PPAs: producers and users benefit from green electricity
Germany has set itself the target of increasing the share of electricity consumption accounted for by renewable energies to 65 percent by 2030 – a plan that will be impossible to achieve without a massive expansion in power plants and higher demand from large commercial and industrial consumers. However, the desire for stable electricity prices and the annual increases in CO₂ pricing for fossil energy sources together with the associated challenge of decarbonizing internal production processes as much as possible mean that the demand from companies for electricity from renewable sources is increasing. The interest in power purchase agreements (PPAs) is also increasing as a result. PPAs are used for green electricity from existing plants and new projects such as solar plants and offshore wind farms that do not receive EEG funding.
While long-term power purchase agreements between producers and customers of green electricity are already firmly established in many European countries, especially in Scandinavia, this business model is only just gaining traction in Germany and is now an established instrument in the energy market. The potential is huge: “PPAs have become one of the key instruments of the Energiewende,” explains Peter Heydecker, Head of Trading at EnBW. EnBW has been expanding its business using PPAs for a number of years. It is becoming increasingly attractive for companies to cover their energy needs by means of PPAs for green electricity rather than via traditional energy trading and thus with so-called “gray energy.” “We have received inquiries from medium-sized companies through to large corporations who want to be even more ambitious with respect to sustainability and climate protection,” says Heydecker.
Construction of solar parks without state funding, thanks to PPAs
PPAs not only offer advantages to companies. The energy transition as a whole also benefits from long-term power purchase agreements – they are supporting the construction of power plants for green electricity. For example, EnBW already concluded the first long-term power purchase agreement in Germany four years ago for a solar park constructed without the aid of subsidies. This agreement provided the basis for approving the financing of the project: EnBW is acting as an intermediary between the operator and electricity users, purchasing 100 percent of the green electricity generated at an 85 megawatt (MW) solar park located to the east of Rostock for a period of 15 years.
EnBW concluded a PPA in the Spanish region of Andalusia in 2021 with the solar park and wind farm operator Blue Elephant Energy AG (BEE) based in Hamburg and will receive the green electricity from a 150 MW solar project over a period of ten years – enough electricity to cover the annual electricity demand of around 95,000 households. “With our long-standing experience on both the generating and trading side, we see good marketing opportunities in the Spanish wholesale market as well as for customer-specific solutions,” explains Heydecker, Head of Trading at EnBW. “We believe that PPAs are the bridge between green electricity production and customers.”
In December 2021, EnBW also signed a PPA with the materials manufacturer Covestro. Accordingly, Covestro has secured 63 MW of the output from EnBW’s 187 MW “Weesow-Willmersdorf” solar park solar park in Brandenburg. This power plant operated by EnBW is the largest solar park in Germany. It was also constructed without EEG funding from the government. Over the next 15 years, Covestro will primarily use the solar electricity for the production of sustainable plastics made of alternative raw materials at its Dormagen und Krefeld-Uerdingen sites – and will thus move a step closer to achieving its target of becoming climate neutral by using renewable energies.
PPAs for offshore power without state funding
EnBW has already announced three major power purchase agreements for the 900 MW “He Dreiht” wind farm, which is being built around 90 kilometers northwest of Borkum and around 110 kilometers west of Helgoland and is scheduled to enter operation in 2025. The farm, which has around 60 wind turbines, is currently one of Europe’s biggest energy transition projects. Turbines with an output of 15 megawatts are set to be used for the first time. By way of comparison, Germany’s first offshore wind farm – EnBW Baltic 1, built in 2011 – has an output of 2.3 megawatts per turbine.
Fraport AG has secured the purchase of 85 MW of wind energy capacity through a PPA – from the second half of 2026 for a term of 15 years. The listed operating company for Frankfurt Airport is continuing to decarbonize its business with the long-term power purchase agreement. “We want our operation at Frankfurt Airport to be carbon-free by 2045. The capacity acquired from the new offshore wind farm will enable us to take a decisive step toward achieving this aim,” said CEO Dr. Stefan Schulte when signing the contract. Compared to a conventional form of power supply, the agreement has the potential to cut carbon emissions by up to 80,000 metric tons per year.
The specialty chemicals company Evonik will also purchase green electricity from “He Dreiht” from 2026 – the 150 MW will cover more than a third of the group’s power requirements in Europe. Over a period of 15 years, Evonik will be able to cut its carbon emissions by 150,000 metric tons per year with the electricity purchased from the offshore wind farm. Evonik had initially signed a power purchase agreement for 100 MW in 2022, before increasing the volume by a further 50 MW through a second agreement at the beginning of 2023.
Salzgitter Flachstahl GmbH – part of the Salzgitter Group – is among the future major purchasers of “He Dreiht” green electricity with a PPA covering more than 50 MW for 15 years. Here, the electricity is primarily set to permit the manufacture of virtually carbon-free steel by producing green hydrogen as an energy source. Green hydrogen is considered a cornerstone of the energy transition and should also help energy-intensive companies to achieve ambitious climate targets.
Robert Bosch GmbH – a global supplier of technology and services based in Stuttgart – has also signed a PPA to procure 50 MW from “He Dreiht” for a period of 15 years.
“A real blessing for climate protection”
EnBW believes that the interest in PPAs amongst other large consumers of electricity will also increase significantly in the next few years: “And this will be true in all sectors – from the automotive industry to the chemicals industry,” says Heydecker. Long-term electricity procurement agreements are increasingly supporting the construction of power plants for green electricity. “PPAs are driving forward the expansion of renewable energies and that makes them a real blessing for climate protection.”