European offtakers seek ‘known costs’ of renewable PPAs amid Middle East conflict

“A PPA converts exposure to volatile gas-linked spot prices into a known cost,” he explains. “For an energy-intensive manufacturer or a data centre operator, budget certainty at almost half the stress-period spot price is worth more than trying to time the market.”

Gas prices have been shown to vary considerably more than renewable energy prices so far this year, with figures from the International Monetary Fund and the Federal Reserve Bank of St. Louis showing that global gas prices have increased by 60.2% between February and July this year. European solar PPA prices, meanwhile, increased 2.8% between the first and second quarter of this year.

In addition to price stability, renewable energy prices can often be lower than those linked to fossil fuels, making acquiring such electricity more attractive. IEEFA quotes figures from LevelTen Energy, the analyst that tracked the same figures behind the 2.8% quarter-on-quarter solar PPA price increase cited above, which show that current European PPA prices are in the €60–85/MWh range, around half of the €120–150/MWh spot market price.

Indeed, while analysis from Pexapark earlier this year suggested that the Middle East conflict could drive up European PPA prices—which was reflected in the more recent LevelTen figures—Bruegel tells PV Tech Premium that this does not necessarily weaken the argument to invest in more renewable energy projects from an energy security angle.

“Corporate demand for price protection has risen since the 2026 Iran war,” he explains. “If gas stays expensive, PPA prices stay firm. That strengthens the energy security case rather than weakening it.

“Buyers do not sign because these contracts are cheap. They sign because a contracted price near €57/MWh is still far below stress-period spot prices.”

More complex than just adding capacity

The strong demand for PPAs and the price security they bring is clear in the figures. Data from Pexapark and referenced by IEEFA shows that total power capacity contracted by PPAs fell from 17.1GW in 2023 to 13.1GW in 2025; however, deals for 7GW of capacity have already been signed in the first half of this year, and if this pace continues, it would result in a year-on-year increase in total capacity contracted by PPAs.

However, simply adding more renewable energy capacity, and particularly solar due to its low levelised cost of electricity (LCOE) will not single-handedly strengthen Europe’s energy resilience due to the operational and financial disruption that can stem from an over-generation of clean power, and resulting curtailment.

This is perhaps most evident in Spain where, despite a general reduction in power prices, curtailment has increased from 0.1TWh in 2021 to 4.6TWh in 2025, almost tripling annual grid balancing costs over this period. The latest IEEFA report argues that more tailored “shaped structures” will be necessary to integrate renewable energy into the grid in a manner that does not cause a collapse in prices.

“Curtailment is a major problem now,” explains Bruegel. “It does not make renewables less secure as an energy source, but it does make plain, unshaped solar less useful as a price hedge, because the plant produces most when the market values it least.”

Making renewables a ‘valuable hedge’

In response, Bruegel says that new “market mechanisms” are developing to tackle exactly this issue and help turn a renewable energy project into a “valuable hedge” for financial decision-making.

“Solar generates in the middle of the day, when prices are increasingly at zero or below in Germany, Spain and Italy,” Bruegel tells PV Tech Premium. “A PPA bought for price protection has to cover the evening peak hours when gas sets the price. Solar alone does not cover those hours, so cheaper solar does not translate into more solar offtake by itself.

“Demand is moving toward shaped solar, solar paired with storage and solar-wind aggregated PPAs. Wind costs more per megawatt-hour but produces at night and in winter, so for a buyer managing price risk, the two are complements, not substitutes.”

The result is that offtakers will likely have to sign more complex offtake portfolios, which include a number of technologies—for both generation and storage—and across a number of regions. This reflects sentiments expressed at Solar Media’s Solar Finance & Investment Europe summit, held in London in February, that hybridisation of renewable energy-plus-storage, in particular has become an integral part of the offftake landscape.

“Shaped structures, day/night splits, hybrid solar-wind-storage combined contracts and storage-backed baseload-equivalent products move contracted delivery into the hours when prices are high,” says Bruegel. “That is what turns a variable renewable asset into a reliable hedge. Without those structures, a solar PPA protects the buyer in the wrong hours.

Long-term thinking

Bruegel also says that the need for more sophisticated offtake structures has affected the kinds of deals being signed themselves, particularly with regard to shorter-term PPAs, as offtakers are not keen to lock themselves into prices that could be disadvantageous in the future.

“A buyer signing a 15-year fixed price today risks locking in a high price if gas falls back,” he says. “A five-to-ten-year contract with a floor and a ceiling gives protection now without a bet on the next decade.

“I expect the shorter tenor to persist while gas price uncertainty persists, but with a limit. Project finance lenders still want PPA coverage across the full ten-to-15 year loan term, and that tension between what buyers want and what lenders require will keep much of the market in the five-to-ten-year band rather than moving to very short deals across the board.”

PV Tech Premium heard at Solar Media’s Renewables Procurement & Revenue summit earlier this year that some offtakers were signing deals for as few as four years, and Bruegel says that uncertainty over the future of power prices has driven appetite for shorter-term PPAs.

Perhaps most strikingly, Bruegel argues that these trends may not come to an end as the war in the Middle East does.

“The shift does not depend on the Iran war continuing,” he says, pointing to trends in European gas stockpiles that have altered the continent’s relationship with renewable energy sources. “EU gas storage was 27.6% full at the start of April 2026, against 58.5% at the same point in 2024. Europe is structurally short of gas and exposed to the next price shock regardless of this conflict, so the reason to hedge does not stop when the war ends.

“That is why the PPA market now relies on energy security, not only sustainability, and why that foundation is more durable than the one before February 2026.”