No quick fixes for developers amid PPA pain: BayWa executive

There are no easy fixes for developers seeking to advance their project portfolios amid a challenging market for power purchase agreements (PPAs), said a top executive at BayWa re.

Patrick Schmidt-Braekling, head of PPAs for southwest Europe at the Germany-based developer, said a variety of factors had left European power producers facing pricing challenges across the continent, from Spanish solar to German onshore wind.

“If you have a large solar PV plant, let's say in southern Spain… you are now in a bad position because that asset, although of course it has the same capacity of 50MW as five years ago, it's just currently not looking good commercially because of the plunging capture rates of PV in the whole of Europe.

“It’s the classic cannibalisation effect,” he said, referring to the impact on existing projects of large amounts of new capacity entering the market.

Policy improvements to speed up permitting and advance auctions in markets such as Germany had also added to the pressure.

“And now it translates into a large amount of acceleration of the build-out, but it then also means that economics of any onshore wind or PV are just much tougher than in the last five, ten years.”

Negative power prices loomed large as a particular problem at the RE-Source event, and Schmidt-Braekling acknowledged the renewables industry was “not in the best moment” price-wise at present.

So how should developers navigate current market conditions?

A lot of attention currently surrounds the potential of multi-technology deployments tied to battery energy storage systems (BESS), creating a hybrid offtake offering.

While a new project combining the attributes of wind, solar and battery energy storage systems (BESS) could in theory offer the “perfect product” Schmidt-Braekling the prospect of “filleting” of a pipeline is in practice more challenging than it appears.

While a portion of the output could be marketed as “100% green newly-built baseload” and command a premium price, the rest [might have to be sold at a] very, very low price.”

“Making a BESS or hybrid project financially viable requires deep know-how and expertise – something companies like BayWa r.e. can deliver, while other developers with limited resources may find challenging. That said, BESS is definitely part of the solution.”

Prioritise the best

“There are some developers who struggle and some who are innovative,” said Schmidt-Braekling. “An option is to prolong or extend the permitting process for some projects a little more to buy us time. You may want [to advance] this in two years rather than right now.”

That approach would also involve “focusing on the high value projects [in] the pipeline… putting all our, let's say, engineering capacity into optimising these.”

BayWa re manages more than 12GW of renewable energy assets globally and has a wind/solar/BESS pipeline of 30GW.

Schmidt-Braekling stressed that even while making adjustments for market conditions, risk will always be part of the project developer’s lot.

“You cannot just create a perfect pipeline from scratch. That's what developers do. They take risks. They think that in the next five years, there's going to be a huge market in whatever country they just entered.

“And then it might turn out that the market is not as attractive as planned. On the other hand, where they have been developing some projects like more or less under the radar, this market explodes. And then you make huge margins in that market.”