase of 323% compared to 2023) were signed in Germany, and 3.1 GW (an increase of 12%) in Spain. The total PPA volume reached 11.6 GW in Spain in 2024 and 6.6 GW in Germany.
Prices often slide into negative territory
However, negative day-ahead electricity prices, which occur as a result of a temporary oversupply of solar and wind power, are increasingly causing problems for PPAs. This became clear at an event held at the Spanish Embassy in Berlin last week. In the first half of 2024, electricity prices on the exchange were negative for a total of 389 hours in Germany. This means that the annual figure for 2023, at 399 hours, was almost reached within six months; in 2024, the figure climbed to 457 hours.
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In Spain, negative electricity prices were recorded on the exchange for the first time in April 2024, totalling 244 hours over the course of the year. After a winter break, the total number of hours with negative exchange prices (including hours with €0/MWh) in Spain already amounted to 459 in the first half of 2025.
Financing is faltering
Photovoltaic systems in Spain generated 7% of their electricity during periods of negative exchange prices last year, compared with 18% in Germany, reported Max von Hausen, Country Lead PPA Transactions Germany at Pexapark. This complicates the conclusion of long-term PPAs and the calculation of contracts.
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“Structuring bankable PPAs is becoming more difficult because market participants are unclear about when the negative price hours will decrease again,” said von Hausen.
Given the uncertain price development and economic volatility, many suppliers are hesitant to commit to long-term PPAs. A wide spread between peak and trough prices and low market liquidity further complicated business transactions. Although prices for solar modules have fallen, other costs such as grid connection, land and financing remain high. This makes it difficult to realise projects economically at lower or uncertain PPA prices.
Market slumps
According to the expert at Pexapark, the PPA market has already collapsed in 2025. The capacity of announced PPAs in Spain fell to just over 1,000 MW in the first quarter, to around 500 MW in the second quarter, to around 200 MW in Germany in the first half of 2025 (I/25) and to a few megawatts in the second half of 2025 (II/25). Across Europe, PPAs with a volume of 5.6 GW have been announced since the beginning of the year, significantly less than in previous years.
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Von Hausen sees the flexibilisation of renewable generation and consumption as a key lever for avoiding negative electricity prices on the exchange and making PPAs more attractive and viable again. He also believes that a government safety net beyond the current feed-in tariff regime is necessary. “The energy transition can only succeed if price volatility and long-term risk are taken into account,” the expert emphasises.
FERGEI system as a model for risk hedging
This will require significantly more large-scale battery storage facilities to smooth out peaks in generation. Here, it is important to reduce bottlenecks in grid connections and speed up approval procedures. In addition, more incentives must be created for demand management and the digitalisation of infrastructure.
To limit the risk associated with PPAs, von Hausen also considers “efficient state guarantees” to be useful. The Spanish FERGEI system (Reserve Fund to Guarantee Large Electricity Consumers), which has been managed by the state-owned CESCE (Spanish export credit agency) since 2020, could serve as a model. Under this system, the financial risk of a PPA for suppliers and sellers is covered up to 80% of the contract value. In Germany, there is currently no special national credit guarantee system for PPAs.
Don't just rely on low industrial electricity prices
Von Hausen also advocated combining relief programmes for industry in terms of electricity prices with the promotion of renewable energies in order to advance the energy transition. He referred to corresponding regulations in Spain and Italy.
Future PPA market driven by tech and green hydrogen
In the ensuing discussion, representatives from the energy sector and industry emphasised the great importance of PPAs for the further development of the energy transition, decarbonisation and a secure and cost-effective energy supply, despite the existing hurdles and risks.
Strengthening local producers and markets
“We are primarily focusing on physical on-site PPAs to strengthen local renewable producers and local markets,” said Sabrina Ritterbach, Energy & Renewables Global Lead at Bayer AG. The goal is to supply all Bayer sites in Germany with renewable electricity via PPAs by 2029. This goal has already been achieved in Spain.
Ritterbach emphasised that municipal utilities are important partners in the implementation of regionally focused PPAs, including those with smaller producers, and PPAs with shorter terms of three to five years. Municipal companies are important intermediaries and have a lot of experience in this area. For example, the company is working successfully with Wuppertaler Stadtwerke, among others.
EDP: more than 15 gigawatts under contract in PPAs worldwide
Hybrid models are the future
“For us, PPAs remain a key instrument on the path to climate neutrality,” said Pedro Vinagre, Executive Director North & Central Europe at EDP. He sees hybrid PPA models, i.e. the combination of solar, wind and battery parks for electricity supply contracts, as the next key step. (hcn)
