Solar frontier moves north

With the costs of producing power from solar falling rapidly, the frontier for PV has moved and now includes the “champion” Denmark, as well as other parts of northern Europe.

Listen to a discussion on the outlook for power purchase agreements (PPAs), the markets that are hot and the ones that are lagging behind in the race for net zero carbon.

Guest: 

• Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e.

Transcript

0:01

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Richard Sverrisson, Editor-in-Chief Europe, Montel: 0:31

Hello listeners and welcome to the Montels Weekly Podcast, bring You Energy Matters in an informal setting. In this week's pod, we return to the world of PPAs to discuss the growth of green energy and the ways in which companies can get on board the renewables train on course. For net zero, how can more firms lower their carbon footprint and contribute to the decarbonization? Not just of the continent, but of the globe. Joining me, Richard Sverrisson, to discuss this is Andrea Grotzke of BayWa She has a lengthy CV in this field and the company is a large and important player in the renewable sector, not just in Europe, but also globally. So a warm welcome to you, Andrea.

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 1:10

Thanks, Richard. Thanks and thanks for inviting me. I'm very happy to be in your podcast today.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:15

Excellent. How's life in in where you are in Germany at the moment?

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 1:17

At the moment life is beautiful because summer has has come up at last. So it's. 30 degrees already. It's sunny and the weekend is just ahead of us. So a good good day to go.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 1:27

Excellent. Excellent. If we can start off by talking a little bit about yourself, Andrea, you have quite a long experience in the renewable sector. How has it changed for you in the last sort of 10, 20 years?

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 1:37

Yeah, it has changed tremendously, I would say. When I started in 2003 to work in the renew energy space, I advised developers and financial institutions how they shall finance renewable energy projects. So that was quite a, quite an interesting start because then you had really had to talk about ring fencing projects. You had to talk about cashflow, security and all that. And then the sector became more and more sophisticated and eventually. We also started to talk about we just don't produce just energy, but we also have to sell energy. And that actually brought me, I think it was eight years ago, it brought me to the PA topic where we, they were, did quite a lot of project in the UK where we had to sell the power to utilities or to corporates. And that's where my first connection to the PPA topic was. And since then, yeah it's interesting that more and more corporates, especially in the last three to four years, they came on the table and they were interested in buying renewable energy. And now, we can see the huge wave which is coming and which really is. Interesting from a developer's perspective, but also of course with respect to the energy transition which we definitely need in order to prevent climate change.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 2:50

Absolutely. What would you say were the main reasons for this sort of change or this kind of increased interest from corporates in the renewable space?

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 2:57

First of all, I mean from a technology perspective, I can clearly say, and that particular applies to solar, that the L series E so the CapEx for constructing a solar plant really. Decrease significantly. So in the end, now you can say renewable energy from PV is really affordable. And in many countries we are even cheaper than conventional energy. So that's of course an interesting business case which the corporates have now. And then on the other hand, as I said, there is the pressure from society. On global brands so that they have to really think about targets in order to reduce their carbon footprint. And that comes together very nicely.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 3:37

So you've seen the sort of progress of a world of subsidies to, the possibilities of very much subsidy free kind of space. Now what have been your highlights in this journey, Andrea?

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 3:47

Yeah, actually we, we indeed had a couple of highlights. And that goes across the globe, I would say. We are active in Asia, in particular in Australia. We are also active in Americas. We signed a nice a couple of nice deals in the us. The last one was with Hershey Chocolate. Two months ago, on a 15 years basis, and we had A PPA signed with various parties in the US and then moving to Europe. We had recently signed a PPA in Poland. That's the first subsidy, free solar PPA 64 megawatt peak plant, which shall be connected hopefully in the next one to two months. And that is with Heidelberg Cement. So that was our recent deal. We had a quite a nice, and this is interesting from a European perspective. We have signed a virtual PPA with ABN BEF last year, which allowed ab BN Bev to transfer certificates across the border to other countries. So it was a project in Spain and the settlement on the electricity price happens in Spain, but the certificates are transferred in the countries where AB InBev need to cancel them.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:49

Okay. These are certificates of origin. Guarantees of origin.

