{"id":1143,"date":"2020-07-08T08:53:03","date_gmt":"2020-07-08T06:53:03","guid":{"rendered":"https:\/\/wpethzprd.ethz.ch\/energy\/?p=1143"},"modified":"2025-03-28T16:27:04","modified_gmt":"2025-03-28T15:27:04","slug":"future-renewable-energy-markets","status":"publish","type":"post","link":"https:\/\/blogs.ethz.ch\/energy\/future-renewable-energy-markets\/","title":{"rendered":"Navigating towards the future of renewable energy markets"},"content":{"rendered":"\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t

By Maciej Szybiak<\/h3>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t\"\"\t\t\t\t\t\t\t\t<\/a>\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t

Maciej Szybiak is a master\u2019s degree student at ETH Z\u00fcrich, following the Master in Energy Science and Technology program (MEST)<\/a>. His main research focuses on energy storage technologies and integration of intermittent energy sources (wind and photovoltaics) into the power markets. As a part of the MEST curriculum, he did his industry internship at the Swiss start-up Pexapark<\/a>. During the internship, he worked on the Power Purchase Agreements pricing and its correlation with asset\u2019s technology, location, and market.<\/em><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

\n\t\t\t\t\t\t
\n\t\t\t\t\t
\n\t\t\t
\n\t\t\t\t\t\t
\n\t\t\t\t
\n\t\t\t\t\t\t\t\t\t
\n

 The past decade was undoubtedly a great period for renewable energy (RE) sector. In 2019 alone, the total investment in RE projects worldwide amounted to over USD 250 billion, what equals one-third of the Swiss GDP or construction of 170 Wembley stadiums. However, investing is just the first element in the business puzzle. The question now is how to make RE projects profitable or at least non loss-making. Power Purchase Agreements (PPAs) seem to be a promising systematic solution.<\/span><\/h3>\n

Green avalanche<\/h3>\n

A quick glance at Figure 1 gives the first impression about the changes in the European power sector in terms of RE. Both wind and photovoltaics (PV) experienced substantial growths: wind installed capacity increased by over 150%<\/strong><\/a>,<\/strong> whereas PV reached<\/strong><\/a> a stunning value of almost 71<\/strong><\/a>0%<\/strong><\/a> between 2009 and 2019.<\/p>\n

<\/p>\n

\"\"<\/p>\n

Figure 1: Cumulative changes in installed capacity of wind and photovoltaics in the EU28 countries between 2009 and 2019<\/em><\/p>\n

<\/p>\n

Yet another interesting fact is presented in Figure 2. There is a clear case that RE technologies, mainly wind and PV, have become crucial components of power generation in many countries. A prime example here is Denmark<\/strong>, where in 2019, half of the domestic electricity consumption was covered by wind and solar.<\/strong><\/p>\n

 <\/span><\/p>\n

\"\"<\/p>\n

Figure 2: Share of wind and photovoltaics in the yearly electricity generation (Renewable Database<\/a>, ENTSO-E<\/a>) <\/em><\/p>\n

 <\/h3>\n

Back in time<\/h3>\n

In the 2000s, building a RE asset was neither cheap nor profitable. Therefore, governments in different countries decided to step in and accelerate the \u201cgreen change\u201d by introducing miscellaneous support mechanisms, e.g. Feed-in Tariffs<\/strong>. For a RE generator it means that all the produced energy is sold at a fixed, constant price throughout the project\u2019s lifetime (Figure 3). As simple as that!<\/p>\n

\"\"<\/h3>\n

Figure 3: Feed-in Tariff system; a RE asset owner is sure to sell all the produced energy at a predefined fixed price; no price exposure, only technical risks involved<\/em><\/p>\n

<\/p>\n

Meanwhile, the RE sector witnessed two main developments<\/strong>. The first one was the sharp cost decrease<\/strong>, driven by steady improvement of technologies, economies of scale, high competition and growing developer experience. Indeed, between 2010 and 2019 costs for electricity from utility-scale PV and onshore wind fell<\/strong><\/a> by 82% and 39%<\/strong><\/a>, respectively. Additionally, the learning rate (cost decline while doubling the cumulative capacity) for solar and wind reached an impressive level of 36% and 23%<\/a><\/strong>, accordingly. <\/p>\n

However, it is worthwhile to mention that despite the falling prices, building a RE power plant is still a costly investment In 2019, a typical European 100 MW onshore wind or solar farm<\/strong> required approximately EUR 160 <\/strong>million and EUR 100 million<\/strong><\/a>, accordingly. On the other hand, a hydro power plant of the same size costs around EUR 155 million.<\/p>\n

The second major turning point was the 2008 global financial cris<\/strong>i<\/strong>s<\/strong><\/a>. As a result, in the following years many governments could not afford further financing of RE projects or they no longer saw the need to support them in the present way. To be considered \u201cbankable\u201d by the finance providers (banks, lenders), RE investors needed to find alternative ways to secure the future income. In the absence of government subsidies, PPAs provide that assurance.<\/p>\n

<\/p>\n

Power Purchase Agreements<\/h3>\n

A PPA is a long-term, usually 5-20 years, contract to purchase or sell energy. The two parties involved are the energy producers, such as wind or solar asset owners, on one side and the energy buyers, e.g. electricity providers (EKZ, Alpiq, Vattenfall, etc.) or corporates with substantial energy consumption (Google, Adidas, aluminium smelters, etc.) on the other side.<\/p>\n

What is special about PPAs is that they bring the certainty that the energy generated by a renewable asset will be sold in a long term at a fixed price, meaning a constant income for an energy generator and protection against volatile electricity prices. The same applies to the buyers, as they can better plan their strategy while having a fixed purchase cost of energy.<\/p>\n

<\/p>\n

Current game<\/h3>\n

With very limited or even no support from the state, the investors are currently exposed to the open market. They have to consider not only the optimal operation of their assets engineering-wise, but also all the risks inherent in the RE sector. The major ones are listed and shortly explained below (Figure 4):<\/p>\n

\"\"<\/p>\n

Figure 4: <\/em>Major risks present in the RE market<\/em><\/p>\n

 <\/em><\/p>\n