The usage, sophistication and maturity of the PPA market differs between regions and it is clear that areas with lower prevalence of subsidy support, for example, will tend to have a larger, more active PPA market since price sensitivity is greater and developers will seek to de-risk their assets from a financial perspective. With a history of sizeable subsidy support for renewable energy generators (alongside other factors), the UK PPA market remains less mature compared with that of the Nordic countries or North America, for example, and where PPAs have been utilised they have typically been for relatively short contract periods. However, as subsidy support mechanisms have been withdrawn, the UK corporate PPA market and many others across Europe in particular, are beginning to transform and grow.
The demand for renewable energy from corporations has been spurred by sustainability objectives but also by the much-improved economics of renewable energy technologies and more flexible regulation. This has driven a surge in the quantum of corporate PPAs being signed and in 2019 a record 19.7GW worth of contracts were agreed according to Bloomberg New Energy Finance, representing year-on-year growth of c.45%. In 2020, to the end of July, almost 9GW of PPAs have been signed with approximately 60% of that coming from U.S. corporates.
Efforts to decarbonise the global economy will require continued growth in installations of renewable energy capacity and the intermittent nature of wind, hydroelectric and solar power generation, for instance, will result in greater volatility in spot electricity prices. PPAs provide a way to mitigate this price risk for both generators and off-takers and facilitate the development of new renewable projects by improving cash flow certainty.
The VT Gravis Clean Energy Income Fund invests in companies that own renewable power generation assets and these companies are highly active in PPA markets. Such contracts have underpinned the income-producing credentials of these portfolio companies and have meant that dividend distributions have been maintained, and in many instances increased, despite the economic contraction induced by the COVID-19 pandemic.
For more information on the VT Gravis Clean Energy Income Fund please visit our website.
William Argent
Fund Adviser, Director
Past performance is not necessarily a guide to future performance. The value of your investment may go down as well as up.