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 4:52

Exactly. Exactly.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 4:53

Okay. So obviously Bay Wise is a leading global player in a renewables space. But what view are the most interesting markets going forward? You've highlighted some key deals and I think the Polish Solar one is certainly important What for you and personally and the company are other interesting markets.

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 5:10

Yeah, that's a good one. And it's, obviously, there are markets which are, I think everybody knows that it's interesting to, to look into the corporate PPA space, but maybe I, just before we go into the markets in more detail, what we should distinguish is still the technology. So we do develop solar and wind projects and there's a. Quite a significant difference still with respect to corporate PPA potential. So for wind projects we still rely in quite a number of markets on tariff and tender systems, so that's still quite helpful for the wind side to have them in place. We are more flexible in solar and obviously we do, especially for instance in Poland. I mean in Poland there is a tender system, but we explicitly decided to go the corporate PPA route because we believe that this is more attractive for us, it's more flexible for us. And Poland will stay a very interesting market. And we are working I mean we are expanding our pipeline and we are working on new deals, which will hopefully come through soon. Our core market is still Spain. Where we have a huge pipeline and where we are working on deals also on quite interesting deals. Also with respect to baseload appetite from our clients, where we then structure a Baseload product for them based on the solar curve. So that is quite interesting. So these are, at the moment our core markets. Germany is interesting because there is a lot of appetite from CNI clients from industrial clients. However, project development in Germany is. It's challenging because of long permitting procedures, et cetera. So it's a little bit lacking behind. So I think these three, I guess it's it's the most important ones for us, although there are some, let me say hidden champions like Denmark for instance, because if you look at L three E or production costs for solar, and this frontier, the L three E Frontier I call it, is moving up north. So we really can afford developing solar PV also in Denmark, and selling the power to corporates.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 7:10

This is the levelized cost of energy. Yeah. I'm a little bit interested here then, Andrea, in, in the tenders versus PPAs, how do they interact and what makes one company go for tender and the other one for ppa? So in a country like Poland, is it all about, can't all just be about costs?'cause surely the n tender would be cheaper.

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 7:27

Yeah, that's a good question, rich, that my interpretation is that it has a lot to do with experience to go the route to market and also how you can connect to corporate bias. And the way we have established our teams within Bay, we have a really, a dedicated sales team who sells energy solutions. And that's not only offsite or corporate PPAs, it's also onsite solutions. So we have a. We have a portfolio of solutions which we can offer corporate. So we are very flexible in approaching them and trying to understand what they need. And that also connects us in a different way than just pure developer who has obviously also a very extensive knowledge on developing and realizing projects. But selling the power is a capability, which also needs to be developed. And from my perspective, this is. Probably the main difference between the market players.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 8:23

But in terms of decarbonizing industry, Andrea what are the challenges here? Because obviously some industries, you can decarbonize much quicker, much more effectively than others.

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 8:33

That's an interesting question, Richard. I think it it's definitely various aspects. I. Overall, if you talk about decarbonizing, that you should also talk about heat, right? At the moment, we just talk about renewable energy because that's what the majority of the companies are focusing on at the moment. But now we come more and more also to the discussion around. That also is connected to the hydrogen debate, which is quite active at the moment because we see that and if you look at the numbers that heat has. A very significant impact on the overall carbon footprint. According to the International Energy Agency heat accounts for approximately 50% of the global final energy consumption and contributes 40% of the global carbon dioxide emissions. And about 50% of that total heat produced was used for industrial processes. You, so you really see that this has such a significant impact on the overall carbon footprint, that eventually we also really have to think about how do we reduce those emissions. And this is something which has just been. Tackled now because the renewable energy discussion is still very heavily ongoing. And coming back to that, it really depends on how a company is steered and how the targets are set and then how they are implemented. And this is what we see that the really the challenge is for companies to overcome internal obstacles in order to bring all stakeholders on the table to make sure that. The target can really put into implementation because if you look into the contracts they have to sign, that's long-term contracts as 10, 15 years contracts. Whereas they were used to procure energy on a one, two, or three years basis, and now they really have to connect on a much longer term, which is the risk assessment for these type of contracts, it's quite challenging for the companies. So this is a very important aspect, which I see. And then what is also quite interesting, that's the scope one, two, and three emissions debate at the moment. The majority of the companies, I would say they covered the scope one and two emissions. So that's the emissions they. Produce themselves, or they produce via procuring the power. But the supply chain, for instance, is covered in scope three. And this is this would then be the next steps for many companies who have well met the scope one and two targets. And if you, for instance, if you look in the AEL industry, approximately 90%, very roughly. Of the emissions lie in the supply chain. And if you then keep the stay, or if you stay in the supply, in, in the apparel industry, if you see that the supply chain sits in Asia mainly, then you have to think about how do you tackle those scope three emissions from Asian companies. And this is quite, quite a huge step, which we also have to take in order to meet the overall targets.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 11:28

