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France faces supply shortage in PPA market – experts

(Montel) Renewable power producers in France face increasing demand from corporate consumers to sign power purchase agreements (PPAs), creating an imbalanced market, participants told Montel.

“There was more demand than supply last year as corporates rushed towards available projects due to soaring market prices,” said Laura Ordner, PPA sales manager at RWE’s French branch. French spot power prices hit a record EUR 276/MWh on average in 2022.

“There are not enough projects, whereas PPA demand from companies could reach 125 TWh in the near term," said Alexandre Soroko, head of PPA advisory at energy services firm Greensolver.

The supply of new renewable projects in France was limited, primarily due to long permitting times, despite enough renewable projects in the pipeline, Ordner said.

In 2022, the country installed 1.9 GW of onshore wind capacity and 2.6 GW of solar capacity, RTE data showed – less than half the amount of solar installed by Spain that year, according to Solar Europe. 

Julien Lupion, head of finance at French public investment bank, Bpifrance, said “very high prices” for PPA deals were due to forecasts for higher power prices rather than the cost of production.

The French power Cal 24 and Cal 25 contracts were last seen trading at EUR 179/MWh and EUR 150/MWh respectively.

CFD competition

Competition with government-backed contracts for difference (CFDs) also proved to be an obstacle for corporates aiming to hedge power costs via long-term PPA contracts. 

“There is not really any point for a developer to sign a PPA if they can get a CFD,” said Pierre Dennery, market lead at consultancy Aurora Energy Research.

Nevertheless, PPAs can be a solution for projects that do not comply with the French energy regulator’s requirements to sign a CFD, such as solar projects smaller than 30 MW.

PPA supply looks set to increase, with solar power developers Photosol and TSE seeking to raise their shares of projects under PPAs to 50-60% in the near term.

Large credit-worthy companies with knowledge of the PPA sector were the most sought after by developers, as the duration of negotiations was a key criterion, said Ordner.

Struggle for smaller firms

“It’s not easy for smaller consumers to access this type of contract due to legal and financial engineering,” said Lupion.

However, nuclear CFDs could become competition for renewable producers, said Ordner. 

Last month, French utility EDF said it was ready to sign long-term contracts for the sale of nuclear power from 2026 to replace the Arenh mechanism.

The proposal was criticised by other power suppliers last week.