Navigating Clean Energy Price Cannibalisation: Insights on Renewable Energy and Storage Integration- Pexapark Report


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Pexapark, a leading provider of Power Purchase Agreement (PPA) price reference, market intelligence, enterprise software, and advisory services for renewable energy, has released a comprehensive report shedding light on the opportunities and hurdles of co-locating renewable energy assets with storage across Europe. Entitled ‘Renewables-plus-Storage Co-Location Trends: Hybrid PPAs and more,’ the report delves into the driving factors, value streams, contractual arrangements, and regional insights of this emerging market segment. Drawing on Pexapark’s market research and experience in supporting clients on hybrid projects, the report offers a valuable glimpse into the rapidly evolving landscape of clean energy.

One of the key findings of the report is the growing concern about price cannibalisation, a phenomenon where an influx of renewables with similar generation profiles floods the grid, leading to a drop in power prices. This poses a significant threat to the revenues of unsubsidised renewable projects. Pexapark’s separate survey report, “Renewables Industry Survey Report 2023,” revealed that approximately 64% of respondents are seeking to incorporate or increase storage in their portfolios to mitigate this risk.

Despite the evident growth in co-location across Europe, the report also highlights the challenges faced by investors and asset owners in modelling revenues and evaluating the underlying business model. Co-location introduces value at both the grid and asset levels, requiring a comprehensive understanding of market opportunities and sophisticated revenue modelling. Among the obstacles faced when considering contractual arrangements for co-located projects, modelling revenues emerge as the most significant challenge.

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The report underscores the potential of Hybrid Power Purchase Agreements (Hybrid PPAs) as a strategic approach to address these challenges. Hybrid PPAs offer a dual advantage by providing revenues from grid services while simultaneously enhancing the value of energy produced from renewable assets. The report examines various types of Hybrid PPAs, weighing their advantages and disadvantages, and delving into the components influencing their pricing.

An important aspect of the report is its exploration of regional insights, highlighting different markets and drivers for co-location in Europe. For instance, the UK leads the continent in co-locating solar and storage, with an impressive 70% of new solar project applications featuring batteries in the first quarter of 2023. This growth in co-location in the UK is attributed to its mature grid services and energy storage market, as well as increasing contractual readiness for Hybrid PPAs.

Meanwhile, Germany has taken the lead in government-backed innovative tenders, awarding a partial subsidy to over 1GW of solar-plus-storage projects, creating room for further contractual innovation to optimize the merchant exposure of the plants. In Germany, co-location growth is also propelled by market dynamics such as increased volatility in wholesale markets, which often leads to negative pricing.

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The Nordics, on the other hand, presents a promising region for wind-plus-storage projects. The region faces advanced cannibalisation threats to its legacy wind sector and relies on Baseload PPAs that play a pivotal role in their performance. Lastly, Spain’s solar sector is poised to explore co-location configurations due to the accelerated cannibalisation phenomenon in the country. Pexapark’s analysis indicates that in April 2023, capture factors plummeted to 0.64, meaning renewables sold at only 64% of the average baseload price.

Brian Knowles, Director of Storage & Flexibility at Pexapark, commented, “Price cannibalisation is a key challenge for revenue management and investment decisions. We have been very active in understanding the challenges of the industry on multiple levels, and we are excited to contribute to much-needed knowledge-sharing to move the needle amid this tremendous momentum we are seeing”.

Echoing the sentiment, Xuejiao (Jo) Han, Lead Storage Quant at Pexapark, said, “Co-locating renewables and storage can create new value streams and opportunities for hybrid projects, but it also adds complexity and uncertainty to the revenue modelling. Our report aims to help developers, IPPs, and funds overcome this challenge and explore this emerging and exciting market segment.”

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