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Case Studies, Interview, PPA Transaction

Renalfa AD builds-up subsidy-free renewables and PPA capabilities

Renewables investment group Renalfa AD readies PPA plays in Eastern Europe using Pexapark’s in-house PPA Academy training tool

The client

Renalfa AD is a Bulgarian clean energy and e-mobility investment group with a focus on renewable energy generation assets. Renalfa’s portfolio currently comprises around 90MW of operating projects, 136MW under construction and a pipeline of over 900MW under development in Bulgaria, Poland, Hungary and Northern Macedonia.

Renalfa’s daughter company Solarpro Holding (SPH) is a leading European provider of solar EPC and O&M, as well as smart energy management systems and e-mobility related services.

SPH’s track record includes multi-GWs of completed projects for full or light EPC in many European and Middle East countries. Current portfolio under construction is over 1GW across Europe and Middle East.

The opportunity

Some of the Power Purchase Agreement (PPA) markets Renalfa is heavily investigating entering are the emerging Bulgarian, Macedonian, Hungarian and Polish ones. The aim to monetize on the first-mover competitive advantage makes understanding the challenges crucial in order to tap into the opportunities.

Bulgaria and North Macedonia, especially, are benefitting from very good solar resources. They have relatively low renewables penetration, which makes the risk of cannibalization minimal for now.

Bulgaria targets the installation of more than 2.3GW over the next four years, but there is currently no government-backed support scheme in the form of subsidies for renewables, leaving a significant role to be played by bilateral PPAs. This is especially significant as Environmental, Social and Corporate Governance (ESG) investors are seeking opportunities in the country, and in the wider region.

Poland is another fast growing renewables market, with very positive dynamics driving the shift from the historic coal dominance in the country. Due to the system’s high carbon intensity, PPAs enabling subsidy-free capacity deployment benefit from increased additionality for both sellers and buyers. Overall healthy wholesales prices, which are favoured from the phase out of fossil-fuel plants, and an offtake segment looking to make a difference, are two key elements around the country’s growing PPA future.

The challenge

Because of the nascent status of the markets, there are significant challenges. For example, Bulgaria has yet to see its first PPA deal. Liquidity of power term markets is low, often leading to limited risk appetite from utilities and other offtakers. Subsequently, low liquidity leads to inclination for short tenors, which does not often meet requirements for the project’s debt financing due to insufficient risk hedging.

As both sellers and buyers are readying for the market to mature, first-movers will develop a competitive edge and will lead on the transformation. Lower availability of investment grade offtakers means that sellers will need to get up to speed quick, identify the key secrets to success for inciting propositions and drive successful negotiations.

“Renalfa operates in numerous countries where PPAs are emerging as an instrument, replacing the government supported Feed-in-Tariffs (FiTs) and Contracts-for-Difference (CfD) schemes in order to improve a merchant PV project’s bankability,” says Kalina Pelovska, Chief Investment Officer at Renalfa AD.

As the company had made the strategic decision to embrace PPA opportunities, the challenge was to develop a common language across the organisation, and leverage knowledge transfer from mature European markets.

Kalina explains that the company needed to have an aligned understanding among the various national teams about energy risk management requirements and tools, the concept of PPAs, how different structures work, and how to apply this knowledge in the specific country environment of the markets in the team’s portfolio.

How we helped

Pexapark organised an in-house PPA Academy tailored to Renalfa AD’s needs. The company’s priority was to ensure that everyone across different departments graduates the academy sharing the same knowledge and understanding. From engineers, the financing team including M&A and project valuation specialists, to the trading department and the business development and sales personnel. This meant that the training needed to be bespoke, to address different knowledge requirements and perspectives.

“We wanted to have a more in-depth coverage of the PPA topic than what would be typically available in an off-the-shelf training, and to be able to ask questions on aspects that were important to us, for example how to structure a sleeving agreement in addition to the PPA,” explains Kalina.

Pexapark helped Renalfa AD with:

  • Lessons learned from 12GW+ of PPA transactions across the European PPA market and key characteristics driving activity
  • In-depth training of PPAs as a risk management tool, PPA structures and risk allocation techniques with emphasis on physical PPAs and sleeving agreements, as well as cross-border PPAs to review options of selling their energy across different markets
  • Advice on how to incorporate a PPA into a financial model
  • Tips on how to educate their clients during a PPA negotiation
  • Strategic guidance on energy risk portfolio management to understand renewable energy as a commodity, and how to structure a PPA in an illiquid market
  • Real-world practical exercises for first-hand experience

The future

Renalfa AD states that the impact of the training is showing already. “We were very happy to have this training as an opportunity to align the level of knowledge among the different national teams and business lines. Meanwhile, we have advanced the discussion on PPAs with corporate offtakers in Bulgaria, and seem to be on the way to entering into mutually beneficial agreements with more than one counterparty,” Kalina says.

“Pexapark is proud to have helped yet another bold client such as Renalfa AD embark on the exciting journey of the next generation of renewables, tapping the real opportunities beyond the limited scope of renewable energy business models as we know them today,” Amanda Niklaus, Senior PPA Transactions Manager at Pexapark, says.

We look forward to continuing the relationship with Renalfa AD, and keep supporting them in their PPA journey.

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