PPAs: why Italy only witnessed a few corporate cases

PPAs: why Italy only witnessed a few corporate cases Get in touch PPAs: why Italy only witnessed a few corporate cases Gallanti (One): generators and off takers don´t share the same priorities, banks are cautious and there are accounting complexities. Yet the potential is about to break free According to Dario Gallanti, Partner of the energy transaction firm Our New Energy, specializing in power purchase agreements (PPAs), there are different reasons why only a few long-term corporate PPAs are signed in Italy for renewable energy, despite the potential of the market. The main reason is the drop in energy prices which has cooled industries’ appetite for renewables and the divergence of approach among customers, seeking low-priced electricity, and investors, that instead need “tailor-made” deals. Moreover, the caution from banks, who tend to prefer the “mediation” of traders and utilities, and the unfamiliarity of the industry with the applicable accounting treatment. “Given the potential,” Gallanti tells Staffetta, “one would think that many corporate PPAs have already been signed in Italy, but this is not yet the case”. The primary cause is the high transaction risk, “with agreements falling through shortly before signing, despite the efforts invested in the transaction by both parties.” Gallanti also points out that falling market prices are playing a significant role: “forward prices have dropped substantially, and we now witness around €150/MWh for Italian Cal-2024. That’s still almost three times higher than the pre-pandemic spot market level, but somehow corporates simply seem less interested in securing long term fixed energy prices, believing that the storm is behind them and the need for PPAs is no longer so pressing”. A key issue, Gallanti explains, “is that the asset owners and the energy-buying companies often don’t have the same view on PPAs: companies often approach long-term agreements as a simple commodity contract, with price as the main evaluation factor, while most sellers view PPAs as more complex commitments. As a result, Italian generators allocate less time and spend fewer resources to initiate dialogue with off takers, as they know that the opportunities for negotiating a tailored contract are limited”. Additionally, there’s the issue of bankability: “financing bodies have been very reluctant to finance corporate PPAs unless the off takers have an investment-grade credit rating. The banks prefer trading companies or large utilities as off takers, who can manage the production risk profile of the renewables asset and then resell the energy to consumer companies with baseload profiles.” Last but not least, Gallanti concludes, “financial PPAs in Italy are considered less attractive than physical PPAs in terms of VAT treatment. Besides, several companies (and their accountants) are less familiar with the accounting of these financial derivatives”. The result is that so far, despite numerous announcements and press releases – sometimes concerning mere letters of intent or agreements on certificates (GOO) – the Italian PPA market for newly constructed assets has only secured a cumulative contracted volume of 1.4 GW from 2019 until now. But things appear to be changing. “With a significant anticipated increase in market volumes, thanks to the growth in solar authorizations granted in the last six months, there will be only a limited number of ‘good priced PPAs’ available for the generator. In such a ‘buyer’s market’ context, we are confident that more Italian corporates will be able to unfold their full potential, sourcing energy through direct corporate PPAs with asset owners”. Recent Post Financing Opportunities for Power-to-X in Denmark: Are the Fundamentals Established? Financing Opportunities for Power-to-X in Denmark: Are the Fundamentals Established? Get in touch Last week (04/06), PwC published a survey… Learn More 10 de June de 2024 The energy transition puzzle has not a single solution The energy transition puzzle has not a single solution Get in touch ONE’s Partner Jakob Bendixen on the Danish GreenLab,… Learn More 1 de April de 2024 The Silverlining: BESS and the Future of Renewables in Spain PPAs: why Italy only witnessed a few corporate cases Get in touch The Silverlining: BESS and the Future of Renewables… Learn More 14 de March de 2024 Cargar más

A good PPA or just a PPA?

