5. Strategies to overcome the challenges

introduction

Key features of the Nordic PPA market to consider

PPAs are a means to an end	The Nordic PPA market has been a success	PPAs comes in many shapes and sizes	PPAs may not be suited for all types of offtakers
PPAs are a strategic tool for market players to achieve specific objectives (i.e. financing tool, price hedge or sustainability objectives). Policymakers should focus on enabling PPAs as a tool to support broader goals (RES targets, decarbonization targets, economic growth, etc.), rather than merely increasing their quantity.	The Nordic PPA market has demonstrated strong growth and maturity, driven by market mechanisms. Low regulatory risk perception has been a critical success factor. This has resulted in substantial penetration of subsidy free renewable energy.	PPAs are tailormade to suit the specific needs of buyers and sellers, including variations in project size, contract duration, and pricing structures. The bespoke nature of PPAs makes standardization and direct comparison difficult, but it allows for flexibility and innovation in contract design to mitigate market risks.	Not all offtakers have the creditworthiness, risk appetite, planning horizon or operational capacity to effectively engage in PPAs. Smaller or less experienced offtakers may face challenges related to contract complexity, long-term commitments, and risk management requirements.

PPAs versus other contract types

When investigating PPAs and challenges in the PPA market, it is highly important to understand what PPAs are and what characterizes them. PPA's have a set of pros and cons, but if you try to improve one negative set you might lose some positive sets. As an example, PPAs can not be both homogeneous and flexible.

Key message: PPAs are suited for certain market segments and have a set of pros and cons. Other contract types have other characteristics

	PPAs	*Non-standard OTC contracts**	Standard OTC contracts	Standard exchange contracts
Horizon	Long-term	Short to medium term	Short to medium term	Short to medium term
Price transparency	Poor	To a certain degree	To a certain degree	Good
Flexible terms	Flexible	Flexible	Non-flexible	Non-flexible
Homogeneous	No	No	To a certain degree	Yes
Bankability	Suitable	Suitable, to a small degree	Not suitable	Not suitable
Tradeable	No	Yes, but to a small degree	Yes, to a certain degree	Yes
Clearing services	No	No	Yes	Yes

*Over-the-counter

EU toolbox

EU’s toolbox for promoting PPAs cover or partly cover several of the challenges in the Nordic PPA market. When we compare the mapped PPA challenges to EU's toolbox for promoting PPAs, we see that the toolbox cover or partly cover several of the challenges in the Nordic PPA market.

Source: Regulation (EU) 2024/1747

Framework

We have developed a prioritisation framework for strategic consideration of the specific challenges in the Nordic PPA market.

The mapping exercise indicate the EU toolbox addresses most of Nordic PPA challenges where policy attention is needed.

Strategic considerations and next steps

*The International Accounting Standards Board (IASB) has issued targeted amendments to IFRS 9 and IFRS 7 for 'nature-dependent electricity contracts' (PPAs supplied by intermittent renewables) 1) clarify the application of the 'own-use' requirements, 2) permitting hedge accounting if these contracts are used as hedging instruments, and 3) adding new disclosure requirements to enable investors to understand the effect of these contracts on a company's financial performance and cash flows.

* Examples of platforms: LevelTen Energy, Renewable Exchange, Zeigo, Sanza, and Pexapark