Resurgence of power purchase agreements

The energy landscape is under pressure from geopolitical developments, regulation and prices. Although the number of power purchase agreements (PPAs) entered into in Germany declined last year, at least as regards publicly disclosed long-term PPAs, PPAs are increasingly returning to the forefront of strategic energy procurement. There are many reasons for this.

Geopolitical developments driving power purchase agreements

The war involving Iran and the crisis in the Strait of Hormuz caused oil and gas prices to rise sharply at the beginning of 2026. Electricity futures and day-ahead markets subsequently also responded to higher gas prices, although far less strongly than they did at the outset of Russia’s invasion of Ukraine (see, among others, the short report of the Scientific Advisory Board for Evidence-Based Economic Policy to the Federal Minister for Economic Affairs and Energy dated 13 March 2026): https://www.bundeswirtschaftsministerium.de/Redaktion/DE/Downloads/J-L/20260325-kurzgutachten-energiekrise.pdf?__blob=publicationFile&v=4) (only available in German). Gas price movements spill over into electricity prices because electricity markets use a uniform pricing mechanism and dispatch generation according to the merit order, i.e. the sequence in which power plants are called upon in the electricity market. The plant with the highest marginal costs required to meet demand sets the wholesale electricity price. Accordingly, whenever gas-fired power plants became the marginal plants under the merit order, their higher fuel costs caused wholesale electricity prices to rise. Gas price increases were, however, less pronounced than at the beginning of the war against Ukraine, as gas supplies have since become more diversified. The resulting effects on electricity futures and day-ahead markets have therefore also been more limited.

Market participants can use PPAs, including for longer terms, to hedge against volatile electricity prices and secure price stability. This price certainty in turn enables both offtakers and generators to plan more reliably. PPAs therefore provide both parties with a means of actively managing price risk and have become an important energy-management tool, especially in times of conflicts affecting energy prices, such as the war in Iran and the crisis in the Strait of Hormuz.

Power purchase agreements provide price certainty amid generation surpluses

An abundance of sunshine and wind, combined with low electricity demand, is increasingly producing generation surpluses, as illustrated on 1 May 2026. As a result, the wholesale electricity price temporarily fell to the permitted floor of -€499.99/MWh. For operators of renewable energy installations, such as photovoltaic and wind power plants, negative prices mean that their entitlement to remuneration for the relevant periods is reduced to zero under section 51 of the 2023 German Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz 2023). The current draft 2027 Renewable Energy Sources Act does not propose changing this position; the loss of the payment entitlement during periods of negative wholesale electricity prices will therefore remain. The exponential increase in the number of hours in which wholesale electricity prices were negative in recent years shows that this is not an isolated phenomenon: from 69 hours in 2022 to 301 hours in 2023, 457 hours in 2024 and 573 hours in 2025. This trend will continue, at least until sufficient battery storage capacity and other balancing resources have been integrated into the electricity system.

For renewable energy generators, PPAs provide secure revenues during periods of generation surpluses and negative wholesale electricity prices. They also promote a direct link between renewable electricity generation and industrial demand, thereby supporting system integration. Parties that commit to purchasing electricity over the long term where it is generated from renewable sources stabilise investment decisions and reduce their exposure to the volatile short-term market. PPAs therefore also help mitigate the economic disruption caused by an electricity system in transition.

Power purchase agreements as a decarbonisation measure under the industrial electricity price scheme

To benefit from the electricity price relief available under the industrial electricity price scheme for the 2026 to 2028 accounting years, electricity-intensive and trade-exposed companies must, among other things, contribute to decarbonisation. Under section 4.1 of the guidelines published by the Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie), eligible companies must commit to making a decarbonisation contribution. They may meet that commitment, for example, by entering into PPAs, provided that these are used to finance new or modernised renewable energy generation installations.

As a result of this, entering into new PPAs can help electricity-intensive and trade-exposed companies not only secure predictable electricity costs for several years, but also, where applicable, qualify for the industrial electricity price scheme.

Power purchase agreements for climate-neutral data centres

As well as for electricity-intensive and trade-exposed companies, PPAs also play a key role for data centre operators. Under section 11 of the German Energy Efficiency Act, data centres must in future be built and operated in a climate-neutral manner. This includes the requirement for data centre operators to match 50% of their electricity consumption with electricity from renewable sources on an accounting basis from 1 January 2024, rising to 100% from 1 January 2027.

For data centre operators, PPAs can therefore serve not only to hedge against volatile electricity prices, but above all to ensure that their electricity consumption is covered by renewable electricity and thus avoid the risk of enforcement measures.

European Commission recommends removing barriers to power purchase agreements

In addition to the points mentioned above, in Recommendation C(2026) 2676 of 22 April 2026 the European Commission calls for barriers to the development of PPAs and other energy purchase agreements to be removed (see EUR-Lex – 32026H0917 - EN - Lex). Eight of the Commission’s 13 recommendations identify measures through which Member States should support entering into PPAs, including in relation to the two-way contracts for difference (CfDs) envisaged under the 2027 Renewable Energy Sources Act. Section 21d of the German government’s draft 2027 Renewable Energy Sources Act introduces contracts for difference (described there as a “refinancing contribution”) to implement Article 19d of Electricity Market Regulation (EU) 2024/1747. Where plant operators receive support under the Renewable Energy Sources Act in the form of a market premium, they must pay the grid operator a refinancing contribution in respect of electricity generated by the plant if the annual market value exceeds the applicable value for that plant in the relevant calendar year. By contrast, the government’s draft 2027 Renewable Energy Sources Act does not impose an obligation to make a refinancing contribution in relation to PPAs where the generating plants do not participate in the support scheme under the Renewable Energy Sources Act.

In summary, power purchase agreements are experiencing a resurgence.

The following articles in this PPA series will examine different aspects of that development.