3. Power Purchase Agreements and their use in the Nordics
An introduction to PPAs
History
The historical development of power-intensive industries in the Nordic countries has been two-sided:
Especially in Iceland and Norway, the development has been deeply intertwined with the region’s abundant natural resources, particularly hydropower. Ever since the first hydropower plants were built in the 1900th century, the investment decisions from both the power intensive industry and the power generators were tightly linked.
Finland and Sweden also had hydropower but relied more on fossil fuels when developing the power-intensive industries. Denmark’s power intensive industries, not being the core of its economy, also relied on fossil fuel.
The concept of Power Purchase Agreements, as we know it today, is both building on these historical industry agreements and new preferences and dynamics. Historically, PPAs were not determined in a liberalized market, but rather determined with regulated prices and strong political guidelines. Furthermore, aspects like ‘renewable’, ‘emission-free’ or ‘green’ were not key elements in a PPA. Especially the abundance of hydropower made electricity cheap, which laid the ground for profitable power-intensive industries.
The liberalization of electricity markets in the Nordics, starting with Norway in 1990, laid the ground for commercially based PPAs. The leftovers of strongly political and regulated PPAs, remained for quite some time after 1991, but in recent years all PPAs in the Nordic countries are commercial deals although effected by subsidy schemes and regulations
Iceland does not have a well-functioning day-ahead market in place, but PPAs are based on commercial decisions also in Iceland. Source: https://energifaktanorge.no/
Key message: Power Purchase Agreements (PPAs) has been and is a key driver behind the renewable energy development in the Nordic region.
New development
During the 1990s and 2000s, the discussion on how to address the climate change issue, really hit the political agenda. The Kyoto Protocol, adopted in 1997, committed countries to reduce greenhouse gas emissions. This created a new era for renewable energy and a potential low-carbon society. With this increased focus and need of more renewable energy and new green industries, the Nordic countries established different support schemes for renewable energy; such as feed-in tariffs in Denmark and Finland, electricity certificate scheme in Sweden and Norway. These support schemes affected the need for price hedging and PPAs in different ways, which made the need for PPAs more urgent in some markets than others.
The new era for onshore wind PPAs started in Sweden and Norway in primo 2010s. Producers and developers of onshore wind had extra revenues from the electricity certificates, but they also had a need for price hedging for financing reasons. Corporate companies, such as the technology companies, had the need of locking in electricity costs and claiming to use renewable energy. This created a good match and the ‘Corporate PPA’ was born.
Before and after this era, so-called ‘Utility PPAs’ have been offered from utilities with existing power generation (e.g. hydro). These agreements are not primarily for financing new RES generation, but more generally, a way for producers to hedge their revenues and providing predictability to their stakeholders.
Key message: PPAs regulate the sale of electricity between buyers and sellers. They are tailor-made and long-term.
Key aspects of a PPA
General definition: A Power Purchase Agreement (PPA) is a contractual agreement between two parties, where one party generates electricity (the seller), and the other party agrees to purchase all or parts of that electricity for a specified period (the buyer).
Price: PPAs can be agreed at fixed price or a dynamic market price, or somewhere in between. Fixed-price PPAs are more common in the Nordics. Fixed price PPAs provide revenue certainty for renewable energy projects, facilitate financing and reduce investment risk, and they provide predictability for PPA buyers.
Financing tool: The stable revenue stream, independent of fluctuating electricity market prices, enhances project bankability and attract investors. Lenders will typically require that revenues are hedged sufficiently to cover loan payments for the duration of the debt. Equity investors (especially infrastructure funds) are often reluctant to take on market exposure. Hence, PPAs have been essential for lifting unsubsidised onshore wind and solar PV development in the Nordics as a financing tool.
Long-term horizon: PPAs are typically long-term, often ranging from 5 to 15 years, and define at a very minimum key terms such as the amount of electricity to be supplied, the price, and the delivery schedule.
