With Laurent's segle And from London and Gerard Reed from Berlin. This is Redefining.
Energy today, on Redefining Energy, this is our annual episode on the state of the PPR market in Europe, and also going to talk a bit about the US and.
We're going to have Luca Well, the co founder PEXA Park, to come out and have a chat about it. I mean, this guy's is knowledge as they can and around these areas, and they've also recently moved into the US, so we also learn a little bit about that market as.
Well, and picks up Park for those who don't know who that company is, is really the leader in assessing the prices of PPA and they have accumulated so much database over the years, so whenever you want to do a PPA or you have a PPA, they're so important in pricing those long term assets.
Absolutely critical service. It's all about data, data, data these days.
Right, Let's bring Lucia in the show. Lucia, welcome to the show.
Thanks for having me again.
Yeah, you're a repeat of vendor. We like you very much, showed. That's your third time here and we'd like to have you first because your episode downloads a lot, and the second is because there's a lot of valuable information to share. So you just published your early report on the PPA market in Europe. What are your main takeaways.
It was a kind of fascinating year in PPA last year, and what we're probably witnessing is the end of the simple PPA. We had five good years of doing one deal left to the other in Europe and now we see negative prices, low capture rate and possibly a big demand saturation for standard of solid and it creates significant changes to how PPAs are done.
What you're saying is that we now have to deal with risk that wasn't there beforehand.
Well, it has been changing always from year to year, but I think the market has solved cheap renewable production and there's now a new barrier.
There's a new challenge.
Ahead, which is we need to produce what the client wants, and there's this demand saturation for standalone sold the profile in certain markets and it takes more work to produce a firmer green profile and that's actually a very good development. It means the industry has matured.
Could you dig into that a little bit more, because at the end of the day, there's a risk of what you're saying is sunny day, too much sun? You know, the price is zero. So then I sort of go as somebody's buying, I go, oh, why would I pay someone fifty euros when I can get it for zero?
Right, that's number one.
And I understand from the seller side they want to get fifty euros and not zero, So there's that mismatch. So how do you bring them together?
I say, yeah, So first of all, we have to focus on what the buyer wants, and the buyer want different profiles. They want to procure during the night, during the morning hours, and there is a market there for green production. And the way you solve this or how the market is adjusting and already twenty percent of the deals last year we're like that is that you combine different renewable technologies. So very simply bring together wind solar, add a bit of storage, and with that you can
create the profiles buyers want. Because the solar profile at noon this is over. I mean we have sufficient production then everyone is producing then, so that's served already.
If I look at your data on I see number of PPAs going up, volume of PPA going down overall, which means each PPA is a big tinier and it's the corpyright who are really the big buyer. So the utilities are not really in the game anymore. Maybe they're going to come back. You're going to tell us is it just your average big tech or did you see new players coming on the market.
This is really fascinating.
So we have like eighty percent of all the deals are corporate, as you pointed out, it's more than three hundred deals. But extremely interesting is more than hundred and fifty of the corporate buyers are first time buyers in the market. And yes, we had a decrease in the reported PPA volume the last year because the deal size has got smaller, so the average deal is now below fifty megawatt used to be seventy eighty megavot. But the
actual capacity realized on the PPAs has increased. So while the report the PPA volume is like fifteen gigawat, the capacity realized under this PPAs are twenty gigabot. So that's an interesting twist to how the market played out.
I see also that the main market remains Spain and then you have Germany, Fronts, Italy.
Gb We have been predicting for Germany to take it over in Spain, but I think it was just too good and too growing. On the Spanish side, I think it's now five years in a row where the market was the biggest. But that's actually a good case Spain where we do see barriers to growth. We can't just continue to do standalone solar anymore, so you will see an epic boom in co located project solar and storage.
There's a huge premium or demand for wind profiles. You see basically already half of all the deals in Spain being combined solar and wind, so they are the frontier and this is something which you're gonna see then spreading across Europe. And right now it is all corporates. But I wouldn't be surprised to see a bigger role of utilities. And we have been forecasting this already for two years.
It didn't materialize. But when you need more intelligence, because you need to combine and synthesize production to produce therma profile, you need more energy intelligence and this is something which utilities and modern retailers can provide. So I wouldn't be surprised to see a stronger role of utilities or modern intermediaries in the next years.
Ahead, which means that also that's going to combine with twenty four to seven trucking and probably trading or optimizing.
I guess correct.
