The volume of electricity contracted annually in the EU through new corporate PPAs increased fourfold between 2020 and 2024 – from 7.4 TWh to 31.4 TWh. Similarly, the number of concluded agreements rose from 60 in 2020 to 276 in 2024. Following this rapid growth, 13 Member States can be considered mature PPA markets, while 7 are classified as emerging markets. In the remaining 7 Member States, the number of contracts remains very low. While the PPA market was initially dominated by wind energy, by 2024 most contracts are based on solar photovoltaic energy, with over 10% being hybrid agreements combining multiple technologies, including storage. The information and communication technology (ICT) sector is the main driver of the PPA market, accounting for over 40% of contracted electricity by 2024, followed by the metals and mining sector, capital goods, and the chemical industry.

By nature, PPAs are long-term bilateral agreements typically concluded between electricity producers and corporate consumers. They are a key instrument enabling large consumers to source electricity directly from producers, thereby facilitating the development of new clean energy capacity while providing price certainty over time. Following the price spikes observed in 2022, PPAs have proven to be an effective tool for reducing exposure to energy price volatility. However, their full potential remains untapped due to existing regulatory and non-regulatory barriers.

PPAs can take various forms, resulting in different allocations of risk between the contracting parties. Physical PPAs involve the actual delivery of electricity and include balancing and scheduling obligations, exposing the buyer to volume and imbalance risks. Financial PPAs are settled financially based on a market reference price, while physical delivery conditions and imbalance management are handled separately. PPAs may also differ in terms of delivery profile.

Pay-as-produced PPAs transfer the volume risk to the offtaker, who is exposed to production and profile risk, which can be significant in the context of variable renewable production assets14. Baseload or shaped PPAs provide a fixed delivery profile, thereby shifting profile and balancing risks to the generator or an intermediary.

In addition, corporate PPAs, concluded between electricity producers and market participants that are not final consumers (such as suppliers or traders) typically aim to hedge price risk and support decarbonisation objectives. However, they can entail additional credit, basis and regulatory risks compared to PPAs concluded with licensed suppliers. The choice of PPA structure therefore determines the allocation of price, volume, profile, balancing and credit risks between the contracting parties. Those choices affect the bankability of clean energy investments.

Barriers to the development of PPAs can be broadly divided into regulatory and non-regulatory, while market dynamics may also, at times, hinder their uptake.

Regulatory barriers include accounting rules for PPA reporting, the impact of guarantees of origin frameworks on corporate sustainability strategies, and broader obstacles to renewable energy deployment, such as grid access rules and lengthy permitting procedures.

Non-regulatory barriers include limited creditworthiness of potential buyers, lack of expertise among small and medium-sized enterprises, low market transparency, lack of contract standardisation, and limited uptake of PPAs by the public sector.

State support for clean energy also affects the development of PPA markets. For example, the expansion of Contracts for Difference (CfDs) schemes may reduce the attractiveness of PPAs for producers, as state-backed contracts lower risk and financing costs.

On April 22, the European Commission published a Recommendation to remove barriers to the development of power purchase agreements (PPAs) and other energy purchase contracts.

Some of the European Commission’s recommendations focus on the development of PPA marketplaces. Member States should ensure that no barriers exist to their establishment and that participation remains voluntary.

Member States may introduce instruments such as guarantee schemes for PPAs traded on such platforms. When establishing national platforms, they should ensure a level playing field with private alternatives.

To facilitate access for smaller buyers, Member States should remove barriers to multi-buyer PPAs, raise awareness, and support their conclusion, including through public guarantees. They should also enable the development of aggregation entities and encourage larger buyers to act as anchor clients, bringing smaller participants into joint agreements.

The public sector should consider sourcing electricity through PPAs and introduce mechanisms to facilitate such arrangements, including their integration with energy efficiency services. Public entities can also act as anchor clients, attracting smaller participants to multi-buyer PPAs in a transparent and non-discriminatory manner.

The Commission notes that Member States should ensure that all existing rules regarding the accounting treatment of power purchase agreements (PPAs) are reviewed where they constitute an obstacle to the conclusion of specific types of PPAs.