The Role of Power Purchase Agreements in the Financing of Solar Parks

Abstract

The Netherlands faces a need to increase renewable energy production to meet national climate goals, with solar PV electricity as a key component. However, recent reports indicate stagnation in solar PV growth due to financial uncertainty arising from the planned phase-out of the SDE++ subsidy scheme. This subsidy has historically provided financial stability by covering unprofitable segments in renewable energy business models. With its impending termination, large-scale solar PV projects face significant financing risks, which may hinder progress toward national energy targets.

This thesis investigates whether Power Purchase Agreements (PPAs) can mitigate financial uncertainty for solar PV projects in the absence of subsidies. PPAs are long-term contracts between energy producers and buyers that offer revenue predictability, essential for securing project financing. Drawing from the Dutch offshore wind sector’s success with PPAs in a subsidy-free context, this research explores if PPAs can fulfill a similar role for solar PV. The study employs a qualitative approach, combining desk research and 14 semi-structured interviews with industry experts, including policymakers, lenders, and developers, to validate propositions developed from the literature.

Findings indicate that PPAs are currently seen as valuable complements to subsidies, enabling higher debt leverage. However, several challenges limit their use as standalone solutions. The Dutch solar PV market currently lacks sufficient creditworthy offtakers, and the relatively small project sizes further complicate PPA viability. Additionally, the rising frequency of negative price hours, periods when electricity prices drop below zero due to market saturation, presents new new problems that PPAs alone may not fully mitigate. Although PPAs are currently not yet equipped to replace the SDE++ scheme entirely.

The research suggests that other measures, such as a PPA guarantee fund and adjustments in debt models, may be needed to ensure the financial sustainability of future solar PV projects. Limitations of the study include the qualitative methodology and confidentiality constraints, which restricted insight into specific PPA strategies. Among others, the findings underscore the need for additional research on alternative financing structures and the role of smaller offtakers in the Dutch PPA market, as well as hybrid solutions like battery storage to address price volatility.