Non-standardised: PPAs are tailor-made. They vary in their complexity and can be complex legal documents with various clauses related to market events, performance guarantees, termination, curtailment, imbalance charges and more.
ESG and corporate responsibility: PPAs enable consumers to directly source renewable energy, aligning with the consumers’ sustainability goals. PPAs are often seen as key tool for bridging renewable energy to corporate responsibility.
Varying use of the term ‘PPA’: In some contexts, and markets, the term ‘PPA’ is linked to new power generation only, while in some markets the term is also used for agreements linked to existing power generation as well. The latter is the case in the Nordics.
Key message: PPAs is a key tool for developing new RES and making projects bankable. They provide predictability for the needed time horizon.
Developers and producers’ perspective of PPAs
PPAs are a cornerstone for the development of renewable energy projects, providing developers with risk mitigation, and thereby the financial security and investor confidence needed to bring these projects to fruition and contribute to the growth of clean energy.
A developer of new power generation needs to make the project bankable. Power prices are volatile and uncertain, and a full merchant approach is normally not accepted by banks and institutional investors. PPAs with a fixed price reduce the power price risk, which is a key aspect for the developer/producer.
Another desirable aspect of PPAs is the potential time horizon. Forward markets and future contracts are often limited to ten years, but in practice the liquid time horizon is even shorter in these markets. A PPA can be designed to fit the specific project and meet the bank’s need in terms of financing.
Consumer’s perspective of PPAs
A power consumer, small or large, needs to purchase electricity. There are several routes to market, from simple supply agreements to complex PPAs. PPAs often offer a fixed or pre-determined price for electricity over a longer period of time. This provides budget certainty and acts as a hedge against volatile retail electricity prices. In some scenarios, the electricity purchased through a PPA can be purchased at a lower rate than what would be paid to a traditional utility, e.g. due to the bulk purchasing nature and the direct connection to the development of an asset.
PPAs, with Guarantees of Origin, enable consumers to directly source renewable energy. By switching to renewable energy via a PPA, consumers contribute to reducing greenhouse gas emissions and lowering their scope 2 emissions.
Route to Market | Price hedging | Long-term horizon | ESG responsibility | |
Producer’s view on PPAs |  |  |  |  |
Consumer’s view on PPAs |  |  |  |  |
PPAs and subsidy schemes
PPA arrangements depend on nature of the subsidy mechanisms. As they become more competitive or disappear, the role of PPAs increases.
The joint Norwegian-Swedish electricity certificate scheme is a support scheme for renewable electricity production in both countries. It started as a Swedish schemes in 2003, before it became a joint scheme in 2012. The certificates have had zero value since 2019/20, but still the scheme will not finalize before 2035.
In a certificate scheme, RES projects are fully exposed to power prices and certificate prices are uncertain. Hence, there is a need for an active market in fixed price PPAs to manage price risk.
Finland and Denmark have had different variations of feed-in-tariff schemes. In recent years, the schemes are no longer in place
In feed-in tariff schemes, PPAs are rarely needed, as production is sold to FIT provider at a fixed price for a long-term period.
The differences in subsidy schemes is a key explanation for why Sweden and Norway were front-runners in developing a PPA market in the Nordics.
Key message: As subsidy mechanisms change or disappear, PPAs provide the risk mitigation required to secure financing of new RES projects.
The need for PPAs under different subsidy schemes.
All-inclusive Feed-in Tariff | Feed-in Premium | Contract for Difference | Certificate schemes | Merchant |
Central buyer at present price - no PPA required | Limited price risk - PPA provides route to market | Full price risk - PPA provides risk mitigation as well as route to market | ||
← Low price risk | High price risk → |
Ways of categorizing PPAs
The PPA community has many ways of categorizing the different PPA types. It can be done by delivery, by offtaker, by generation technology, by pricing mechanism, by profile type and so on. Remembering that these may overlap and are being used in a non-structured manner, we focus on three main categories in this chapter; namely utility PPAs, corporate PPAs and financial PPAs.