So that's, if I'm a clothing retailer, for example, in Europe, I, if I want to decarbonize, as you say, I have to look at, the sites in Asia as well as the way it's transported, et cetera, throughout the whole. Supply chain.

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 11:41

Exactly. Exactly. And it has to be pushed down to the local companies who sit in Bangladesh, who sit in Vietnam, in Indonesia. And this is quite challenging because and then you also talk about solvency of those companies and how do you how can you overcome, or how can you en enable investments by those companies? It's quite interesting and there's. Brands start to look into that and push also very hard on that end.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 12:05

You mentioned hydrogen now, Andrea and I just wanna touch upon that. I mean it, we could probably spend several podcasts talking about it, but but there's, now it's become, should we say, quite a hot topic. A lot of focus suddenly on green hydrogen, got strategies and plants and people, putting forward proposals and projects left, right and center. But how realistic is this and is it really the magic bullet that it's supposed to be? I'm thinking in terms of the uses of hydrogen in either transportation or heat. Does it make sense or is electrification the answer?

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 12:38

Oh, no, I guess it makes sense. I believe that hydrogen will be a very important puzzle in that challenge. This is what I believe. And so we have to make it happen. And especially in industrial processes. And of course, it has to the technology has to get cheaper and then we have to think about transport costs or not transport costs, but the way of transporting hydrogen. And then of course, at the beginning of the chain lies of course a tremendous amount of renewable energy, which we need. And this is something which. It's getting to be very interesting. And then we will see countries where eventually we will use for producing renewable energy, but as the bits and pieces are not really clear yet, and I fully agree what you said, that it's quite, there's so many so many activities and initiatives and all that. Which really have to, they have to sort it, sort it. Or the industry has to play a key role here also to give guidance. I think it needs pilot projects to understand how this really works and how stakeholders can play together. And then I think it will come step by step. So we will see in 10 years time, we will have quite an interesting volume of produced Korean hydrogen. That's what I believe.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 13:47

No, I think, yeah, it'd be interesting to see if we meet up again in 10 years time, Andrea and see what actually was realized and what wasn't. But if we return to the subject of PPA, so what is the significance of A PPA? And I want to talk a little bit more about financing here and getting more maybe smaller and medium sized companies on, on, on boards. So what's the significance of A PPA in order to get a project financed?

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 14:11

It's still significant element. Because it's the cashflow securing element, and that's, that's in the end, the bottom line, right? That it, again, it comes back to how the contracts are structured, whether it's one company or whether it's several companies, also. Several companies. If you structure the portfolio accordingly, then it might also be an interesting, from an, from a risk perspective. So in the end it's really. Coming down to specific clause in the contract to make sure that the cashflow is secured from a financing perspective. But we also see, if I compare to the discussions we had with financing institutions eight years ago in the UK where we started, and now the discussions with investors, also with banks. A lot has changed. So the community has learned, we all have learned to, to evaluate the risks and now it's. It's even more like when I look on from the project perspective and from an investor's perspective, that it's more like managing the chance of rising electric electricity prices and at the same time giving a certain cashflow security. So I think that's quite interesting how this has developed so that you, that the risk appetite also has to be met. So that means that. You not necessarily need to contract a hundred percent of the generation with a PPA, you could leave some merchant exposure in the project. So also to take away the market chances.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 15:35

Another aspect that I'd like to touch upon, because you mentioned, the prospect of rising prices, but there's also, the contrary is true in some areas where you have. Massive rollouts of either wind or solar, which has the combined effect of driving prices down the cannibalization effect. How do you deal with that? How much of a problem is that?

