Iberdrola is clear about the path after two years of energy crisis and price volatility. The electricity company chaired by Ignacio Sánchez Galán urges supporting frameworks and attractions that promote the adoption of stable long-term energy purchase and sale contracts, the well-known PPA (Power Purchase Agreement), and other regulated contracts, taking advantage of the reform of the wholesale market of the electricity that is being negotiated in Brussels.
In this sense, the company has shielded itself this year with a sales forecast of 135 terawatt hours (TWh), which is equivalent to the consumption of some 41 million homes. According to the presentation of semi-annual results sent to the National Securities Market Commission (CNMV), 57% of this energy corresponds to industrial clients through PPAs, which usually have an average duration of 11 years. Its clients include Amazon, Meta, Telefónica and Heineken. For its part, another 30% of the electricity sold is linked to residential customers, with agreements ranging from two to three years, while the remaining 13% is under the Contracts for Difference (CfD) modality, with an average duration of 16 years
During the presentation of results, Iberdrola assured that the price of the PPAs is currently between 70 and 80 euros megawatt hour (MWh) and highlighted that all these types of contracts provide certain benefits for the system, such as price stability and greater industrial competitiveness. The company’s latest progress in this field has recently occurred with the signing of a new multi-country PPA with Vodafone. Specifically, the supply of renewable energy (photovoltaic) to teleco in Spain, Portugal and Germany for a total of 410 gigawatt hours (GWh), equivalent to the annual electricity demand of more than 117,000 homes.
Single Market
In this context, the company supports the need to promote “Iberdrola applauds the reform of the electricity market in the EU that is underway. The European Parliament has already established a favorable position to promote the market and long-term contracting, in line with the legislative proposal made by the Commission”, says the company in the results statement.
One of the key aspects of the agreement reached by the European Parliament is the incentive for long-term sales contracts. Countries should facilitate renewable energy PPAs in order to ensure more predictable electricity prices, through guarantee mechanisms. By 31 December 2024, the Commission will establish a market platform for PPAs, which will be reaffirmed on a voluntary basis. The idea is to facilitate transparency in this type of contract.
A provision is also added through which the Commission will assess before January 2026 whether obstacles to the adoption of the PPAs persist, while also checking whether there is sufficient transparency in the markets. Lastly, the European Agency for the Cooperation of Energy Regulators (ACER) is obliged to create, maintain and manage a database of EU PPAs that will function as a digital platform and will be used to facilitate monitoring by national regulatory authorities.
Regarding CfD, the obligation is introduced that direct price support schemes for new investments in electricity generation (wind, solar, geothermal, hydraulic without reservoir and nuclear) be through this form or equivalent schemes, as long as are evaluated and approved by the Commission. In addition, a limitation has been included to the extensions of existing facilities, so that the coverage offered by the CfD must be proportional to the investment made in relation to the total investment costs of the plant.
Spain was the European country where the most energy purchase and sale agreements were closed last year. Specifically, 31 PPAs worth 3.2 gigawatts (GW) of renewable capacity were signed, according to the European PPA Market Outlook 2023 report. The Swiss consultancy baptizes the country as “the Mediterranean queen of PPAs” and is crowned as the largest market in Europe for the fourth consecutive year. It should be noted that 1.8 GW, almost 80% of the contracted volume, comes from the agreements signed by Alcoa with Greenalia and Endesa for the reactivation of primary aluminum production in San Cibrao (Lugo) starting in 2024.