Key message: PPAs can be categorized in several ways. Many categories have terms and names that overlap and are being used in a non-structured manner.
By delivery | By offtaker | By technology | By pricing | By profile | By other dimensions |
1. Physical PPAs - Onsite PPAs - Off-site PPAs - Sleeved PPAs 2. Financial PPAs or - Virtual PPAs or - Synthetic PPAs | 1. Corporate PPAs 2. Utility PPAs or - Traditional PPAs or - Merchant PPAs | - Wind PPAs - Solar PPAs - Hydropower PPAs - BESS PPAs - Hybrid PPAs | - Fixed price PPAs - Hybrid price PPAs - Floating price PPAs | - Baseload PPAs - As-produced PPAs | - 24/7 PPAs - Multi-buyer PPAs - Long-term PPAs - Medium-term PPAs - Short-term PPAs - Cross-border PPA |
Main categories of PPAs in this report | |||||
Utility PPAs | Corporate PPAs (cPPA) | Financial PPAs | |||
Key contracting parameters in PPAs
Key message: Key contracting parameters in PPAs regulating the terms of electricity sales
*Except Iceland. Sources: AFRY analysis.
Most common price and volume structures
PRICE STRUCTURE | VOLUME STRUCTURE | ||
Fixed price | Almost all Nordic PPAs have a fixed price structure for the entire duration of the PPA tenor. The price is typically not indexed or adjusted for inflation. The baseload PPA prices are higher than the as-produced PPAs, reflecting the expected cost of managing baseload profile risk. The premium will depend on, amongst others, agreed hedge level and expected capture ratio. Price levels may be influenced by movements in the forward curve Nasdaq OMX Commodities is the reference market. Price comparison with PPAs is difficult due to low liquidity, especially for longer dated SYS contracts and EPAD contracts (any maturity). More details on this is provided on page 35 LCOE of RES generation and breakeven electricity price for offtakers are also relevant markers in the PPA negotiation process. | As-Produced vs Baseload | As-Produced and Baseload are common structures for Nordic PPAs. For RES developers and investors, as-produced gives the lowest risk exposure. However, higher prices for baseload PPAs may make them more appealing. Offtakers have a preference for Baseload PPAs as it is closer to matching their consumption profiles. The large market players with trading competencies and/or diverse portfolios are usually more flexible towards the PPA structure. |
Other | Other pricing structures are uncommon in the Nordics, especially in the case of corporate PPAs. Utilities can usually provide more tailor-made structures required by market player (e.g. price floor/ceiling, indexed toward other commodities). Utilities can also provide simple route-to-market into Day Ahead or short-term hedging, although this typically does not qualify as a PPA. | Other | Other volume structures other than pay-as produced or baseload are uncommon. More complex PPA structure can be seen, especially utilities with large portfolios have more flexibility for tailor-made structures. |
PPA VOLUMES
Context
The Nordic PPA market is not transparent in terms of pricing. The parties to a PPA may release information on key contracting terms such as volume, country, technology, and tenure, but information on price level is very rarely disclosed to the market.
AFRY is constantly monitoring the PPA market in the Nordic countries, resulting in a comprehensive inhouse database of publicly disclosed PPAs in the Nordic market since 2013. AFRY’s PPA database contains PPAs for ca. 80 TWh/year and is labelled by the following elements (where publicly disclosed):
- Country
- Technology
- Volume
- Buyer and seller
- Offtake sector
- Type (corporate, utility buyer, utility seller)
- Price
- Signed year and start year
- Tenure
- Balancing responsible party (BRP)
- Guarantees of Origin (GO)
The data quality of the database varies and is highly dependent on what information is publicly disclosed. The database only contain PPAs based on renewable generation.
Key message: The Nordic PPA market is generally not transparent on contracting terms beyond size, duration and contract parties.
