Advancing the energy transition with long-term contracts

The energy transition calls for an expansion of renewable energy sources such as solar and wind power. At the same time, investors want more certainty. Today, thanks to long-term contracts known as power purchase agreements (PPAs), both these goals can be achieved without subsidies. PPAs are part of the origination business, a complex area managed for Axpo in Switzerland by Laurent Nanzer, Head of Origination, and his team.

AlpinSolar is the largest alpine solar plant in Switzerland. Generating 3.3 gigawatt-hours of climate-friendly electricity per year, half of it during winter, it is precisely the kind of power plant the energy transition needs. But it only became a reality thanks to people who dare to do things differently, who conduct sober analyses, who persevere, and who are able to convince others.

Laurent Nanzer is one of those people. The trained economist loves the diverse and dynamic nature of the energy sector, managing Axpo’s Swiss origination business from the company’s offices in Baden and Lausanne. The latter location is especially appropriate, as the region around Lake Geneva has evolved in recent years into a leading hub for innovation. 

With the pioneering AlpinSolar facility, Axpo became the first company in Switzerland to develop and successfully execute an entire PPA project. PPA stands for power purchase agreement, a long-term electricity supply contract between two parties. Leading Swiss supermarket chain Denner has agreed to procure solar power from AlpinSolar at a fixed price for 20 years. This creates security. At the same time, by purchasing electricity from renewable sources, customers can reduce their carbon footprint.  

Contributor to supply security – if only barriers were lower

“PPAs are an important success factor for the energy transition,” says Laurent, who comes from the French-speaking part of Switzerland. “They ensure the necessary finance for renewable energy. This makes projects more attractive to investors and plant developers, supporting the fight against climate change without any need for subsidies.

“If we want the energy transition to succeed,” he continues, “ we need a massive and rapid  expansion of renewable energies. However, in Switzerland this expansion is being delayed by numerous regulations and objection rights, causing the country to lag far behind others when it comes to solar and wind power. 

“Investors are turning their attention abroad, because the regulatory barriers are lower there,” he warns. “Of course, the energy transition knows no borders. Avoiding carbon emissions is essential everywhere. But if more PV and wind power plants were built in Switzerland, this would also contribute towards security of supply in our country. We could kill two birds with one stone.”

Keeping our finger on the pulse

PPAs are just one aspect of the broader origination business, which involves offering customised services and products for individual customers and delivering them from a single source. Axpo manages annually a portfolio of around 16 TWh of renewable energy in Europe, Asia and the USA through third-party origination. But what does origination mean exactly? 

“It might involve us securing electricity or gas prices for a company,” Laurent explains. “Or we might manage the energy balancing for an investor in wind parks, or procure energy in various locations for an internationally active company to optimise its energy costs and reduce the effort involved in procurement. The range of possibilities is as diverse as our customers themselves.” 

The job of an originator is equally diverse. They have to forecast energy production and consumption, and must minimise and manage risks. The originator’s job is made all the more challenging by the fact that each counterparty, each project and each region is unique, and the environment is also constantly changing. 

Shortly before speaking with us, Laurent had been busy talking to existing and potential customers at one of Europe’s leading energy trade fairs, E-world energy & water, held annually in Essen, Germany. “Innovative thinking and flexibility are crucial,” he says, neatly summarising the job of an originator. “ Keeping our finger on the pulse, listening to the needs of business partners, actively communicating. Only by doing these things can we understand and anticipate customers’ requirements.”

Complex markets generate demand

Energy-related commodities are highly interconnected and traded across global markets. Prices are difficult to predict and can be subject to strong fluctuations, as the last two years have shown. Geopolitics, decentralisation of production, new technologies, the economy and the regulatory environment – all these factors influence the market. In recent years, this complexity has led to a surge in demand for tailored solutions. Meeting these needs calls for teamwork and a great deal of expertise.

Axpo established itself early in the origination and energy trading market. The company has garnered decades of experience and is now considered a champion in the field. This is not only reflected in the numbers – it has also been acknowledged by other market participants, who voted Axpo the world’s best power dealer at the prestigious Energy Risk Awards.