Italian utility Enel Green Power plans to use long-term power purchase agreements (PPAs) for just a "small part" of its European electricity mix, as it counts on other options to finance its renewable project pipeline in the region, chief executive Salvatore Bernabei said today.
While small renewable developers have only PPAs and public auctions as their main options for financing projects, Enel Green Power has also been relying on tools such as bilateral contracts and its own retail customer base to build solar photovoltaic (PV) and onshore wind plants throughout Europe, Bernabei told Argus.
"If you consider our portfolio in the next three years, we are hedged for more than 70pc of our total production, and it is a mix of PPAs, local auctions and bilateral contracts. And then for the residual merchant exposure, we can count on the integration with our retail portfolio," he said.
"So for us, PPAs are not needed in all countries. It is something that we use only when it creates value compared with other alternatives — definitely in the US, but in Europe — in just a small part of the mix."
Data compiled by Argus show that Enel has signed only three publicly announced PPAs in Europe over the past few years, all of them in Spain — one with Spanish bank BBVA for the 35MW Primoral wind farm, one with Switzerland-based pharmaceutical company Novartis for the equivalent of 78MW of capacity from the 179.9MW Tico wind farm, and one with Barcelona-based telecommunications firm Cellnex for up to 500 GWh/yr.
In contrast, European utilities such as Iberdrola, Engie and Statkraft have announced more than 10 PPAs each in recent years.
Unsustainable auction prices
Enel has been expanding faster through renewable auctions in Europe compared with private PPAs.
It won capacity in tenders in Italy, with the most recent results released this week.
Last year, it won capacity in Portugal's solar PV auction, while in Spain it connected almost 900MW by the end of 2019 from capacity awarded in 2017.
The company has also won 50MW in Spain's auction this week, the first in the country since mid-2017.
Bernabei said price levels around the lowest bids seen recently for solar PV capacity in Iberia and other countries — at €14.89/MWh in Spain and €11.14/MWh and €14.76/MWh in Portugal — were not sustainable.
"The levelised cost of electricity is decreasing, so there is clearly an industrial reason why these results could be achieved but there is also an expectation of returns from the investors, that could be different, case by case. Consider also that, in some cases, there could be some newcomer that wants to enter the market and pay a premium for it," he said.
"But as soon as prices decrease in these auctions, you have to think carefully about what is happening, because in some cases, in my opinion, we have already gone under this sustainability limit. It is obvious that there is a limit about the sustainability of these offers."
Enel late last year announced that it was accelerating renewable capacity additions in its main European markets over the next three years, with Iberia expected to surpass Latin America in 2023 as the region with the highest targeted volume globally.
The company installed 3.106GW of renewable capacity last year, up slightly from 3.029GW built in 2019, it announced today. Additions reached 508MW in Europe, mostly in Spain.