AFRY’s database includes publicly disclosed terms in PPAs
Often publicly disclosed High data quality | Rarely publicly disclosed Limited data quality |
Total/annual volume Country Technology Buyer and seller Start year and tenure | Price level Volume structure Settlement structure (physical or financial) BRP GO terms |
Evolution of PPAs by year and country, TWH/Year
Key message: The Nordic PPA market is considered mature, but has experienced a slow-down post energy crisis mid-2021
*Until end of May 2025
Notes: The graph includes PPA volumes signed for a given year measured in annual delivery. The volumes are based on publicly announced information tracked by AFRY and is non-exhaustive. The physical electricity generated is double counted in some cases, e.g. in the case where a utility buys electricity from RES producer and onsell the same volumes to a corporate offtaker.
Source: AFRY Management Consulting
The Nordic countries and PPAs
Key message: The Nordic PPA market is relatively homogenous, but there are country specific differences in how the PPA market has developed
 | Norway has a longstanding tradition of PPAs between (hydro) utilities and energy-intensive industries. Historically, these agreements were seldom publicly announced, though transparency has improved in recent years. The mid to late 2010s witnessed a surge in cPPAs between onshore wind developers and corporate offtakers, significantly driving onshore wind development. The need for cPPAs for project funding came because of the price uncertainty of electricity certificates and the need for alternative hedging mechanisms. In the 2020s, the cPPA market has stagnated, primarily due to a pause in the licensing process for onshore wind projects following significant public opposition. |
 | Over the past decade, Sweden has maintained a robust PPA market, consisting of a blend of utility PPAs and cPPAs. The majority of cPPAs are based on selling electricity from onshore wind assets to large power intensive industries. Similar to Norway, the rise of PPAs correlated with the market exposure of electricity certificates and lack of other hedging mechanisms. |
 | In recent years, Denmark has seen a significant increase in PPA activity, with these agreements becoming the primary funding mechanism for renewable energy development following the phasing out of subsidies for onshore renewable energy sources in the late 2010s. The majority of PPAs in Denmark are associated with solar PV projects, which have experienced substantial growth since around 2020. |
 | In Finland, publicly disclosed PPA deals have predominantly been linked to onshore wind power development. New Finnish onshore wind has been developed on a merchant basis since feed-in premiums were phased out in the late 2010s, with PPAs playing a crucial role in driving the buildout. The period from 2020 to 2022 witnessed the highest level of PPA activity, following attractive market outlooks for onshore wind development. Note: the Mankala model, which is unique to Finland, is another way of financing new electricity generation (typically nuclear), and is not considered as a traditional PPA. |
 | Iceland's power sector differs from its Nordic counterparts due to the historical absence of a power market. Consequently, all industrial electricity offtake is facilitated through PPAs, primarily based on hydropower or geothermal energy. These agreements are typically long-term and exhibit unique characteristics, such as the inclusion of flexibility mechanisms, setting them apart from PPAs in other Nordic countries. Some Icelandic PPAs have indexed pricing, e.g. towards LME’s (London Metal Exchange) aluminum price or NordPool |
Traditional power-intensive industries offtake over half of PPA volumes in the Nordics
Key message: Share of PPA offtakers in the Nordics 2013-2025 (% of TWh)
Traditional (power intensive industries have been significant buyers of PPAs over the past 10-15 years, playing a crucial role in market development. They represent 55% of the market share. Power intensive industries represent low counterparty risk for sellers and can (in many cases) commit to long term contracts which is attractive for renewable developers. |
IT and Technology primarily involves data centers and accounts for approximately 17% of PPA volumes. |
Utilities or traders represent about 13% of the market. Utilities procure PPAs to build their portfolios and may merge these with their own production. The power is ultimately sold to corporate offtakers (separate PPA), to power markets, or a combination. |
Other offtakers represent 16% of the volumes, typically characterized by smaller deal sizes. |
Source: AFRY Management Consulting.
Shape of generation technology in Nordic PPAs 2013-2025
Key message: The share of generation technologies in Nordic PPA varies between country; onshore wind represent the highest share overall.
