The European Power Purchase Agreement (PPA) market has spent the past three months in a period of intense transformation, shifting from sharp contraction in the first half of 2025 to a clear rebound in June and July. This is not a market in decline, but one undergoing a profound structural pivot, shaped by falling prices, a dramatic shift in the buyer landscape, and the rapid emergence of innovative technological solutions.

Price Pressures and the Cannibalisation Challenge

The most striking feature of the last quarter has been the sustained downward pressure on pricing. For the first time since early 2022, the average European solar PPA price fell below €60/MWh, reaching €59.62/MWh in Q2 2025. This was not an isolated movement, over the past year, solar PPA prices have dropped by an extraordinary 20.5%.

This trend is a direct consequence of the systemic challenge facing the European grid: price cannibalisation. As a surplus of solar energy floods the grid during daylight hours, wholesale electricity prices are driven to zero or even into negative territory. Spain, for example, recorded 459 hours of negative or €0/MWh prices in the first half of 2025, while Sweden registered a staggering 1,635 hours. The result is a severe disconnect, with more than 25 GW of ready-to-build projects in Spain alone unable to secure viable PPAs.

A Changing Buyer Landscape

This economic pressure has fundamentally reshaped the PPA ecosystem. Corporates, long the dominant buyers and driving force of market growth, have grown cautious. Corporate PPA volumes fell by more than 40% year-on-year in the first half of 2025, largely due to the risks created by price volatility and low capture prices. As one analyst observed, corporate demand “cannot absorb such a surplus” of intermittent solar power, leading to “price holes” that complicate long-term commitments.

In their place, utilities and energy traders have stepped in. With advanced risk management capabilities and trading expertise, they are better positioned to absorb volatility than corporate off-takers. Utility PPA volumes doubled in the first half of 2025, reaching 1.8 GW across 28 deals. By July, utilities accounted for 69% of total contracted volume, compared with just 31% from corporates, a stark reversal from 2024, when corporates held an 87% share.

The Rise of Hybrid and Storage-Backed PPAs

In response, a powerful technological and contractual pivot is underway. The most prominent trend has been the explosive growth of Battery Energy Storage Systems (BESS) and hybrid PPAs. BESS PPA volumes more than tripled in the first half of 2025 compared with the whole of 2024, with 4.6 GW contracted across 36 deals.

This surge is a direct response to price cannibalisation. By enabling “energy arbitrage”, storing surplus energy during low-price periods and releasing it during times of higher demand, BESS provides both new revenue opportunities and greater project bankability. The market is rapidly shifting towards hybrid deals that combine generation and storage technologies, diversifying risk and improving captured price ratios. This trend is set to accelerate in the second half of 2025 and beyond.

A Continent Divided: National Divergences Shape the PPA Map

The story of the European PPA market over the last three months is far from uniform. While volatility and shifting buyer dynamics are common themes, national markets have shown sharp divergences, underscoring the importance of local policy and market design.

• Spain has consolidated its position as Europe’s largest PPA market, topping rankings for both deal count and contracted capacity. Solar PPA volumes rose by 51% year-on-year in H1 2025, fuelled by a wave of large-scale corporate and utility deals. Yet, beneath this success lies fragility: with PPA prices falling below €35/MWh, many projects are financially unviable despite grid access. Spain thus faces a paradox, policy has enabled a huge pipeline, but market signals are too weak to sustain investment.
• Italy has emerged as a surprise growth leader, with solar PPA volumes soaring 184% year-on-year. This growth was driven by a landmark 420 MW corporate deal in June, the largest in Italian history. Italy remains at an earlier stage of market maturity, with relatively low cannibalisation, allowing corporates to strike large deals that are increasingly difficult in more saturated markets.
• Germany and France have both experienced dramatic slowdowns. German PPA volumes collapsed by 84% in H1 2025, while France fell by 57%. Oversupply is the main culprit. In Germany, the shift from feed-in tariffs to competitive auctions has created a de facto price floor that renders many PPAs unviable. Both markets are now so advanced in renewable deployment that cannibalisation has reached levels severe enough to choke off PPA activity, leaving only the most competitive projects able to proceed.

Recognising these challenges, the EU has begun to intervene. The European Investment Bank (EIB) has launched a €500 million pilot programme to provide counter-guarantees for PPAs, specifically targeting SMEs and energy-intensive industries. The EU is also moving to tackle physical bottlenecks, with legislative proposals aimed at simplifying and accelerating permitting for grids, storage, and renewables, seeking to reduce project timelines to just 1–2 years.

Outlook: Fragile Stability with Pockets of Optimism

While the PPA market remains in flux, the outlook for late 2025 and 2026 carries cautious optimism. Utilities and storage-backed projects are providing new resilience, while EU policy interventions aim to de-risk deals and accelerate infrastructure development.

How AFS Energy Can Help

The European PPA market is more complex and dynamic than ever, demanding sophisticated approaches to risk management, price forecasting, and contract structuring. AFS Energy is uniquely positioned to support companies in navigating this new reality.

We combine deep market intelligence with proactive procurement strategies, enabling you to secure PPAs that deliver both financial value and sustainability outcomes. Our expertise in structuring hybrid and co-located PPAs helps mitigate the risks of cannibalisation and price volatility, building resilience into your energy strategy.

From identifying the most competitive opportunities across national markets to advising on contract terms and regulatory frameworks, AFS Energy is your trusted partner in a transforming energy ecosystem. Don’t wait for the market to stabilise, let us help you find the right solution today.