With technology developing further and FiT (Feed in Tariff) subsidy schemes phasing out, private power purchase agreement (PPA) are available as an alternative for investors to provide stable and reliable cash-flows.
These PPA agreements are independent from the public authorities or government subsidies and are structured as bilateral agreements between the project company and the off-taker, either industrial, energy intensive companies, IT operators or utilities. PPAs provide stable cash-flows for renewable energy infrastructure investors as well as hedging against the increase of power price for private energy intensive companies. By providing locked-in revenues, private PPAs also enable project finance of transactions without any Government subsidy.
Private PPAs are bilaterally negotiated and structured on a project by project basis and can, therefore, be optimised according to the project´s economics and the investor´s risk-return profile.
Private PPA in Europe
With the progressive reduction of subsidies and introduction of auction systems, driving guaranteed tariffs down, private PPAs become more important to finance renewable energy in Europe. The Nordics, Ireland, the UK and the Netherlands have been paving the way with PPA agreements, signed for a large number of large-size projects.
Prime Capital’s team has developed extensive knowledge of the European PPA market and how to structure and close those agreements. Project Nordlys (Northernlight) [link to other Kachel], which achieved closing in Norway in 2017 was one of Europe’s’ largest onshore wind projects with a private PPA. Electricity is consumed within the same price area by a Norwegian aluminium company.
We see private PPAs with tenors from 5 to 20 years with hedging of up to 100% of the electricity produced in the market. Prime Capital arranges tender process on a project by project basis to drive PPA negotiations. Corporate, IT or strategic companies are offering hedging the price of their electricity as well as promoting the use of renewable ‘green’ energy. Based on the preferences of investors and banks suitable terms are chosen, negotiated and closed.