Notes: RES in this context refers to PPAs sourced from unspecified renewable energy sources – this category often contain a large share of hydro. Source: AFRY Management Consulting.
Durations, sizes and offtakers in last decade
Key message: Various large energy users have opted for PPA procurement in the Nordic markets, tenor trend towards shorter durations.
Note: The illustration is based on an extract of publicly announced PPAs.
Source: AFRY Management Consulting.
stakeholders
Key message: The key stakeholders in PPAs are RES producers, corporate consumers, utilities or traders, and lenders.
Producer | Producers or RES developers commit to supplying a predetermined amount of electricity to buyers, often at a fixed price over a specified period. This arrangement provides them with a de-risked cash flow, enabling them to secure financing for the project. | Seller |
Corporate consumer | Corporate consumers play a crucial role in driving increase of renewable energy through PPAs. Corporates enter into long-term offtake of green electricity to protect against power market volatility and to secure green electricity for sustainability reporting. | Buyer |
Utility or trader | Utilities or traders may assume various roles depending upon the specific type of agreement. These entities can function as either sellers or buyers of PPAs. Alternatively, they may adopt a third-party role, e.g. providing BRP services. | Seller, buyer, service provider |
Lender | Lenders often provide the necessary capital for the developing and building RES projects. Their role involves assessing the creditworthiness of RES producer, counterparty risk, the viability of their projects. Lenders offer loans, bonds, or other financial instruments to support project funding. | Project funding |
Main PPA categories
Utility PPAs and Corporate PPAs are the most common PPAs in the Nordics, but we will also include Financial PPAs as an important category
1. Utility PPAs The RES producer enters into a PPA with a utility that will on-sell its power to its clients, managing imbalance risks. These Utility PPAs are typically physical PPAs, i.e. the agreement also includes the transfer of physical power. A utility PPA may refer to both agreements where the utility is involved, both a sell-side utility PPA and buy-side utility PPA | 2. Corporate PPAs A Corporate (sleeved) PPA is normally a trilateral framework of agreements, where the utility interfaces the market on behalf of the producer and final consumer. These Corporate PPAs are physical PPAs, i.e. the agreement also includes the transfer of physical power | 3. Financial PPAs In a Financial PPA, ‘difference’ payments are settled based on a defined price and volume mechanism, without transfer of physical power. If a PPA is cross-border PPA, it is normally a Financial PPA |
Typically, physical delivery | No physical delivery | |
A utility PPA may refer to two sub-categories, Utility-Buyer PPA or Utility-seller PPA, where the utility is involved on either the sell-side or buy-side
Category 1: Utility-Buyer PPA
Seller (producer) typically hedges revenues and secures cash flows to achieve funding for developing the project. Electricity and associated GO are transferred to, and paid for by, the buyer (utility or trader). The buyer typically cover balancing services and any other grid-interfacing activities. The buyer will then ultimately either supply end consumers through a utility seller PPA, or resell into the market or to other traders/utilities. Although the electricity produced is, in the end, delivered (directly or indirectly) to end consumers, the on-sale arrangements will not be directly relevant for the Utility-Buyer PPA.
Category 2: Utility-Seller PPA
In a utility-seller PPA, the main purpose for the buyer (corporate consumer) is typically to hedge electricity purchase against power market volatility and secure GO if relevant, whereas for the seller the PPA is mainly a hedging instrument. The seller (utility or trader) may source the electricity to be sold either directly from one or more utility-buyer PPAs, the market, own production portfolio (relevant for utilities), or a combination of these. The seller typically manages balancing responsibility and any other grid interfacing activities.
A corporate PPA is a trilateral framework of agreements, where a utility/trader interfaces the market on behalf of the producer and consumer
The exact legal framework may vary case by case, but typically (as illustrated on the left) the producer transfers ownership of electricity to the corporate consumer at the meter, which immediately on-sells the volume to the sleeving entity (utility or trader). The sleeving entity typically manages imbalances and any other grid-interfacing activities. The utility ‘sleeves’ this volume back to the corporate consumer through the grid, potentially shaping the profile by topping up to meet the agreed volumes, or selling the excess volumes to the market. GOs are often retained and redeemed by the corporate consumer. The cost of the sleeving service is typically paid for by the producer, but may be indirectly by covered the corporate consumer as part of the PPA price. Corporate PPAs are sometimes referred to as sleeved PPAs.
