Solar PPA prices continue to remain below 40 €/MWh, much lower than expected at this point in the year, with forecasts predicting a rise to 50 €/MWh, according to market analysts.

In July, Pexapark announced a 1.5% drop in agreements signed in Spain, and Our New Energy reported that the low Pool prices, with around 800 hours (representing 10% of the year) at negative or 0 €/MWh, were affecting PPA negotiations, putting sellers in a complex position to finance their projects.

Along with low prices and volatility, regulatory uncertainty in areas like flexibility and capacity—highly anticipated by the photovoltaic sector for better long-term profitability guarantees—is adding to the challenges.

Salvador Carrillo, co-founder of Alter5, analyzes the impact of this “free fall in PPAs,” as he called it, and highlights the growing importance of merchant financing structures within their platform.

As he explains, this is a strategy that allows developers to better adapt to the new market conditions.

“What we perceive from the clients on our platform, over 200 developers, is a lack of interest in signing PPAs due to the very low prices and a preference for taking risks, investing more equity, financing through Merchant, and waiting for a price rebound that, in theory, would come starting in 2026,” the executive explains, speaking with Energía Estratégica España.

He also describes that this reflects the optimistic view of some European investors, who believe that the future demand for renewable energy in Spain, along with flexibility and capacity markets, will create a favorable environment for these projects.

“Some investors and institutional funders see Spain as a long-term market, despite the current difficulties, trusting that demand will pick up with the electrification of the economy and the progress of the energy transition,” Carrillo comments, clarifying that this does not completely rule out interest, as large banking entities still prefer private agreements for their financing programs.

[See article: Financing at Risk. Banks Shy Away from Renewable Projects Without PPAs in Spain]

Leverage and Debt Structures for Merchant Projects

Merchant financing has gained traction on the Alter5 platform. To maximize opportunities, the company offers bridge debt structures (COD + 36 months), facilitating a future sale or refinancing of the asset under more favorable market conditions.

This strategy, which Carrillo describes as “construction aimed at sale during operation,” is based on the expectation that many Ready to Build (RTB) projects will not reach the operational phase due to regulatory and financial obstacles, thus increasing the value of the assets that are able to operate.

Leverage levels in merchant financings have decreased, currently ranging between 325,000 and 450,000 euros per megawatt (MW), although in some cases, junior debt can be added to reach up to 500,000 euros per MW.

This reduction in leverage is partially offset by the decline in material costs, particularly photovoltaic panels, allowing developers to adjust their costs and move forward with the projects.

“The adjustment in leverage is due to the caution of the financial sector, which in many cases prefers to avoid high risks in a context of volatile prices and high uncertainty,” says Carrillo.

Future Financing

Alter5 bets on market stability within the next three years, based on the expectation of a gradual recovery in energy prices and a reduction in interest rates.

Futures place expectations between 67 €/MWh for 2025 and 55 €/MWh for 2034, according to EEX data.

“We expect that, in a few years, photovoltaic projects will benefit from better price and interest rate conditions, which will increase their profitability,” concludes the company’s representative.