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Europe's PPA market has experienced a dynamic pricing landscape over the past several years, with the energy crunch elevating prices to historic highs in 2022 and 2023. Since then, PPA prices have moderated, trending downward as electricity markets normalised. During this time, some PPA buyers adopted a "wait and see" approach as they sought to understand when PPA prices would truly stabilise.
Given the market volatility of the last several years, some hesitancy on the part of buyers is understandable. But, with few exceptions, waiting to procure is unadvisable for PPA market players. Read on to learn why right now is an excellent time for PPA buyers to procure.
1. Demand for electricity — and PPAs — is on the rise
Europe's industrial sector has exhibited a tepid resurgence in energy demand on the heels of the continent's energy crisis. But despite this, electricity demand in Europe is rising again, with meteoric demand-grown expectations for the coming years. According to the IEA, Europe experienced a 1.4% year-over-year increase in electricity demand in 2024, with data centre growth, EV adoption, and electrification more broadly driving the trend.
This growth in power demand shows no signs of slowing down. Goldman Sachs sees power demand in Europe increasing by as much as 30%, due in large part to data centre needs. In many countries, these data centre impacts are already present. Ireland's statistics agency recently revealed that data centres accounted for 21% of the country’s total usage of metered electricity in 2023 — up from just 5% in 2015.
Growing demand for electricity, especially clean energy, is likely to increase competition for renewable PPAs — which many tech majors use to power their data centre operations. And with 2030 fast approaching, even more corporate buyers with sustainability goals will enter the PPA market to fulfil their decarbonisation promises to consumers and investors. This increased demand may well push up the cost of PPAs, meaning buyers who move soon can avoid the impending rush for capacity.
While European wholesale electricity prices have declined dramatically from their energy-crisis highs, they still remain at higher levels than five years ago. And, with pricing volatility across Europe expected to remain elevated for several more years at least, PPAs are an attractive option for corporate buyers looking to hedge against wholesale price fluctuations.
2. European development may not benefit from Chinese imports forever
European renewable developers have wide access to low-cost Chinese components for their projects. Using these more affordable project inputs inherently reduces development costs, which can help energy sellers offer lower PPA prices.
But these Chinese inputs are poised to become less available to European developers in the coming years. Incoming regulations from both the EU and the UK are set to restrict the importation of goods for which any element may have been produced using forced labour. While none of this is to imply that European developers are knowingly using project components made with forced labour, if these efforts are to have impacts similar to comparable regulations instated by the US in 2023, the end result will likely be a massively reduced ability to access low-cost Chinese inputs.
The late-2027 implementation date for the EU's anti-forced-labour laws may sound comfortably far off to some. But savvy buyers understand that the multi-year timelines at play for large-scale PV development means securing capacity from solar projects in the next year will help avoid any regulatory complications related to these laws. If the impacts of these rules in any way mirror those seen in the US, the end result will be a substantially reduced ability to access PV components of Chinese origin. As a result, complex and costly rearrangements of supply chains would be required — bringing development uncertainties, logistical challenges, and potential cost increases for PPA buyers.
Meanwhile, the German defence ministry has raised security concerns related to Chinese-made wind turbines, while Britain’s internal security service has pricked its ears at potential Chinese dominance of international supply chains in the solar and battery-storage sectors. The UK Energy Minister recently promised “rigorous processes to consider the role of China in our supply chain and in the investment in our critical infrastructure”.
With China providing around 80% of the world’s PV manufacturing capacity, European lawmakers may simply find themselves unable to act aggressively on trade flows without undershooting, or abandoning altogether, their sustainability targets. Nonetheless, the supply of key components for future projects is far from guaranteed — with PPA buyers likely bearing at least some of the ensuing price pressures.
3. Interconnection bottlenecks are reducing supply
Across many European markets, interconnection backlogs present an ongoing challenge, as grid operators struggle to keep up with a massive influx in project connection requests. Spain and Italy both have more than 150 GW of planned renewable capacity awaiting interconnection approvals, while the UK has an astonishing 765 GW of queued capacity requests — with some projects there facing wait times as long as a decade.
