The majority of power generated and consumed in Norway is traded at the power exchange Nord Pool. Typical options for hedging against price developments are available at Nasdaq OMX through financial market price contracts and EPADs. However, recently there has been a growing trend towards increased use of bilateral agreements, so-called Power Purchase Agreements (PPAs), both in the Nordics and in the rest of Europe.
A PPA is a direct bilateral agreement between a supplier and a consumer of power. Conducting bilateral power purchase agreements is not as such a new development. Traditional PPAs have been used by producers and consumers to trade electricity for many years. In recent years, new buyers and sellers have entered the market for PPAs.
In our study, we assess what this growing trend has been driven by, what the differences between PPAs and more traditional hedging options are, and whether the growing trend in PPAs has affected the use of these more traditional hedging options.
The main conclusions of our study are:
The study is commissioned by The Norwegian Energy Regulatory Authority (NVE-RME).