A good PPA or just a PPA? Get in touch A good PPA or just a PPA? Market parity in Italy: why overlooking complexity means missing out on potential value As leading advisors on structuring, negotiating and closing long term power purchase agreements (PPA), Our New Energy (ONE) deal with many different PPA types and offtakers in the expanding Italian PPA market, Partner of ONE, Dario Gallanti, said on July 13th in Rome, sharing with the audience of Solarplaza Italy his views on what makes up an attractive contract. Italy’s PPA market features approximately 1.2 GW of actual long-term transactions executed to date, with most of the corporate agreements in the country still closed with utilities as sellers. “As the market expands, driven by decarbonization targets and more projects and permits becoming available, more investors without power market or even renewables experience are facing counterparties who have concluded many PPAs in Italy and abroad – Dario pointed out – sometimes overlooking the increasing complexity of the market, missing out on potential value during negotiations and oversimplifying terms and conditions or, even worse, completely overlooking these. On the other hand, off takers, having concluded deals and on the back of their knowledge of the energy markets and transactions, are well positioned to extract all potential value drivers”. The Italian PPA market is evolving very rapidly, and seemingly moving away from standardization which we saw, for example, with the simpler balancing and route to market agreements. This results in a big disparity in attractiveness among seemingly identical PPAs: a good agreement differs substantially from just “an” agreement. The current environment raises ever-new complexities and challenges, Dario emphasized: from an extreme seller’s market driven by a lack of authorized projects and a spike in energy prices, the market is quickly shifting to a more buyer friendly market, with bearish prices in which PPA market dynamics, being the balance of PPA demand and offer, are gaining importance over forward energy market dynamics. In this context, the value of additionality for Corporates is becoming an even more important value driver and is expected to shift their interest towards Pay-as-Produced profiles. Moreover, merchant exposure, from being an opportunity in 2021-22, has now shifted back to be a risk factor that requires a management strategy, something that ONE team has been increasingly involved with through Dynamic Asset Management products. Last but not least, the decline in PPA prices, coupled with divergent long-term price perspectives among market players, has sparked interest in more sophisticated price structures like cap and floor contracts, where corporates have shown greater openness compared to utilities. “Now more than ever it is clear in the Italian market how, in order to achieve the ambitious goals of newly installed wind and solar power by 2030 – Dario concludes – one of the bottlenecks will be represented by a lack of human resources. While this has already been acknowledged in parts of the value chain such as EPC, it is rapidly expanding to include off-takers themselves and the various advisors involved in PPA and M&A transactions. Staying close to the market and being able to differentiate a deal from competitors by risk allocation, size, technology, or profile to make it more appealing to off takers will become increasingly essential to secure the best conditions. Only investors embracing these changes will unlock the full market parity potential”. Recent Post Financing Opportunities for Power-to-X in Denmark: Are the Fundamentals Established? Financing Opportunities for Power-to-X in Denmark: Are the Fundamentals Established? Get in touch Last week (04/06), PwC published a survey… Learn More 10 de junio de 2024 The energy transition puzzle has not a single solution The energy transition puzzle has not a single solution Get in touch ONE’s Partner Jakob Bendixen on the Danish GreenLab,… Learn More 1 de abril de 2024 The Silverlining: BESS and the Future of Renewables in Spain PPAs: why Italy only witnessed a few corporate cases Get in touch The Silverlining: BESS and the Future of Renewables… Learn More 14 de marzo de 2024 Cargar más

Lessons from the industry – announcing private wire PPA Mytilineos RSD and Saint-Gobain Glass that should serve as an example for future legislation

