EU takes steps to facilitate PPAs with new guidelines.

The European Commission (EC) has made a formal recommendation for member states to eliminate both regulatory and non-regulatory barriers that hinder the market for power purchase agreements (PPAs).

This document, authored by Energy Commissioner Dan Jorgensen, builds upon the EC's earlier PPA guidance from May 2022. It follows a four-week evidence-gathering period earlier this year and is consistent with the Renewable Energy Directive and the Electricity Regulation.

The recommendation not only addresses electricity PPAs but also includes purchase agreements for other energy sources such as heat, biogas, and hydrogen. The main challenges are categorized into regulatory and non-regulatory barriers.

Regulatory challenges involve accounting standards related to PPAs, the implementation of the guarantees of origin framework concerning the sustainability policies of corporate buyers, and general regulatory barriers affecting renewable energy deployment, such as grid access rules and extended permitting processes.

Non-regulatory issues encompass the creditworthiness of potential buyers, the lack of awareness and difficulties faced by small and medium-sized consumers in signing PPAs with large energy producers, insufficient market transparency, the absence of standardized PPA contracts, and limited participation by public buyers in PPAs.

The EC recommends that member states establish conditions for the rapid deployment of renewables and storage, as well as enhance access to PPAs for smaller buyers by removing barriers to multi-buyer contracts and facilitating their signing through state-backed guarantees.

Moreover, for investments in electricity generation supported through two-way contracts for differences (2w-CfDs) or other schemes combined with PPAs, such support should be structured to prevent cross-subsidization, market distortion, and liquidity risks.

Regarding guarantees of origin, the Commission suggests that they should be issued and transferred with time granularity down to the market time unit, pertain to electricity from storage units, reflect the bidding zone, and allow for cross-border exchange.

Additional formal recommendations include revisiting accounting rules that hinder specific PPA structures, aligning state-backed credit guarantees with the European Investment Bank's (EIB) counter-guarantee instrument, facilitating the tracing of renewable gases in purchase agreements, and mandating that public entities and large energy consumers procure energy through PPAs.

The EU's corporate PPA market has seen significant growth in recent years, with the number of new contracts increasing fourfold from 2020 to 2024. The total volume in that timeframe has risen from 7.4 TWh to 31.4 TWh annually, along with an increase in signed deals from 60 to 276. By 2024, most of these contracts will be based on solar generation, with over 10% being hybrid contracts that combine various technologies, including storage assets.

Currently, 13 member states have mature PPA markets, while seven are considered emerging markets. The Commission notes that the remaining seven member states have a very low number of contracts.