'The Champions League of power deals': but who's playing in offshore wind?
Corporate PPAs involving offshore wind projects present special challenges for both sides, but a push is underway to make the process easier
A push is underway to make offshore wind – described by one expert as “the Champions League of renewable power deals” – easier to play in for corporates that want to secure renewable energy supplies.
Signing a power purchase agreement (PPA) with a gigascale wind plant worth billions and with a years-long construction timeline is a different proposition for both buyers and sellers to striking a deal for a few megawatts from a solar farm.
For offshore wind developers in subsidy-free markets, or looking to take a mixed route to offtake their power alongside government-backed mechanisms, corporate PPAs can play a crucial role in making projects financeable.
Offshore wind PPAs make mark in Europe
There was a total of 6.3GW of offshore wind contracted under PPAs in Europe up to the end of March this year, according to data from WindEurope.
The industry group has tracked a total of 55.2GW of corporate renewable power deals and the offshore tally compares to 18GW of onshore wind PPAs and 23.8GW tied to solar.
The average capacity and timeframe for an offshore wind PPA is 80MW and 11 years, WindEurope reckons.
From first appearing on the industry group’s radar in 2015 with 245MW, offshore wind PPAs hit 1.85GW in 2024.
As across the board in the PPA market, tech giants such as Google and Amazon are among the big buyers of power, along with heavy industrial users such as BASF. The chemicals giant has not only signed up for power from offshore wind but temporarily became an equity partner with Vattenfall in a project.
“We've observed a rise in offshore wind offers,” said Iván Contreras Valderrama, senior manager for buyer engagement, Europe, at LevelTen Energy. These show “significant volume variations, ranging from 50GWh to 500GWh, largely dependent on the seller's chosen revenue structure.
“Low volume offers typically indicate that the developer has a government support mechanism [such as a contract for difference (CfD)] for only a portion of the asset's generation, allowing them to offer the remaining energy to buyers at a more competitive price,” added Valderrama.
“On the other hand, large volumes usually suggest the developer lacks a CfD and is targeting large corporations. This large variation in volume means that different options are available for buyers but not every buyer can access this technology, so there is still work to be done.”
As far as buyers are concerned, Valderrama said “industrial companies have shown an increased appetite for operational assets to mitigate development and construction risks. They prefer generation profiles closer to a baseload shape rather than the traditional pay-as-produced shape seen in solar PV or onshore wind.”
Easing a 'time consuming and expensive process'
Easing the offshore wind PPA process for buyers and sellers is the mission of a new specialist committee formed by industry body World Forum Offshore Wind (WFO), which reckons the process can currently be too “complex, time-consuming and expensive”.
Florian-Alexander Wesche, a senior counsel at Hogan Lovells based in Germany who is helping steer the committee’s work on the legal side of the process, said the ambition is to speed things up by moving closer to a more standardised contractual approach for PPAs similar to that seen in wholesale power and gas markets, which allows easy incorporation of provisions commonly seen in the marketplace.
Crucially, that approach is well-regarded by financiers. Wesche said developers will want to hand over to the bank a “standard set of contracts, a typical PPA you see on the market with great risk sharing.
“This is what we're more or less trying to achieve, even on an international scale, that you identify where the pain points are” in the process and make it smoother for both sides.
That’s because of the scale and cost of the projects, the timelines involved and the presence on both sides of the deal of big players with very clear objectives – which may not always marry up.
“We are usually speaking about a project that is going to reach grid connection in five years, and then you have a PPA for 10, 15 years. So, we are talking about 20 years’ exposure,” said Vass.
“So, it's for really sophisticated PPA buyers and not for beginners, or for someone who wants to just take a little volume. And consequently, some of these very sophisticated and very professional PPA buyers have very concrete requirements, and very concrete targets with the PPAs.