Lessons from the industry – announcing private wire PPA Mytilineos RSD and Saint-Gobain Glass that should serve as an example for future legislation Get in touch Our long-term partner Mytilineos RSD recently closed a 10-year private wire 4.9MW PPA with Saint-Gobain, the world’s largest glass manufacturer. We want to illuminate some of the features that make this PPA unique and make it an uplifting story for the renewable energy sector. The deal is significant for a number of reasons. Firstly, its speed. The solar asset will already be up and running this year on the premises of Saint Gobain’s historical factory in Vidalengo, near Bergamo. Because it is ground-mounted, not rooftop-mounted, it allows for a larger asset size, meaning a larger output and lower costs, resulting in an even more competitive price for Saint Gobain. In this PPA, Saint Gobain commits to purchasing the energy from the asset in private wire for a period of at least 10 years.  The deal serves several purposes; sustainability, energy security, and competitiveness:  Saint-Gobain is committed to offering sustainable products and solutions for customers, and part of that commitment is sourcing electricity from renewable sources. With this PPA, Saint Gobain is reaching an impressive level of additionality. Not only because their commitment will ensure that new assets will be built, but they are also providing the land for the asset. By having the solar assets be located on the premises of the existing Saint Gobain factory, no new land needs to be developed, preserving the natural resources.   Furthermore, the company is securing access to sufficient electricity in these uncertain times. For many production companies, planning for the future is no longer just related to business management but also securing the resources needed to operate. This 10-year PPA secures a significant portion of Saint Gobain’s electricity needs in Vidalengo. In addition, locking into a favorable electricity price ensures business competitiveness, as it reduces operational costs in part due to significant savings on grid fees.  Yiannis Kalafatas, Chief Executive Director of MYTILINEOS’ Energy Sector, notes: “MYTILINEOS is evolving into an integrated utility, but as it is at the same time one of the largest power-intensive industries in Europe, understands the increased needs of its partners. Italy represents a strategic country for the Company and with this agreement we are demonstrating our capabilities to support local industries in this difficult period of energy volatility and our support to the Italian energy independence policy.” Because the assets are located in Italy, they fall under the Italian regulation for self-consumption, known as SEU.  “The SEU is some of the most advanced legislation for self-consumption in Europe, as it allows a third party to build assets on the consumer’s property and sell the energy. Any excess production can be sold to the grid, and the regulation provides for mitigants to manage counterparty risks. We believe that this particular setup could benefit many other European nations, where legislation prevents having different ownership for the production asset and consumption facilities”.  – Dario Gallanti, Partner at Our New Energy Ultimately, this PPA shows us that with sound regulations that support the renewable transition, companies can gain competitive advantages while securing their energy needs and honoring their Sustainable Development Goals commitments. We should all take notes from this case, where policy, business growth, and sustainable development go hand in hand, and use it as inspiration for future business practices. MYTILINEOS was advised by Gattai, Minoli, Partners and Our New Energy on the transaction. Recent Post Financing Opportunities for Power-to-X in Denmark: Are the Fundamentals Established? Financing Opportunities for Power-to-X in Denmark: Are the Fundamentals Established? Get in touch Last week (04/06), PwC published a survey… Learn More 10 de junio de 2024 The energy transition puzzle has not a single solution The energy transition puzzle has not a single solution Get in touch ONE’s Partner Jakob Bendixen on the Danish GreenLab,… Learn More 1 de abril de 2024 The Silverlining: BESS and the Future of Renewables in Spain PPAs: why Italy only witnessed a few corporate cases Get in touch The Silverlining: BESS and the Future of Renewables… Learn More 14 de marzo de 2024 Cargar más

Green energy delivered directly to the consumer

Green energy delivered directly to the consumer Get in touch While across Europe corporate interest in green solutions is booming, Italy is also experiencing a rise of medium to large private wire initiatives – especially on solar energy. These can offer both a higher level of additionality and the higher economical benefit for the corporate.In this article on nuova energia, our Partner Dario Gallanti explains the interests behind this rapidly growing field. https://media-exp1.licdn.com/dms/document/C4E1FAQHj1fwAquJPgQ/feedshare-document-pdf-analyzed/0/1625064605534?e=1633086000&v=beta&t=BO7VgVPOVZOud7xaWKqi5juB-paYA-JDbcYKBUygkdQ Recent Post Financing Opportunities for Power-to-X in Denmark: Are the Fundamentals Established? Financing Opportunities for Power-to-X in Denmark: Are the Fundamentals Established? Get in touch Last week (04/06), PwC published a survey… Learn More 10 de junio de 2024 The energy transition puzzle has not a single solution The energy transition puzzle has not a single solution Get in touch ONE’s Partner Jakob Bendixen on the Danish GreenLab,… Learn More 1 de abril de 2024 The Silverlining: BESS and the Future of Renewables in Spain PPAs: why Italy only witnessed a few corporate cases Get in touch The Silverlining: BESS and the Future of Renewables… Learn More 14 de marzo de 2024 Cargar más

