Everyone agrees that the energy transition must inevitably find consistent acceptance in all areas of society in order to ultimately achieve the target set by the UN of not exceeding global warming of 1.5 degrees by 2023. However, the prices for the green electricity urgently needed to achieve this are currently soaring to unprecedented heights, which means that German companies are having to develop new strategies for purchasing cheaper tariffs. Power purchase agreements (PPAs) - direct purchase agreements between electricity producers and consumers - are often proving to be a more cost-efficient solution. Usually supported by wind or solar energy, this model is becoming increasingly widespread in the industrial landscape. "We are currently seeing a run on the PPA market in the German economy, especially in energy-intensive companies," says Ferdinand Eggert, Sales Manager and authorized signatory at Energie Vertrieb Deutschland EVD GmbH. However, numerous wind power plants have already been excluded from support under the Renewable Energy Sources Act (EEG) since the beginning of 2021, and there are currently not enough new construction projects on the horizon. "In order to close this green electricity gap, we need financially strong partners who are interested in long-term cooperation as part of a sustainability strategy," explains Eggert.
Long-term success
Stricter government climate targets are putting increasing pressure on industry to develop its own sources for the energy it needs. The increasing electrification of industrial processes means that companies need more electricity. Chemical companies, cement plants, data center operators and railroad companies, for example, are among the intensive users that, depending on their size, have to cover electricity requirements in the multi-digit megawatt range. Developments on the German electricity exchange (EEX) are currently proving problematic. Prices continue to rise towards the end of the year and it is also impossible to predict whether these figures will fall early on. "In the current situation, concluding a PPA contract is therefore considered a promising solution for minimizing market risks via a fixed price. In most cases, large companies are in favor of long-term cooperation," explains the expert. A term of around 10-15 years also offers renewable energy producers the necessary security of a guaranteed purchase. The company in question benefits from a direct energy supply from a large wind farm or a ground-mounted photovoltaic system.
Still a long way to go
Once a wind or solar power plant reaches a service life and subsidy period of over twenty years, it is no longer entitled to any additional monetary benefits from the EEG. From this point onwards, operators are faced with the question of profitability, which is influenced by several factors. "On the one hand, you have to have the technical requirements in place and pass the associated safety and technology tests, but on the other hand, continued operation must also be worthwhile for the operator," explains Eggert. The price must therefore exceed the running costs and any investments required for continued operation. However, free marketing of such a project entails market price and default risks. Power Purchase Agreements, on the other hand, are a win-win situation - operators continue to receive calculable income, customers reduce the risks and improve theircarbon footprint. "Usually, PPA contracts with a slightly shorter term of one to five years are particularly interesting for players with a medium-sized volume of between five and 20 gigawatt hours," says the expert, speaking from experience. PPAs breathe new life into old green electricity plants.
Price in the green zone?
For a long time, direct contracts between energy producers and industry were not considered very lucrative, as subsidies under the Renewable Energy Sources Act always offered a profitable remuneration for every kilowatt hour and therefore irrefutable investment security. Without this support and with additional falling prices for the construction of wind and solar parks, the situation is changing in favor of large consumers. The situation on the electricity exchange is different: "At the moment, wholesale prices on the futures market on the EEX are continuing to rise, resulting in new highs that have not been seen for years," describes Eggert. High values resulting from various factors. "Not only the current market price and the profile values are used as the valuation basis for PPA pricing, but also the weather risk that renewable energies inevitably entail, as well as marketing costs and risk hedging," he explains. If trading takes place directly via a PPA, some of the surcharges that are incurred when procuring energy via the exchanges are eliminated. This means that, not least in the current market conditions, more favorable energy prices can usually be achieved for the customer. Companies that are preparing for a future with an energy supply via green electricity will therefore find the right strategy in the Power Purchase Agreement.
Energie Vertrieb Deutschland EVD GmbH
Founded in 2013, Energie Vertrieb Deutschland EVD GmbH has been supplying electricity in the B2B sector with a focus on domestic SMEs and industry since 2014. It is a subsidiary of Energi Danmark A/S, a leading energy trading company in the Scandinavian region that has been operating since 1993. With various options, from fixed prices for several years to strategic and spot contracts and portfolio management, EVD offers its customers maximum flexibility in electricity procurement and thus the best opportunities to benefit from fluctuations in the energy market. EVD's customers include well-known big players from a wide range of sectors such as the food industry, logistics, pharmaceuticals, mechanical engineering and multi-site customers with numerous locations, as well as many medium-sized companies and public institutions. An important part of the company's philosophy is also the increasing focus on the sale of green electricity and the strengthening of climate-neutral industry. EVD provides customers with all types of green electricity in all quality levels without restrictions.