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 15:54

Yes, it is. It can be an issue and we see that in particular in Spain. If I look into numbers or if I look into forecasts, for instance, PEXA Park does those kind of forecasts. You can clearly see that there is a significant impact. Of PV employment in Spain. So if I compare, for instance. The value of PV as a captured price. If I compare that with a baseload price, then in 2024, for instance, it's the captured price is 94% of the baseload price. Whereas in 31, it's predicted. However, it's just a predictional, it's just a forecast. It's only 70%, so it's a significant decrease of PV value in Spain. If I look into other countries, it's not as significant. For instance, Italy and Germany, this negative impact is, it doesn't change much between 2024 and 23, so it really depends on the expected deployment of the technology in the country. And obviously, this comes back to, to also like the how can I say? Every, everybody tries to do business in Spain now on the PV side, and that is the result.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 17:00

Absolutely. Yeah. But at the same time, we're seeing very robust spot prices and also forward prices across Europe at the moment, so that's also interesting. We're coming to the end, hopefully. Of the global pandemic. How do you view the post COVID-19 recovery in terms of renewables growth? We have all the recovery funds now. We saw this week them being granted to approval for Spain and Portugal. There's a lot of EU money floating around here. How do you assess. The post COVID-19 sort of recovery. And once we get outta that, in terms of renewables expansion in Europe,

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 17:37

The renewables are a clear winner of the pandemic, if I can say that. It's proven that sustainability matters are an important factor in the global society. And we see, I mean we see that corporates, despite the pandemic, they have still continued to to work on executing their target. We saw an ever increasing. For renewable energy, we see, as you mentioned already, you, we see at the moment this market prices rising in every forecast, at least as long as it goes. As the market visibility or the electricity price visibility goes in the respective countries. So that's what we see. On the other side what we also I mean what everybody now has understood that costs production costs, module costs, transport costs, they're also on the rise at the moment. So this is something which, and also availability of components could be an issue for the next one to two years, which could slow down the deployment a bit. But on the other hand, in the long run, I don't see this as an issue. So this will be levelized again. Yeah, I think that's the summary. Yeah,

Richard Sverrisson, Editor-in-Chief Europe, Montel: 18:41

absolutely. So I think there is, as you said, some supply issues with some components in the process there of expanding renewables or building, building out more wind turbines and solar panels. But w you also mentioned interestingly in Germany, the permitting problems. Is this something that's causing also real or is in big obstacle in, in the progression of renewables growth and PPA deals in particular in some countries.

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 19:06

Yeah, definitely. Regulatory topics or long processes that's always at least what developers complain about. Because we see the appetite on the off-take side and we, I mean we have the ability to build out and to develop and to build out projects. So really. Want to push things forward. And so this is definitely something which which we also address regularly to the respective authorities or associations to really make sure that this is that this is seen, that this is reflected and this is discussed in the, on, on the various levels. Because we believe that if we become quicker, if we can build out our pipelines, then we can contribute to the energy transition even better.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:45

The a hundred million dollar question is how do you speed up that process? How do you bridge those regulatory hurdles? What's the best way to do that?

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 19:54

Consistently being at front of things.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 19:56

Yeah, absolutely. Andrea, thank you very much for joining the Montel Podcast this week. It was a pleasure having you on board.

Andrea Grotzke, Global Director of Energy Solutions, BayWa r.e: 20:03

Thank you very much Richard.

Richard Sverrisson, Editor-in-Chief Europe, Montel: 20:04

So listeners, you can now follow the podcast on our own Twitter account, aply named the Montel Weekly podcast. Please direct message. Any suggestions, questions, or let us know if you think you have a good idea for a guest on the show, you can also send us an email to podcast@montenews.com. Lastly, remember to keep up to date with all that's happening in energy markets on Montel News. You can subscribe on Apple Podcasts and Spotify or wherever you get your podcasts from. Thank you and goodbye. I.