Long term PPA transactions are positively affecting market liquidity across Europe

Long term PPA transactions are positively affecting market liquidity across Europe Get in touch Have a look at the ICIS contribution of our Partner Dario Gallanti to know better how and what we can expect for the future. https://lnkd.in/eQXT89g Recent Post Financing Opportunities for Power-to-X in Denmark: Are the Fundamentals Established? Financing Opportunities for Power-to-X in Denmark: Are the Fundamentals Established? Get in touch Last week (04/06), PwC published a survey… Learn More 10 de junio de 2024 The energy transition puzzle has not a single solution The energy transition puzzle has not a single solution Get in touch ONE’s Partner Jakob Bendixen on the Danish GreenLab,… Learn More 1 de abril de 2024 The Silverlining: BESS and the Future of Renewables in Spain PPAs: why Italy only witnessed a few corporate cases Get in touch The Silverlining: BESS and the Future of Renewables… Learn More 14 de marzo de 2024 Cargar más

Largest stand-alone storage in Belgium

Largest stand-alone storage in Belgium Get in touch As part of a continuous effort to pave the way for innovative solutions for the energy transition, Our New Energy is happy to announce our involvement in the first of its kind deal for the largest lithium-ion battery system in Belgium. The 10MW/20MWh battery located in Bastogne and reaching COD in mid-2021, has been developed and will be owned by Estor-Lux (a joint venture between Rent-a-Port, Idelux, Socofe and SRIW). Our New Energy has assisted Estor-Lux in the techo-economical assessment of the aforementioned. The facility has been developed on a fully merchant basis with around half of the investment cost being provided through non-recourse project financing from Triodos. Centrica Business Solutions will dispatch and trade the battery flexibility in the energy markets and the facility will be integrated into Centrica’s Virtual Power Plant as part of the secondary reserve, helping balancing the grid frequency in order to guarantee its stability. Despite much being written on storage, ensuring the profitability of a purely merchant battery installation is not a simple undertaking. We therefore feel privileged to have assisted Estor-Lux and look forward to following the development of the project going forwards. Recent Post The energy transition puzzle has not a single solution The energy transition puzzle has not a single solution Get in touch ONE’s Partner Jakob Bendixen on the Danish GreenLab,… Learn More 1 de abril de 2024 The Silverlining: BESS and the Future of Renewables in Spain PPAs: why Italy only witnessed a few corporate cases Get in touch The Silverlining: BESS and the Future of Renewables… Learn More 14 de marzo de 2024 PPAs: why Italy only witnessed a few corporate cases PPAs: why Italy only witnessed a few corporate cases Get in touch PPAs: why Italy only witnessed a few corporate… Learn More 3 de octubre de 2023 Cargar más

Markets change fast, it takes agility to take full advantage of opportunities.