“That's why we see that sometimes the needs, and also the clauses that one or the other offtaker can compromise on, can be very different. So just as an example, [the] negative price clause [covering the liability of either party when prices turn negative] is obviously a very hot topic for everybody.”
Vass added: “Offshore wind, if you like, is the Champions League of the renewable PPA industry where only very advanced players are on both sides.”
Who can play in that league is among the issues raised by Dominik Huebler, a director at Germany-based NERA Economic Consulting, who has looked in depth at the subsidy-free offshore wind sector.
He Dreiht: the subsidy-free trailblazer built for PPAs
German utility EnBW made industry headlines in 2017 when it won Germany’s first offshore wind auction with its 960MW He Dreiht project.
In a sector up to then dominated by government support, He Dreiht would have to pay its own way as Germany embarked on what was seen as a bold experiment in zero-subsidy tenders.
EnBW said then that synergies with nearby projects and the rise of supersize turbines would help its economics – He Dreiht was the first to order Vestas’ new 15MW V236 machine.
But in terms of selling its power, corporate PPAs are the only game in town short of full merchant wholesale exposure for the project as it nears full entry into service next year.
Parcel giant DHL was in June the latest corporate to sign up for a chunk of He Dreiht’s power, 80GWh for 10 years, representing about 20MW of its capacity.
DHL joined other publicly disclosed buyers such as chemicals giant Evonik (150MW), Frankfurt Airport (85MW), steel group Salzgitter (50MW) and Bosch (50MW).
EnBW told Recharge that more than half of the power that He Dreiht will produce is now under contract. Will more follow?
“EnBW generally plans to choose the most economic marketing options,” said a spokesperson. “Additionally, project-specific conditions play a significant role. For He Dreiht, we expect to conclude further PPAs.”
Asked about the challenges of concluding multiple power deals for a project, the spokesperson added: “Every project developer and investor tries to maximise value based on the project-specific framework conditions. PPAs for new offshore wind farms can be complex and this is one of the reasons why finding the best balance for buyer and seller needs time. It’s not just a contract, it’s a long-term partnership.”
“How many big offtakers are there who can take a material enough chunk of a one or two gigawatt wind farm to make it worth going to negotiate with them?”
Big data centre operators such as Google “have the demand growth that will help and they've got the profitability to pay a green premium.”
Another obvious source is heavy industry, but Huebler said projects could face challenges because of a rowing back on decarbonisation targets by the likes of steel maker Arcelor Mittal, and from moves in Germany to offer government subsidies to help lower industrial power prices, which could dampen the PPA market.
Another problem facing offshore wind is a widening gap between its own levelised cost of electricity (LCOE) and falling wholesale power prices, said Huebler.
Still, he sees reasons to believe the cycle will turn again. “We're not in a world where the issue of decarbonisation has been solved. We should still be building lots and lots of new offshore wind over the next few years, he said, with factors such as falling cost of capital and even competition from China helping to reduce offshore wind sector costs.
“All of that should create a situation where there are profitable opportunities for green PPAs again, especially if you start combining them with batteries or storage in different ways to improve the profile [of the power in the deal].”
Clément Weber, managing director at specialist renewables finance advisory Green Giraffe, also said current electricity market prices in relation to the cost of offshore wind power pose challenges in striking PPAs for large swathes of the sector, and a government-backed offtake mechanism remains the number one preference for financiers when looking at a project.
But where a zero-subsidy approach persists – as it does for the time being at least in markets such as Germany and the Netherlands – corporate PPAs remain an option as far as financiers are concerned, said Weber, adding that they rank longer-term deals with the likes of Google or Amazon, or big industrial players, as a second choice to state-backed mechanisms.
Weber also sees reasons to believe offshore wind will return to a position of stronger competitiveness, which would create better conditions for the market to explore more options for private offtake deals. “My expectation is that with the cost of financing going down and capex being at an all-time high, it is probable, I would say even likely, that by 2030 the LCOE of offshore wind will fall again.”
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