Tion Renewables AG (currently being renamed from Pacifico Renewables Yield AG) has recently signed a virtual power purchase agreement (“PPA”) with
Saint-Gobain, worldwide leader in light and sustainable construction, for its onshore wind farms in Poland.
Under the PPA, 100% of the electricity produced by the group’s Polish wind parks will be sold on the market and virtually settled with Saint-Gobain. The 15-year-agreement will commence in January 2025 and assures a fixed price for each MWh from that point onwards, including annual step-ups of 2.5% consistent with the Polish Central Bank’s long-term inflation target.
The expected electricity production from the 51.8 MW portfolio amounts to approximately 191 GWh p.a., making it one of the largest PPAs of this kind ever signed in Poland.
Significant improvement of KPIs of Polish wind farms
The agreement locks in upside from elevated electricity prices and replaces the CPI-indexed state-guaranteed auction mechanism (Contract-for-Difference, “CfD”). Thus, it reduces the company’s power price risk exposure and significantly increases the amount of contracted revenues, thereby providing additional debt capacity for the group’s portfolio.
Compared to the initial business case at acquisition in October 2021, the KPIs of the Polish wind portfolio improve significantly:
- net present value increases by approximately EUR 19 million,
- equity payback period shortens by approximately 5 years, and
- levered equity IRR increases by more than 3 percentage points.
Christoph Strasser, Co-CEO: “We believe that PPAs with energy-intensive corporates will become more and more important in accelerating the energy transition. Particularly during turbulent times like now. We are very proud that we were able to demonstrate our ability to execute such an agreement with a highly reputable partner like Saint-Gobain. Also, we are very happy to crystallize significant value accretion for our largest project less than ten months after our final investment.”
Tion is particularly proud to have concluded one of the largest PPAs of this kind ever signed in Poland.
Mathieu Ville, Head of PPA Transactions at Pexapark AG: “We are pleased to have supported Tion on this PPA transaction. In Pexapark’s experience of the Polish market, the PPA structure, price and other commercial terms form a compelling offtake solution, especially during this turbulent time. We want to underline the focus and competence of the Tion team which, combined with the strong green procurement will of Saint-Gobain, made for an efficient transaction.”
Proof of concept to use long-term corporate PPAs as an efficient tool to benefit from elevated electricity prices and topline certainty in politically uncertain times
This landmark transaction demonstrates that long-term corporate PPAs can be an important tool to accelerate the energy transition. On the one hand, agreements like this support energy-intensive businesses with achieving their sustainability targets. On the other hand, long-term PPAs provide electricity producers like Tion with stable and predictable revenues allowing for additional financial flexibility.
Dr. Martin Siddiqui, Co-CEO: “Contracted revenues create financial strength in our industry. In addition to the general accretion through smart use of debt, financial strength, i.a. resulting debt capacity, is even more valuable in uncertain times like we are currently facing. It is needless to say that recently surfaced political uncertainty around temporary measures such as price caps as well as a potential redesign of the merit order could not be better addressed than through engaging directly with energy-intensive businesses.”
Second significant portfolio optimization year-to-date
After the debut green loan in February of this year, this PPA represents the second significant portfolio optimization measure year-to-date and demonstrates Tion’s ability to both optimize its portfolio from a financing and an energy offtake perspective.
Deloitte Advisory sp. z o.o. sp. k. and Pexapark AG acted as advisors to the group. Dentons acted as legal counsel to the group.