Markets change fast, it takes agility to take full advantage of opportunities. Get in touch The following interview was first published in the Italian energy magazine Nuova Energia. This is our own English translation. If you prefer you can download the orginal article in italian. The combination of ambitious renewables targets set at a European level and an economic environment with an excess of liquidity, made in the last years market parity renewables investments particularly attractive for market participants from all over the world; a trend that now spreads more and more both geographically and technologically. The sector is in full swing today, but only a few years ago the potential of long-term contracts was not yet realized, in a forward market that – especially following the 2008 crisis – was only used to buy and sell energy with a time horizon of two-three years in the future. To better understand this trend and its dynamics, Nuova Energia met Dario Gallanti, Partner at ONE, responsible for Southern Europe. Power Purchase Agreement (PPA) is basically an energy purchase contract. What is the real novelty when compared to other types of agreements? PPA is indeed a concept that can be defined in several ways and the term itself is certainly not a recent invention. More specifically, in the post subsidy era this type of contract regulates the purchase of a certain amount of energy between a seller (in this case the renewable asset) and a buyer (also called off taker) for a pre-defined period of time, to cover the revenue from the energy selling and therefore to help guarantee the investment return. Over time, in the market parity space we have witnessed a significant change in the types of PPA; apart from the PPAs changing, the parties involved have also changed. For instance in Iberia, which is currently the most advanced and liquid market for unsubsidized investments in Southern Europe, in addition to independent producers and private equity funds, we find a growing number of long-term investors (such as sovereign wealth funds or pension funds) which, contrarily to the past, are now interested in taking also some of the risks involved in the development of the project. The Iberian Peninsula and Italy represent two hot markets for market parity. What are the differences between the two countries? From the point of view of the different market stakeholders there are considerable differences, many of which are just a matter of timing and track record. In many ways Italy now seems to be in the same position as Spain was two years ago but, thanks to the Iberian experience, I doubt that Italy will take the same time to bridge this gap. In the solar sector, in Spain the development trajectory of the sector from the subsidy era to the market parity one has seen fewer interruptions than the Italian one. Many Spanish developers, once the subsidized market boom had receded in Southern Europe, have taken part in foreign initiatives, especially in South America, which have ensured business continuity and a prompt development of market parity opportunities as soon as the first interested investors re-entered the Iberian market. Speaking of bureaucracy in the development activities, what are the difficulties to overcome? In the case of Spain, the biggest bottlenecks are in terms of grid connection. According to the latest data released to the public, there are connection requests for over 100 GW from all over the country. As for Italy, it seems to suffer from a misalignment in the authorization process which includes all the activities that follow the connection request. From this point of view, our country urgently needs greater harmonization between the present and future objectives agreed at national level and the procedures for issuing permits that are carried out at regional level. Once the permit is received, what differences do you perceive in the role of the banks? In both countries banks are certainly attracted by market parity initiatives: especially for solar, these investments show a relatively low operational and technological risk profile especially when considered in the light of transaction margins, which in the case of market parity initiatives – typically of medium size – require higher credit volumes to keep the cost of a single transaction low. In Spain, debt financing for market parity projects has developed very quickly over the last 18 months, thanks to the fact that with the right duration, structure and off takers, PPAs allow for debt ratios comparable to those seen with fully incentivized assets. Italy additionally suffers from authorization limits. The majority of the (few) fully authorized projects carried out with market parity transactions financed to date are part of broader portfolios of subsidized initiatives. An acceleration in the granting of permits would allow Italy to fill the gaps quickly, also considering that a number of Spanish banks seem more than keen to replicate the successes achieved at home with projects located in Italy. And here we find once again the same old national Achilles’ heel… It is also interesting to compare the two countries in terms of liquidity on the forward energy markets, which for many off takers is the starting point for pricing in long-term PPA. The increased liquidity on longer tenor products we see on the Spanish market platforms, is directly connected to more and more PPAs getting signed, thus creating a self re-enforcing cycle of long term transparency. Again, we expect that as the number of permits granted in Italy increases, so will the number of successful closed PPAs, resulting in the same positive mechanism. What impact has increased market liquidity had on the duration of the PPA? On the one hand, it allows off takers to make the best use of the energy markets to cover part of the risks associated with PPAs, insofar as it allows final consumers to create long-term energy price expectations. On the other hand, however, the greater the liquidity on the energy market, the lower the value of the risk premium that the buyer