You need intelligence for that, So first you need the infrastructure to track, but then you need to have the ability to combine intelligently. Twenty four seven is the holy grail. It's still a wallet buster in most markets where the underlying physical realities are still that you have a fossil stock. But right now we're at the stage of just simply doing a deal having soul and wind together, which are
not yet a firm profile. So where the real value is in is to guarantee an hourly or a fixed shape green and this is then where you need really size. So you need bigger investors that can do multiple technologies in multiple markets. You need investors that can have a team optimizing and planning this, or if you don't have that, you have third parties providing this service. And this is what I call the utilities or modern intermediaries or retailers.
So it's pretty much the death of the independent develobo that's what you're saying.
Probably not the death, it's basically we have witnessed over the last two years the end of the independent portfolio manager. So you have KK and large private equity companies buying all the platforms providing scale because just doing development for a single technology, I think this there is a certain limit to that.
What you're really saying is like scale matters. It's now became on a big boys game.
It's scale and it's energy intelligence. So there is a play for smart intermediation. So if you have an edge in combining, in planning, in forecasting, in synthesizing, there is a much more value now in the actual delivery of these screen products than it used to be before because right now it is basically you just sell whenever there is some and wind this energy is sold. You don't need to do anything actively.
Okay, which of course is going to change going forward. Right that's the whole point. Okay, very interesting, Okay.
I continue to scroll down your report and there are very interesting price signals, you know, around negative prices, capture rate and so on, and it looks really like it's going worse. And well, so if we think about the start of including more batteries. Now I know GB has as taken lead and now Germany is pretty hot. I mean, Spain looks like it would be a natural, but I guess here it's more a regulation bottleneck than anything else. What do you hear from the market.
Every country is trying a bit by itself how to regulate, how to do so. I think this is going to be figured out in the end. It's just going to be plain economics. Costs have been falling on the investment side for standalone renewables. Low capture is becoming a pain at negative power prices are adding value to storage, so it's just a factor of time that this will be resolved.
The big question for me is whether we will see more co location or whether we'll be more a standalone storage play like in the US where most of the deals are tolls, so basically a PPA for a standalone battery adding services to the grid, or just pure arbitrage. And that's something which is not yet fully clear how this will play out.
Well, from what I've seen in a recent conference in London and the story show Meet all the race is on tolling. You could hear it everywhere. Everybody wanted to do tolling. On one hand, as an infrastry investor, I'm happy to leave a lot of the optionality on the table provided I get my nineteen percent return. And on the others there's a lot of Yeah, as you say, begin a trader who are happy to swap fix for
viable and optimize that portfolio. Whereas co location, there's a lot of opportunities you miss because you are co located, so in fact you're sharing the same pipe with your set.
Yeah, this will be very interesting.
So first on the tolls, we will see what is the role of utilities, like who is providing those tolls?
So these are not corporate.
That's why we actually believe there is a bigger role for utilities to play. And then again this is a matter of scale and aggregate. Batteries make a lot of sense on single assets, as you pointed out, but they're even more interesting if you have a bigger portfolio of multiple assets, of various storage units, so that you can look at it from a portfolio size and you have much more optionality in what you want to deliver and
where you can extract value on the various markets. So PPA is just one outlet that's a long term supply, but there are of course multiple additional markets. If you go down the timeframe ontel delivery.
Could you talk a little bit about the role of batteries within PPAs, and I don't mean totaling, and I mean as part of a PPA in other words, back to this whole idea of firming wind and sola up. Are you seeing strong developments in that area and it's so could you just give an example of how that works, because I'm trying to get my head around is it that you're doing it when the sun goes down? Just describe how the power is being developed. Is it for
ten hours a day, five hours? How do these work or is a certain amount of a week or is it just whatever I produce you take? Just talk a little bit a bit about that and how batteries then changes everything.
There are a few principal structures emerging. One is shaping, so you agree with the off taker that for certain hours during the day, typically the high value hours, you have a certain commitment of volume, which is basically enabled by the battery. The other way is basically you just hand over both assets to the off taker, who then optimizes and you just get a premium on top of your PPA price. So these are the two extremes which we.
Are seeing and how do you see it going forward.
It depends a bit on which market we look at and how regulation plays out, but we would probably see a fast growing market for standalone tolls and the main play they are going to be basically arbitroge, so red services are quickly saturated because those markets are limited. And you see this in the advanced markets like in urcutt or in the UK where batteries within two three years took over the ancillary service market and basically have flattened
that out, which is the great development. And what then remains really after those grid services are provided is the arbitrush play by low sell high.
