Removing barriers to Power Purchase Agreements (PPAs)

The development of Power Purchase Agreements (PPAs) is essential for decoupling European industrial energy bills from fossil fuel volatility and financing the next generation of renewable capacity. Recently, the European Commission (EC) launched a "Call for Evidence" to identify and dismantle the barriers hindering these contracts.

While the EC’s diagnosis of the problem is accurate, the upcoming Recommendations must be bolder. To truly scale the market, we must bridge the gap between energy goals and the wider industrial and financial regulatory landscape.

Below are our five key recommendations to ensure PPAs can scale effectively to meet the EU’s 2030 targets.

1.  Regulatory coherence: protecting the "Green Value" of PPAs

The EC aims to remove barriers to PPA uptake. However, a significant emerging barrier is the lack of coherence between energy legislation (RED III) and product-related climate legislation (e.g., Batteries Regulation, PEF).

• The barrier: Recent legislative drafts propose calculating product carbon footprints based solely on national grid mixes, explicitly excluding the benefits of PPAs and Guarantees of Origin (GOs).

• The impact: If industrial off-takers cannot use PPAs to credibly claim Scope 2 emission reductions in their specific products, the primary commercial driver for signing these voluntary, long-term contracts disappears.

• Recommendation: The EC must ensure that all product-specific environmental legislation remains consistent with the renewable energy framework. PPAs backed by GOs must be recognized as valid instruments for reducing a product's carbon footprint, ensuring the "green value" is not lost.

2. Supply stability: adapting Guarantees of Origin for storage

The EC rightly notes the need for flexibility to absorb variable renewable generation. However, the current "framework for exchanging associated renewable guarantees of origin” is often incompatible with the physical reality of storage.

• The Barrier: In many Member States, when renewable electricity is stored, it loses its "green" status or GO eligibility upon re-injection into the grid. This discourages the development of "Green Firm Capacity" products (RES + Storage).

• Recommendation: The Recommendation should guide Member States to implement a GO framework that tracks green energy through storage systems (accounting for cycle losses). This is essential to move PPAs from simple volume-based contracts to "baseload" profile contracts that industry requires.

3. Financial de-risking: promoting direct long-term agreements

The Call for Evidence explicitly identifies "difficulties in accessing financial instruments to cover the risk of default" as a barrier. To address this, we argue that support must be targeted specifically at long-term direct agreements.

• The necessity of duration: Spot markets and short-term hedging are insufficient to finance capital-intensive infrastructure. Only long-term direct PPAs (10-15 years) provide the revenue certainty required to bankroll new renewable sources and, crucially, energy storage collocated with these sources.

• The gap: Current guarantee schemes are often fragmented or inaccessible to mid-cap companies.

• Recommendation:

• Targeted guarantee schemes: there should be EU-backed state guarantees specifically designed to de-risk direct, long-term PPAs. By mitigating the counterparty risk for the generator, these guarantees will lower the cost of capital.

• Focus on collocation: Priority should be given to contracts that support hybrid assets (generation + storage), as these assets provide the system stability.

4. Removing Administrative Barriers: Accounting and Public Procurement

The EC correctly highlights "national rules hampering direct contracts" and "the treatment of PPAs in accounting rules" as specific obstacles.

• Accounting (IFRS): The classification of virtual PPAs as financial derivatives creates balance sheet volatility that discourages corporate adoption.

• Recommendation: The EC should work with standard-setting bodies to clarify "own use" exemptions for PPAs.

• Public Procurement: Public entities are major potential PPA buyers, but rigid procurement rules (e.g., the requirement for standard comparable bids) clash with the bespoke nature of PPA negotiations.

• Recommendation: The EC should provide specific guidance and template clauses for public procurement that allow for the flexibility needed to conclude long-term PPAs without violating competition rules.

5. Reducing Grid Integration Costs: Network Tariffs and Direct Lines

While the commodity price in PPAs is competitive, the "all-in" cost is often heavily burdened by network tariffs and distribution fees, particularly in "sleeved" PPA structures.

• The barrier: High distribution fees applied to renewable energy transmitted over short distances or within regional clusters discourage local PPA deals. Furthermore, regulatory hurdles often block the deployment of 'Direct Lines' essential for industrial symbiosis, preventing nearby industries from sharing renewable generation efficiently.

• Recommendation: The Commission should encourage Member States to assess network tariff structures to ensure they do not disproportionately penalize PPAs. Additionally, the Recommendation should forcefully promote the implementation of tariff-free "direct wire" regulations to allow physical connection between nearby generators and off-takers without excessive administrative burdens.

Conclusion

To achieve the goal of "unlocking growth in PPA deals", the EC's recommendation must address the full ecosystem of the contract. This means ensuring regulatory recognition of PPA carbon benefits, modernizing GOs for storage, and providing financial guarantees that enable the long-term financing of collocated infrastructure.