Spotlight on PPA Hedging
Power Purchase Agreements (PPA) Hedging
Trading at EEX increases security and standardisation of Power Purchase Agreements (PPA) hedging and, as a result, provides the tools to actively support the energy transition in Europe. By hedging long-term price risk via our standard EEX power futures, we enable our members to hedge against the risk of future price changes up to six years ahead.
From 27 September onwards, EEX will extend the number of tradable yearly maturities for German, Italian and Spanish Power Futures from the current six to ten calendar years. This enhancement will enable customers to hedge their price exposure up to 10 years in advance which will further promote the integration of renewable energy into the power market.
What are PPAs?
PPAs are long-term contracts between a party generating and selling electricity and a party purchasing electricity. They are specific agreements under which electricity traded between the two parties comes from a renewable energy source, and a company buys the electricity in order to help meet their energy demand.
PPAs are usually necessary to finance renewable energy projects. As such, they are a key enabler of new Renewable Energy developments. Purchasers are attracted by lower prices and the ‘green credentials’ in having their power supply come from 100% renewable sources. PPAs are often fixed for long periods, up to 10 years or even more, to ensure revenue security for the developer.
However, these long-term agreements bear certain risks. Most PPAs are financially settled, which means the price is fixed between the generator and the offtaker, but the actual power produced is sold on the Spot Market. This creates price risk.
In order to mitigate price and counterparty risk and secure long-term cash flows, EEX already offers cleared cash-settled futures contracts up to 6 years ahead in all major European power markets. To enable members to hedge a greater portion of their PPA risk, EEX will add further calendar expiries in the German, Spanish and Italian Power markets, enabling its market participants to hedge prices for the next 10 years on the exchange.
Cooperation with Pexapark to enhance Risk Management Solutions for Renewable Energy Operators
EEX has entered into a cooperation with Pexapark, a leading specialist for renewable energy sales and risk management. Both companies aim to unite their unique capabilities to enhance pricing visibility and market-based risk management solutions for renewable energy projects in Europe. This collaboration will expand trading solutions for hedging renewable energy, ultimately increasing sustainability and growth in the power markets.
The cooperation focuses on promoting market-based instruments to hedge price risk in renewable energy assets, for example by means of Power Purchase Agreements (PPAs), and to enable the transition from support mechanisms to subsidy free power markets.