Okay, can I also just to ask you a little bit about the duration of the contracts in other words, and where I'm coming from and this at the end of the day, is the longer the duration, the lower the cost. It is the finance staring renewables project. So talk a little bit about that and how you see that going forward.
We just can look at markets which are more advanced in the tolling space in Urcotte textas where we see typical tenors of five to seven years on tolls and this is also what we would expect in Europe, so slightly shorter than typical PPAs where we talk ten twelve years of duration.
And the prices so the process have gone down. And of course there's always that problem that you have those government options, which generally are basically a best produced no margining, so they're pretty good.
Yes, there will be an interplace. You see this very similar on the PPA market. So the PPAs stand in competition with options, and you clearly see an interplay prices. So if there is an option from the government in Germany for solar, this will have an immediate impact on PPA prices and vice versa. The same thing would happen as well in the battery space.
If a government puts up.
A nice option with artificially high prices, it will not allow a private market to develop, just because the private market will work on commodity prices. And the main value driver here is not the absolute price level, but the price volatility and the spreads. And it's very dynamic and can change very quickly. Right now everyone is looking at those charts where we have exploding negative prices, but this
can go away very very quickly. I mean we add four or five kikabottes of storage to Germany and a lot of negative prices. Will beck On again.
You started referencing Texas got a bit because the great news is that Pixa Park is now going to America. So before you go into your special move, can you compare a bit the size of the market in your hope and in America. Although we all know America is California, Racote PGM, it's a bit of a spaghetti play, So what can you share with us?
Roughly the markets are similarly sized. I would say the storage market is much bigger in the US overall, but the PPA market Europe would be like we were fifteen gigawatt last year in the US it was twelve fourteen gigawatte. The market element is much smaller in the US. So you have aircots, which is really a traded market where there's a lot of dynamic price changes. You have a wholesale element, and it's very similar to.
What we would see in Europe.
But in the US we have a lot of regulated markets where a utility owns the entire value chain from generation, transmission to distribution and they do PPAs. But it's basically an action and then of course the biggest element. In
the US, it's all fueled by tax credits. That's the main instrument how the energy transition has been put forward, and this can amount to forty fifty sixty percent of the capex of a renewable asset or a storage, whereas in Europe two thirds of the renewable capacity realized is under options and the third is onder ppa. So these are more or less the big differences, maybe one more. The sizes of the deals are much bigger in the US,
and it's probably just a space factor. When we top forty seven mega in Europe, the sizes in Aircutt are easily two hundred macawatts, and I guess it's really just the availability of space.
Well, on the top of that, in the US you often have a nodule prices, which is another layer of complexity.
Good point.
Yes, this is definitely a different pricing system. We have very large price zones in Europe, so Germany is one price zone wherever you feed in the same price. That's completely different in the US, where you have a nodal system which adds a different Yeah, they call it basis risk at different price and cost structure into your revenue.
Look, the other thing is I read with interest your five predictions and I'd love you to go through them again. Right, So negative price clauses, standardize, multi technology PPA is double best off, takes expand utility, PPA volumes flatten and go to corporate PPA is volumes uncertain. Now the one actually a little bit the start with is that growth of corporate PPA volumes on certain to explain a little bit about that, and then you can just talk in general about your protection.
There the easy volume on the corporate side has gone, so the easy credit to go to credit has been contracted, and most corporates now in the market are either smaller or they would like to have a profile matching more their consumption. So in anything we do in the corporate PPA market absent absolute growth, which we don't have in Europe, we need to deliver different profiles. So the innovation is
happening on two front. Either synthesizing green profiles so we're adding different renewables, adding storage so we can deliver a green profile, or selling two smaller corporates. And I think this is the two big innovations which we're seeing in Europe where you have players active trying to solve those challenges.
Way in relation to that, I mean, what's your view on the US market that's Europe right in terms of the PPA is that do you see that as a growing market.
I mean, that's a big difference. That there is headline growth on demand. That's something which we don't have in Europe. It is not just AI, but it's a broad band that you have reshuring of industrial activities and this is just overall you have growth year on year on the absolute demand.
Okay, very helpful, thank you.
And the other predictions, maybe.
The whole thing about best which is obviously batteries at the end of the day, talk a little bit about that, and also the Europe your US, how you see.
That on the other predictions.