The Spanish «wave» gets to Italy

The Spanish «wave» gets to Italy Get in touch You find below the english translation of the interview given to Staffetta Quotidiana on January 16th by Miguel Marroquin and Dario Gallanti. You can find the original interview here. Interview with Miguel Marroquin and Dario Gallanti of ONE, advisor who in 2018 followed 1 GW of the 2 GW of contracts concluded in the Iberian Peninsula and now debuts in Italy with Audax-BAS. New transactions are expected in the summer. Public guarantee is a “false discussion”, the market parity is already a reality. On the purchase side the most active are still traders and utilities, large consumers back but catching up. Among investors in the forefront funds, IPPs and banks. Average durations in growth, discussed 15 years in Italy. Prices: first you have to understand what you negotiate, payment per kWh produced is not the only model. During 2018 the Iberian Peninsula witnessed a spike in market parity installations and developments in long-term hedge products for renewables, with more than 2 GW of PPAs being signed in the last 12 months alone, this proving that RES investments remain a lucrative opportunity. In this brave new world where the energy price represents the sole revenue stream for the investment, we have very often seen the name of the Spanish-based firm Our New Energy (ONE) alongside some of the most transcendent transactions as PPA advisor of choice. We have taken the opportunity of the participation of ONE to the agreement for the 10 year PPA on the 20 MW plant in Basilicata, to better understand the role of the PPA advisor in the transaction as well as the evolution of the market parity trend across Southern Europe, which seems to start relentlessly involving also the Italian peninsula. Hereby our interview with Miguel Marroquin, Managing Director of ONE and Dario Gallanti, Partner on what we should expect for 2019. Q. Your name appears in several deals closed in the last months, including the 219 MW asset from Allianz Capital Partners in Portugal (v. Staffetta 19/12/2018). What is your role? A. PPA advisory responds to two very clear needs which emerged at the dawn of the market parity era: the first one is that, by nature, the off-taker and the investors do not talk the same language, as the first one focuses on and reasons in markets terms (price and risk) while the second typically speaks the financial language and follows return utility functions (returns, price scenarios, financial risks, etc). For this reason, the interaction usually starts with at least one of the parties barely knowing what to exactly look for in a potential private PPA agreement. The second need comes from the difficulties that both actors are facing in the negotiation, drafting and execution of the deal, as the devil is in the details and given the long tenors, nature of intermittent renewable resource and end goal for the investor to maximize returns, basically very often they discover very after the outset that one party wants to buy and the other wants to sell, but they do not want to buy and sell the same thing. What we do is therefore facilitating the transaction from the definition and structuring of the product throughout the actual negotiation until the deal closure. People are often impressed to see how many times one party can give out something in the transaction that has very limited value for him but very high value for the other side. Yet, you must know where to look. Thanks to this very hand-on approach, we very recently celebrated our first GW of transaction we assisted from inception until closure. Q. Structuring a merchant PPA of long tenor has (or has been until not long time ago) considered a very complex thing with few possibilities of success. Do you agree? And what is the most important aspect that allowed you to close? A. About the difficulty of closing a 10, 15 or even a 20 year agreement, we partly agree with the statement: it indeed has some implications which bring the conversations and negotiations into a complex domain, but where there is a will, there is a way. It is very important to have at hand a set of tools and ideas that one has seen working elsewhere (other deals, previous experiences, etc) to maximize the chances of success of a true win-win deal, which is how we envision our participation to this process, in opposition to a more zero-sum tendering process which we do not favorize under the current form of development of the LT PPA market. As we solely work on the generator side, mainly it is the true understanding on the ‘other side’ motivations and utility function, so we can easily and promptly navigate to a workable solution. Q. Which counterparties have you seen being the first movers in Europe on the investment side during the last year? A. The beauty of energy transition lays in the fact that control and hence value is moving away from centralized entities to be redistributed along the chain, where actors from all across are part-takers. With reference to the Iberian market we have seen everyone from the usual suspects, from the most aggressive investment funds and IPPs (Independent Power Producers) using leveraged structures seeking to maximize return in the shorter term, to the very large financial institutions with very risk averse and conservative returns investment criteria. These players have very diverse needs, leaving space on the off-taking side to offer different products based on their risk appetite. That is why we usually start our engagement process diving deep in understanding the end goal of our clients as there is not one PPA solution that results to be the best for everyone. Q. On this side, have the buyers mainly been traders so far or we have seen also large corporates? A. First of all it is important to distinguish the pure trader from the utilities, the main difference being having a portfolio of

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