In a Financial PPA, ‘difference’ payments are settled based on a defined price and volume mechanism, with separate handling of physical electricity
In a financial PPA, the producer and corporate consumer agree to settle difference payments based on a defined price and volume mechanism. Each PPA party will typically need to set up a separate physical route to market for its electricity sale and purchase, but this is outside the scope of the Financial PPA, though the terms of such physical route-to-market and/or the subsidy scheme may influence the structure and pricing terms of the Financial PPA. Financial PPAs are commonly used as a tool for enabling cross price area PPAs.
Lenders play an important role in PPAS and set specific requirements to provide project funding
RES development is capital-intensive, and in merchant markets without government-backed subsidies, lenders are often crucial to project funding. The funding typically comes from long-term debt provided by senior lenders or equity investors, which can often exhibit debt-like characteristics. Project cash flows are essential for repaying this debt, necessitating that projects must demonstrate a balanced risk profile for the cash flows through contractual arrangements. Long-term fixed or minimum price PPAs are particularly attractive risk mitigation tools as they help protect project revenues. Lender requirements vary based on the level or structure of equity investment in a project, wider market practices, the lender's risk appetite, or specific project factors such as RES technology and geography. Despite these variations, there are common risks and considerations that PPAs must address to achieve bankability, and lenders have become increasingly aware of the underlying shaping risks in PPAs.
Key message: Lenders have become increasingly aware of the underlying risks in PPAs, leading to stricter requirements to achieve bankability
Secure cash flows | Sufficient duration | Counterparty risk | Termination clause |
Predictable and de-risked revenue streams on appropriately sized volumes to limit exposure to volatile power markets. In cases of profile or shape risk, it is particularly important to understand downside risk. | Lenders typically seek long-term PPAs that align with the duration of the debt. | Lenders will assess the credit worthiness off the PPA counterparty to confirm reliability. This may involve requirements of credit support for the counterparty, e.g. bank or parent company guarantee, or other forms of guarantees. | Lenders will want to see predictable and future-proof termination clauses that regulate the termination payment on default or early exit. |
In recent years, there has been increasing awareness on the importance of profile and shape risk in PPAs following examples of high shaping cost leading to loan defaults and subsequent bankruptcy. The underlying risk mechanism is described in pricing theory chapter. | |||
Pricing theory
A theoretical approach to PPA reference pricing
The term around pricing in Nordic PPAs is typically confidential and there is limited publicly available information on settled PPA prices. Therefore, it is also challenging to establish good benchmarks for a fair PPA price. In addition, a fair PPA price can vary significantly on case-by-case basis as it is dependent on a wide set of contracting terms such as duration, volume structure, credit guarantees, etc. Also, other products and services such as Guarantees of Origins and balancing fees can be incorporated in the PPA price.
However, from a theoretical perspective, the reference price of a PPA can be established based on the expected future power price for the contracted volumes over the duration of the contract. Projecting power prices is inherently challenging due to market volatility, regulatory changes, and other unpredictable factors. At a high level, there are two established methodologies for power price projection.
- Financial methods: based on power forward markets
- Fundamental methods: bottom-up power market models
Further, the reference price for a PPA is dependent on the volume structure in the relevant PPA.
For a baseload PPA, the reference price is the baseload electricity price, which is the time-weighted average price. This represents the expected price at which an offtaker would buy electricity in the market.
For a pay-as-produced PPA, the reference price is the relevant capture price given by the generation-weighted average price for the relevant generation technology. This price reflects what the seller would achieve with full market exposure.
Key message: Key elements of PPA pricing are power price projection methodology and volume structure in PPAs.
