Subsidies vs PPAs: What’s the trade-off?

For onshore wind, the market premium scheme under the EEG offers generous backing thanks to the reference yield model, which allows for favourable subsidies for assets located at sites with lower wind speeds (e.g., in Mid- and Southern Germany). Subsidies also enable developers to access capital at lower costs due to higher revenue certainty. However, subsidised assets are forbidden to sell Guarantees of Origin (GOs) at the same time unless they temporarily opt out of the subsidy. For example, on a monthly basis, they can decide to opt out for a PPA and re-enter the subsidy scheme after the contract ends. Unlike Germany, most European countries, such as Denmark, Italy, and the Netherlands, allow GOs to be issued for subsidised renewables.

In contrast, PPA-financed projects can sell GOs. PPAs with relatively steady production profiles, e.g. supplied by wind, are strongly desired by offtakers committed to decarbonisation and/or seeking hedging options. For certain offtakers such as hydrogen producers, PPAs are required to meet the EU standards for green sourcing (e.g., the additionality requirements). Still, PPAs face an uphill climb. Shorter contract durations, counterparty risk, and greater revenue uncertainty make them less bankable than subsidies—translating into higher financing costs.
Overall, due to the financing risks of PPAs and much more attractive EEG subsidies, onshore wind PPAs are rarely observed and typically only supplied by assets whose EEG support has already expired.

Can PPAs compete with EEG subsidies on financial returns for onshore wind?

To answer this question, it is essential to evaluate the business cases of onshore wind assets at specific locations, as wind speeds can significantly affect asset load factors and, thereby, profitability. Therefore, we selected three locations in Northern, Mid-, and Southern Germany. With the support of Aurora’s PPA software, Lumus, and wind valuation software, Amun, we compared financial returns of assets under the EEG market premium scheme to those financed via a 10-year, pay-as-produced utility PPA with a merchant tail.

Our findings show that only in the wind-rich North could a PPA-financed project turn a profit. Across all three locations, the EEG subsidy scheme consistently outperforms the PPA structure—regardless of whether the strike price remains at the current level of 73 €/MWh or drops to a pre-energy-crisis level of 55 €/MWh. This advantage mainly stems from lower financing costs for subsidised assets and the highly attractive reference yield model.

As the bottom line, in today’s regulatory and market landscape, the EEG subsidy scheme remains the more financially attractive option for onshore wind developers—but will that always be the case?