Battery storage outperforms renewable PPAs in volatile European power markets

Rising gas prices and power market volatility strengthened the outlook for battery energy storage systems (BESS) in July, while long-term renewable PPAs remained relatively insulated from wholesale electricity price movements, according to Swiss consultancy Pexapark.

Pexapark said geopolitical tensions in the Middle East pushed average gas prices about 10% higher than in the second quarter, lifting European power prices. Unlike during the 2022 energy crisis, however, the increase had a much smaller effect on long-term renewable PPAs.

In Germany, the fair value of a one-year pay-as-produced (PAP) solar PPA rose 15.4% in July to €50/MWh, while 10-year contracts increased just 3.6% to €36.6/MWh. Pexapark said the effect was even more limited in less gas-dependent markets such as Spain and France, where growing solar penetration is reducing long-term capture price expectations.

Battery storage was the main beneficiary of the changing market conditions. Greater hourly price volatility and wider price spreads increased arbitrage opportunities and improved revenue expectations for merchant BESS projects.

In Germany, the benchmark price for a seven-year battery tolling agreement starting operations in 2028 exceeded €102 ($117.46)/MW/year at the end of July, up 5.2% from before the latest escalation in the Middle East conflict. TB2 contracts also rose as expectations for daily arbitrage revenues improved.

Pexapark said the market shows that while long-term renewable PPAs are becoming increasingly decoupled from wholesale electricity price fluctuations, battery storage is emerging as one of the technologies best positioned to benefit from volatile power markets.

Of the 14 PPAs tracked by Pexapark in July, 10 were signed in Spain, with an average contract duration of 12 years. Most related to an agreement between Bimbo and Repsol.

The consultancy also recorded three battery storage PPAs, each with a four-year term, in Italy, Denmark and the United States. They included a standalone battery agreement between Zelestra and Axpo, a co-located solar-plus-storage agreement between European Energy and Danske Commodities, and a co-located solar-plus-storage agreement between ContourGlobal and Tesla.

From pv magazine España