Developers can do little to overcome these logjams, and policy reforms to address these issues — such as the EU’s 15% interconnection target and the UK’s Clean Power 2030 Action Plan — will take years to make a real impact. In a nutshell: grid congestion will remain a key issue for the foreseeable future, as national budgets collide with the investments required to meet national energy targets. All in, interconnection queue bottlenecks represent a key hurdle present across most European markets.
These very real constraints on project pipelines means buyers must maintain a sober perspective of future market supply, particularly in markets with government CfD schemes in place. The added development uncertainties brought by interconnection backlogs underscore the advantages of procuring from mature projects that have achieved key development milestones (like having a signed interconnection agreement). While mature projects may command a price premium in a market environment of surging demand, being flexible around price may make sense for buyers looking to ensure sustainability commitments are achieved on time.
4. Siting projects is only growing more challenging
Europe's clean energy market is more mature than those in many other regions of the world. This means that, in some markets, many of the most suitable sites for solar and wind projects have already been developed. While there are still plenty of good locations on which to build new clean energy facilities, the fact remains that European land is finite, and superior plots are in relatively short supply.
Regulatory initiatives do appear poised to free up more land for development. In 2022, the European Commission asked EU Member States to designate "acceleration areas" for renewable projects. And on the national level, positive developments like Poland's liberalisation of its controversial "10H rule" provides another example of how governments can free up suitable land for development. However, there is a ceiling on how much land can be freed up by such policy improvements. What’s more, growing pressure on governments to balance renewable energy targets with other societal objectives, such as agriculture and biodiversity conservation, adds further constraints on access to suitable land.
This relative land scarcity forces more developers to build further away from interconnection points, which requires more costs related to construction and infrastructure upgrades — which trickle down to PPA prices. All of these factors are likely to pull PPA prices in one direction: upwards.
5. The PPA market has stabilised, and will reward proactive buyers
Today’s market brings no shortage of complexities for PPA counterparties to navigate. But the last several years have witnessed a wide array of remarkable challenges brought by the impacts of the pandemic, the energy crunch, Russia’s full-scale invasion of Ukraine, and more — all of which committed PPA counterparties were able to successfully contract through. This period was an era in which the PPA sector developed a wider range of contractual terms that provide an increased ability to share and mitigate risks, and secure flexibility down the road. Today, there has never been a larger array of contractual tools available to PPA to address a wide number of potential concerns.
What's more, LevelTen's Q1 2025 European PPA Price Index report revealed a third consecutive quarter of stable PPA prices. This means that the pricing stability PPA players have been holding out for is inarguably here. With the future never a sure thing, the present moment provides an exciting window for PPA buyers to enter the market with conviction, and secure clean energy capacity that furthers their reputation as sustainability leaders and hedges against electricity price volatility.
Perhaps most importantly, many buyers are achieving tremendous success in their renewable procurement initiatives right now. Helping to bring new clean energy projects to life through PPAs remains a priority for sustainability teams, who face ever-increasing scrutiny from shareholders, customers, and other stakeholders to demonstrate the impact of their sustainability investments. At LevelTen, we are seeing large volumes being transacted each and every week.
Equally important is the simple fact that the best PPA offers will be secured by the most proactive buyers. The importance of having options when it comes to choosing a PPA that suits an offtaker's needs simply cannot be understated. Buyers that continue waiting on the sidelines could eventually re-enter a market that is more competitive, and in which projects with solid economics and reduced risk may be more scarce than they are now. With compelling projects on offer and demand for PPAs on the rise in many markets, continued hesitancy will not be a winning strategy for corporate buyers.
For buyers, it just won’t pay to wait
Although PPA prices have tempered, the fundamental market forces remain the same: demand is growing, project supply faces constraints, and developers are facing a variety of challenges and rising costs that won’t be alleviated anytime soon. Organisations with sustainability goals that depend on bringing new clean energy projects online should act with speed to secure PPAs today.
Through new procurement solutions like LEAP™ (LevelTen Energy’s Accelerated Process) and PPA Auctions, organisations can move quickly to secure PPAs with advanced-stage projects that won’t stay on the market long. LevelTen also facilitates traditional RFPs, which are made faster through LevelTen’s RFP Automation software. To request access to the LevelTen Platform, either directly or through your energy advisor, contact info@leveltenenergy.com.
