In a context of energy transition, economic uncertainty and volatility, the competitiveness of European industry has been placed at the center of the debate. The situation is marked by rising energy prices and companies facing the obligation to reduce greenhouse gas emissions. In this scenario, experts opt for power purchase agreements (PPAs), a type of long-term contract established between companies and renewable energy suppliers that guarantee stable and predictable prices, in addition to promoting the environmental sustainability of the industry.
An analysis presented in September by Mario Draghi, the already popular Draghi report— ensures that companies in the Old Continent pay up to three times more for electricity than their competitors in the United States and up to five times more for gas. This situation, aggravated by the energy crisis after the invasion of Ukraine, hampers the competitiveness of European companies facing powers like China and the United States. The text, whose official title is The future of European competitivenessfocuses on energy-intensive sectors such as steel and automobiles, although it can be expanded to other industries. It is precisely in this scenario that more and more voices are being heard calling for betting on PPPs as an essential tool.
The examples are numerous. From the energy management portal Statkraft It is argued that “PPAs are the key for the industry to plan its investments in the long term”, because not having to worry about the volatility of energy prices gives “a competitive advantage”, even more at a time when predictability is a particularly important factor. valued asset. At the same time, they have additional benefits, as PPAs represent an opportunity for companies to improve their brand image in a context in which consumers and investors are increasingly sensitive to reducing their carbon footprint. A recent study by Telefónica highlights that companies leading the energy transition not only improve their reputation, thus gaining a significant competitive advantage.
This alignment with sustainability goals is essential not only for image, but also for long-term viability. In this sense, ENGIE also defends that “companies that adopt the PPA not only improve their sustainability, but also ensure their continuity in a market that is increasingly demanding in terms of environmental regulations”. At the same time, “these agreements promote the development of new renewable energy projects, creating a virtuous circle that accelerates the energy transition,” says the energy group.
Barriers related to SMEs, prices and infrastructure
So far, the United States has led the implementation of the PPA. In fact, major technology companies such as Google and Microsoft have adopted these agreements, securing their long-term energy supply while reducing their carbon footprint. Although this approach has proven effective in stabilizing energy costs, the big difference from the North American country is that Europe does not have abundant natural resources.
Despite everything, PPAs are gaining ground. According to another analysis, in this case that of S&P Global Commodity Insights, “the year 2024 is on track to reach a record for PPAs in Europe, after buyers obtained 30 TWh/year during the first six month of the year. But this data focuses on large companies, while formulas allowing SMEs to access this type of agreement do not proliferate due to lack of resources. To solve this problem, Draghi proposes the creation of market platforms that bring together the demand of these small and medium-sized businesses.
But there are other obstacles. In the EU, electricity prices remain linked to fossil fuels, meaning that even though a significant share of energy comes from renewable sources, the price remains impacted by fluctuations in the gas market. Again, according to the European Competitiveness Report, this limits the ability of PPAs to offer truly competitive prices. In this sense, experts advocate for a decoupling of prices of renewable energies and fossil fuels, thus reducing volatility, providing greater predictability for businesses and advancing the energy transition.
The last challenge concerns infrastructure and the recipe from the Draghi report is that “Europe invests in its modernization because the continent’s electricity networks are not prepared to manage the volume of renewable energy expected in the years to come”. In the same spirit, a study by the consulting firm Deloitte confirms that “it is necessary to improve interconnection between Member States and accelerate authorizations for the construction of new renewable installations”. Without adequate infrastructure, European businesses will continue to face many difficulties, but if the EU manages to modernize it, adopt the PPA model taking into account SMEs and decouple the prices of renewable energy from fossil fuels, it will be better positioned on the international scene. .