For baseload PPAs, the reference price is given by the time weighted average power price for the duration of the contract
For as-produced PPAs the reference price is given by the generation weighted average power price over the duration of the contract (also referred to as capture price)
Where t is hour, \[
\text{Spot}_t
\] is the power price in hour t, \[
\text{Generation}_t
\] is the generation in hour t for the contracted asset(s), and total hours is the total hours over the contracted period.
Source: AFRY Management Consulting.
Financial methods
The financial methods are based on inputs from the forward markets; the forward curve and its historical volatility. In the Nordic market this would typically be based on information from Nasdaq OMX Commodities’ derivates market. Financial methods have a short-term probability-based approach. Market prices should theoretically reflect all known information to the market participants. Therefore, forward market prices can be seen as the market participants' best guess on how the relevant market price will develop.
Key message: There are two common ways of analyzing the value of PPAs: financial and fundamental methods
 | Low computational requirement and low complexity with market prices being the only input needed. Can be updated daily. |
| Well suited to provide probability based curves (P10-P90). |
 | It has no view beyond the end of the forward curve (ca. 2-3 years), see next page for further details. |
| Probabilities have no view on step changes. |
Fundamental methods
The fundamental methods are based on bottom-up models aiming to analyze how all assets (producers, consumers, interconnectors, etc.) in the power system interact. Fundamental models optimizes the dispatch of all plants in the system to simulate price formation in the power market and are based on demand and supply principals. Fundamental methods have a long-term scenario-based approach. Scenarios could be based on different demand and supply scenarios.
| Comprehensive modeling with potential to include all aspects of the energy system. |
| Can consider any known or likely changes in the future. |
| Computationally complex and projections are typically updated on quarterly to annual basis. |
| Difficult to generate probability-based curves as it is time consuming to run a big model and input probability distributions (e.g. of gas, carbon, demand etc.) and their cross-correlation. |
Decline in volumes on power futures in the Nordics
The figure below presents traded derivatives volumes for Nordic power contracts traded on Nasdaq OMX Commodities (NOC), exchange and over-the-counter (OTC), between 2008 and 2024.
The traded volume hit a 25-year low in 2022 as record high and volatile prices caused a surge in margin requirements. Volumes have been falling throughout the period, with 2016, 2020, 2023 and 2024 being the only years with year-on-year growth.
This decrease can be attributed to several reasons:
- A stricter EU regulation, the introduction of the Markets in Financial Instruments Directive (MiFID) in 2007, that has increased the costs of trading for market participants
- The system price is less relevant for market participants when the price differences between areas increase
- Regulatory and tax changes have also changed the market participants hedging needs in some Nordic countries
- Margin calls have increased significantly, making exchange-based trading less favorable
The graph below presents aggregated volumes of Nordic electricity futures traded for two months of 2025. Contracts with shorter time to maturity, i.e. month and quarter, have higher liquidity, whereas contracts with several years to maturity are rarely traded.
Key message: Traded and cleared volumes have been falling dramatically since 2008 power futures markets, limiting the feasibility of financial methods
Nordic power derivatives volumes, 2008-2024 (TWH)
Nordic electricity futures for system price
TWh – Trading period March-April 2025 on Nasdaq OMX Commodities
Source: Nasdaq OMX Commodities; EEX.
The profile risk
The profile risk refers to the mismatch in generation and consumption profiles; allocation of profile risk affects the price level of the PPA.
The profile risk of a PPA contract cannot be removed, it can only be moved between the parties; moving risk has a value effect.
Illustrative example of profile risk and shaping cost between a variable RES producer and a baseload consumer
*In this example, a production profile from a generic wind farm is used.
Regulatory review
Key message: EU’s major regulatory and policy packages for renewable energy indicate increasing ambitions and EU’s commitment to a renewable energy future
Source: european-union.europa.eu, fornybarnorge.no and energiforetagen.se
The regulation of PPAs within the EU is evolving, with a strong emphasis on promoting their use to support the growth of renewable energy sources.
