Long-term PPA to allow construction of first subsidy-free renewable plant in Europe
Updated: Feb 21, 2019
Our New Energy (ONE), a newly established Spanish energy services company, has advised the English investment fund Foresight Group on the structuring and concluding of the first in a series of long-term power purchase agreement (PPAs) that will allow the construction of the first photovoltaic plant in Europe without any type of public support.
The renewable installation will be located in Murcia, Spain, and will produce 7.000 megawatt hours (MWh) of electricity annually.
The long-term sale of energy represents a new dawn for renewables in Europe and particularly in Spain, where investment has been severely curtailed since 2014 with the end of and retroactive cuts to the renewables subsidy scheme.
This for the continent unprecedented agreement has been concluded between the English investment fund Foresight Group and the Spanish energy company Enérgya-VM of the Villar Mir Group. Under this agreement, the construction of the photovoltaic project Torre de Cotillas I (Murcia) will be built, with name-plate capacity 3.952 kilowatts peak (kWp), and an estimated annual production of 7.000 megawatt hours (MWh), equivalent to the power supply of 3.000 residential houses, and will reduce CO2 emissions by 3.6 tons annually. The Torre de Cotillas I plant will be a milestone in the history of renewable energies in Europe, as it will be the first to rely exclusively on a private PPA agreement for its construction.
A Power Purchase Agreement (PPA) is a private agreement between two parties that covers the conditions for the purchase and sale of energy over a given period of time. The long-term PPA for the construction of renewable energies without public support is unprecedented in Europe, but relatively common in the United States, where it has been fundamental for the promotion of renewable energies. For the seller, this agreement represents a revenue guarantee. For the buyer, a stable electricity price as well as a tangible commitment to the future renewable industry, i.e. a future which is competitive and viable without the support from taxpayers.
Our New Energy anticipates that PPAs will increasingly take over from traditional subsidy schemes in Europe over the coming years before becoming the norm: "After the elimination of renewable production premiums in 2014, investment in new renewable plants has been practically paralysed in Spain. PPA arrangements represent a pragmatic and holistic solution to Europe’s future energy model; as such, PPAs are the key instrument to return investments to the renewable sector in Spain", says Miguel Marroquin, Our New Energy Managing Director, who is convinced that the agreement will be followed by others soon, as Our New Energy is advising on similar transactions.
“PPAs will be a seal for sustainability and corporate social responsibility that industries will not want to ignore", says Manuel Raigada, ONE's Business Development Director, who insists on the potential of this formula for the Iberian market: “Spain, with outstanding renewable resources, one of the highest energy prices in Europe and a renewable sector with extensive experience and knowledge, meets the ideal conditions for the expansion of this kind of agreement”.
All this is in addition to the current commitments of Europe to achieve a target of 20% of energy consumption from renewable sources by 2020 and an increased target of 35% by 2030 and 100% by 2050, which implies the need to promote new renewable facilities with market mechanisms that do not put a burden on public finances.