A growing number of long-term corporate power purchase agreements (CPPAs) has been signed in France in the last 18 months, including high-profile deals signed by French rail operator SNCF as well as more recent deals with leading commercial corporates Orange and Amazon. This shows that demand from high-quality offtakers, coupled with evolving market conditions, is strengthening the business case for corporate offtake agreements.
However, for developers and investors to capitalise on the CPPA market’s potential, France will need to overcome a number of key limitations and take proactive steps to create the right regulatory environment.
This is according to Augusta & Co. (Augusta), a specialist financial advisory to the renewable energy sector, ahead of a new study from La Plateforme Verte. The study has been published by a working group led by Augusta and focuses on the factors influencing the development of the French CPPA market. The findings are due to be discussed at the 2021 La Plateforme Verte Conference.
In particular, Augusta has highlighted that the following limiting factors need to be managed if CPPA market growth in France is to be sustainably supported:
Regulatory Framework
The current level of government tariffs and, more importantly, subsidy structure are limiting the benefits of CPPAs for both electricity producers and buyers – but adjustments can be brought to the regulatory framework to allow subsidies and CPPAs to co-exist and fully realise their value-add. For example, adjustments to the Feed-in Premium (FiP) allowance mechanism or greater regulatory incentives, including the recognition of the transmission of Guarantees of Origin for projects already subsidised, can help increase the attractiveness of CPPAs.
Electricity Market Design
Power market liquidity in France remains low, with the lack of visibility around long-term market prices reducing the ability of buyers to effectively assess their risk and capitalise on the potential benefits of the long-term hedging provided by CPPAs. In addition, the establishment of the ARENH law in 2011 contributes to a misleading impression of price stability in France, which is also partly responsible for the slow start of CPPAs in this jurisdiction.
Business Environment
The fragmentation of the renewable energy market in France is leading to comparably smaller electricity volumes per project and higher levelised costs of energy (LCOEs) than in the rest of Europe. Long development timelines and acute permitting risks are also bringing additional complexity to CPPA negotiations.
Romane Guitard, Managing Director at Augusta, said: “While there are a number of factors that have put limitations on the development of a French CPPA market to date, opportunities do exist and should not be overlooked. CPPAs will have a central role to play in renewable energy project funding once the LCOEs and subsidies decline.”
“Whilst additional challenges may arise as the market develops, such as potential imbalance between project developers and large industrial offtakers, the French market has an opportunity to familiarise buyers, sellers and financiers with CPPA opportunities, identify and progress risk management and risk monitoring tools and ensure bankable arrangements in future.”