This trend led to a drop in average prices, falling from 45 euros per MWh at the beginning of the year to around 30 euros by the end of 2023, highlighting the high volatility of the energy market.

Miguel Marroquín, Managing Director of Our New Energy, explains that this transformation has led to the sophistication of contractual clauses.

Elements such as participation in balancing markets, the definition of force majeure events, and especially regulatory change clauses have evolved significantly.

In an interview with Energía Estratégica España, the advisor explains that these provisions allow for renegotiating the terms in case of legal changes that impact the energy market.

This practice responds to recent experiences, such as the implementation of the Iberian exception during the gas crisis in Europe, which altered prices outside of the market and highlighted the need for contractual flexibility, as well as the establishment of taxes on energy companies.

“We have realized that the state has mechanisms to influence the market in indirect ways, and that is why PPAs now dedicate entire pages to clauses that protect against these interventions,” describes Marroquín.

These changes allow generators to reopen contracts in the case of taxes or extraordinary regulations that affect the economic viability of the plant.

Another innovation observed is the explicit inclusion of clauses on participation in balancing services.

Traditionally, these additional revenues that a generator could obtain by participating in grid balancing services were not mentioned in PPA contracts.

“Since 2023, almost all PPAs explicitly state that the revenue from balancing services belongs exclusively to the generator,” explains Marroquín.

This distinction is crucial because it ensures that generators can capitalize on these balancing services independently of the fixed price of the PPA.

The reason behind this decision is the significant value that these revenues can represent during periods of high market volatility. Some corporate buyers, especially large tech companies and utilities, tried to include these services in their PPA contracts.

“Generators are starting to make it clear that those extraordinary revenues are not part of the PPA,” says the executive, ensuring a source of income independent of energy prices if they rise again.

Hybridization of Plants: A New Dimension in PPAs

Contracts have also adapted to anticipate the possible hybridization of power plants, an increasing trend in the industry. Hybridization, which combines different energy sources such as solar and wind, adds complexity to contracts, especially concerning energy storage optimization using batteries.

“Current PPAs are beginning to include clauses that specify what happens if the generator decides to hybridize the plant,” says Marroquín, adding that this can directly impact the generation profile and the agreed prices.

Previous PPAs did not consider this flexibility, but hybridization improves the energy export profile, reducing risks associated with intermittency. This clause allows the generator to adapt to future technological needs without requiring the buyer’s consent, an advantage in a rapidly evolving sector.

“When the generator decides to hybridize, the energy export profile changes; therefore, the PPA needs to be renegotiated if the batteries are ‘behind the meter’,” clarifies the ONE representative.

Current PPAs are trying to anticipate these changes by establishing prior agreements between the buyer and the generator to avoid future renegotiations.

“Many buyers seek to include clauses that give them the right to approve any hybridization,” says Marroquín, although he notes that his experience has allowed him to maintain the generator’s autonomy in these decisions.

In some cases, provisions are included on the use of batteries and how hybrid generation could change the energy price profile.

Legal Security Perspective in the Future of PPAs

Despite the growing sophistication of these contracts, Marroquín emphasizes that PPAs remain complex instruments due to the lack of regulatory stability in Europe. Legal uncertainty is a latent risk that hinders the simplification of contracts.

“The only way to simplify these contracts is for regulations to offer greater legal stability,” concludes Marroquín, acknowledging that although there are attempts to support PPAs through credit instruments, these efforts have not had a substantial impact on simplifying contracts.

The growing sophistication of PPAs demonstrates the renewable energy sector’s adaptability to current market challenges. The inclusion of adjustment clauses, regulatory change, and plant hybridization ensures greater stability and flexibility in these contracts, allowing both generators and corporate buyers to benefit from a constantly changing energy environment.

Data from 2024 show a market that continues to innovate and grow, with solar energy and corporates leading the demand for PPAs in Europe.

October 2024 data reveals that corporate PPAs account for 87% of the total agreement volume in Europe. And while the UK was the country with the highest contracted capacity, Spain leads the European market with the largest number of PPAs and signed capacity so far this year.

According to the latest ONE PPA Tracker report, photovoltaic solar energy dominated the market, accounting for 56% of the contracts signed this year. This growth has driven generators to include additional mechanisms in contracts to protect their income.