So we're quite firm on basically doubling the multi technology deals. So the biggest challenges were we mapped out our negative prices, low capture value, and demand saturation for standalone renewable profiles. The solution to that is combining technology and adding intelligence,
which is stored. So we're bullish on expanding storage and expanding multi technology deals for these reasons and on the actual volume we have to see, but we were pretty Polish Just to have basically strong structural growth in these areas.
Good and the price going up because I see the price of gas, it's not the same as last year.
Well in Europe definitely, the gas is still a major contributor to wholesale prices, and wholesale prices contribute to PPA prices, so there's a very strong link there for time being, as long as gas plays such a big role in Europe.
Still to conclude, look, our congratulation to your first acquisition in the US. So Pisa Park is a quite a company. I can't pronounce his name, sorry, what is it? What is it doing and what are the impact for Pisa Park Group.
Yeah, we're very happy it's our first acquisition. It's a company called renew Afi. They're based in New York and they provide price assessments for batteries and PPAs, so same business as PECSA Park. They also run a very active marketplace where you can transact on tolls and PPAs and they cover so far air cut which was a perfect match for our PEXA Park plans and now together with renew OFFI we will be able to cover most of
the US much quicker. That's basically our plan with the acquisition to be able to cover most of the US markets by end of the year.
Well, that's really brilliant. You're very, very smart, Lucas. Great to have yonder show.
I wish you all the best. I wish you all the best this year.
Thank you, Laura, thank you shared.
Well, y'all, it's good to have Luca once a year because the market is moving so fast.
Yeah, I suppose they reflective Laurent, which is a little bit like I took it out of it that the US market is going to be very strong, demand picking up except et cetera. But the Europe market a lot of uncertainly, which I'm surprised that actually, if.
You don't build any new data centers in Europe or you don't true industrialize, there's no new comer for those PPAs. So right now we're just replacing, you know, some fixed contract with PPA on the back of probably getting a
better price and of course ESG standards. We'll see how that PPA market is going to evolve, because on the other hand, governments are intervening more and more, so there's probably less room for the private market around those PPAs, which is bad on one hand, On the other, the fact that you get batteries coming in big times. That's something that has been purely managed by private actors, so that might give a boost to the PPA.
Now, what we didn't start to talk about, but which is in the report, which was that the biggest player in the European market was Amazon. I looked at the thing. What I was quite taken back by was the names that are not there. So I didn't see all the other big tech names on that, which was a surprise because I'm thinking, my god, these guys need green power. They're building data centers, and then I understand they're also
building more in the US. But what I mean, there's Amazon, that's Google, the Microsoft, But I mean, you've got so many big tech companies. I'm just thinking from European perspective, SAP wasn't I'm looking at Meta. I didn't see Tesla on the list, which is also a surprise to me. You know, anyway, just there were surprises. I would have thought. That's why I was a little bit taken back that the European market was not It doesn't really expect it to grow this year.
You know, Yeah, you're absolutely right, You've got the big three now the Amazon, Google and Microsoft. That's only half of the data center. So you have some independent players who are also in the cloud business, and I don't see their name, so that's kind of strange. Now, an interesting thing thing is you start seeing a big industrial like chemical Lion, Deel Basel sales guitar San Gobin. This is the proof that the industrials are starting to consider PPAs,
which is good. And look, it's a very good edge because if you look at the prices on the market on the ex they just go up and down and up and down because of the price of gas, other issues, and the moment we have a cold winter, everybody go crazy. So it's a very good edge. And I think that with the sophistication the dutilities, which only represent now what fifteen percent of the volumes, they're going to come back and it's their job to assemble those different PPAs into
some twenty four to seven pint product. So I'm not as pessimistic as you are.
You're right, sorry that what you're also saying is that we said that the podcast really is that big guys are back. That's the big guys have the opportunity you need to have a balance sheet in this area, and and and so, yeah, it's not just kk r's creative platforms. You're right, it's the utilities coming in and doing stuff there.
But that also means that the level of digital that they need to master is enormous because you know, all those markets are going now by the fifteen minutes or the five minutes, and you need to availtgoes who process this all the time. So you need a lot of big guys overy smart guys in order to honest those.
Markets absolutely absolutely well. Exciting exciting times, yeah, exciting.
So we thank Luka for coming on the show, always very insightful, congratulate him for the acquisition of his New York outpost, and we wish the best to pick a park for the coming years.
Yeah, absolutely, all right, my friend, good next week, looking forward to cheers. Thank you for listening to Redefining Energy. Don't forget to rate the show and subscribe on Apple Podcasts, Spotify, or the platform of your choice.