PPAs has been a key commercial tool for the roll out of new renewable energy capacity in the last decades. The EU has become more and more aware of the PPA as a tool for supporting their energy and climate goals, especially during and after the energy crisis in 2021-2022 where electricity prices sky-rocketed.
There are several aspects for why the EU are actively encouraging PPAs and seeking to remove barriers for PPAs:
- PPAs provide long-term revenue stability for renewable energy producers and cost stability for renewable energy consumers
- They are a prerequisite for financing decisions and are seen as a long-term guarantee and risk tool for investors, banks and lenders
- PPAs are adjustable by nature. They can easily be designed to fit different purposes, needs and preferences
- PPAs have a proven track-record and the PPA market is mature. PPAs have materialized in the free market. They have not required heavy support and/or regulation from the authorities
- PPAs provide a clearer link to the renewable energy source, making them in many circumstances a more transparent tool for credible claims of renewable energy
The regulation of Power Purchase Agreements (PPAs) in the EU has seen significant changes in recent years, primarily driven by the Electricity Market Design reform package adopted in 2024, which includes Directive (EU) 2024/1711 and Regulation (EU) 2024/1747. These build upon the foundations laid by the Renewable Energy Directive II (RED II) (2018) and aim to further promote and facilitate the uptake of PPAs as important instruments for the energy transition. The major changes in EU regulation of PPAs in recent years reflect a stronger political will to unlock their potential as a key driver for renewable energy deployment.
EU’s focus has shifted towards actively promoting PPAs, removing barriers, providing support mechanisms like guarantees for reducing counterparty risks, investigating if transparency could be improved through public market platforms, investigating if standardised PPA templates could improve complexity and in general, ensuring a more stable and predictable market environment for PPAs. The latest Electricity Market Design reform package underlines this direction and provides a clear regulatory push for increased PPA activity across the EU.
Key message: EU's regulatory landscape has been shifting to actively encourage and facilitate the use of PPAs, to achieve climate and energy goals
Sources: Directive (EU) 2024/1711 and Regulation (EU) 2024/1747
EU's toolbox for promoting PPA
- Promotion and barrier removal: Member States shall promote the uptake of PPAs by removing unjustified barriers and discriminatory procedures to ensure price predictability and achieve decarbonization and renewable energy targets, while maintaining competitive and liquid electricity markets and cross-border trade
- PPA market platform assessment: The European Commission will assess the feasibility of voluntary EU-level PPA market platforms, considering their interaction with existing platforms and the potential for demand pooling
- Guarantee schemes: Member States shall ensure, in a coordinated manner, that instruments like market-priced guarantee schemes are in place, to reduce financial risks associated to offtake, payment default in PPAs. These guarantees should be accessible for creditworthy customers that face entry barriers. These instruments could be state-backed guarantees at market price, private guarantees or demand-pooling, in accordance with EU law. Members states may categorize customers that are targeted in a non-discriminatory manner
- Limitations on state guarantees: State-backed PPA guarantees must avoid reducing market liquidity and cannot support fossil fuel generation, with the option to focus solely on new renewable energy (if the relevant PPA market is not mature)
- PPAs in support schemes: Renewable energy support schemes should allow projects to sell part of their electricity through PPAs or other market-based arrangements, provided it doesn't negatively impact competition
- PPAs and the design of support schemes: Member States should use evaluation criteria in support scheme design to incentivize bidders to facilitate PPA access for customers facing entry barriers, without harming competition
- PPAs specifications: PPAs shall specify the bidding zone of delivery and responsibility for cross-zonal transmission rights in case of bidding zone changes
- Termination: PPAs shall outline exit terms and conditions in accordance with EU competition law
- Respecting existing PPAs: When designing measures affecting PPAs, Member States must respect legitimate expectations and consider the impact on current and future PPAs
- Market assessment and guidance: The Commission will periodically assess barriers and transparency in PPA markets and may issue guidance on removing obstacles