For decades, industrial electricity demand in South-East Europe was shaped around one implicit assumption: power would be available when needed, at broadly stable prices, and with limited intraday differentiation. Steel mills, cement plants, chemical facilities, paper producers, food processors, and large fabrication plants built operating models around continuous or semi-continuous load profiles. Electricity was treated as a baseload input, not a time-sensitive one.
That assumption no longer holds.
The rapid expansion of variable renewable energy, combined with the decline of coal-fired baseload and limited investment in flexibility, has created a growing structural mismatch between how industry consumes power and how power is now produced and priced. Industrial PPAs, rather than resolving this mismatch, often expose it more clearly.
The result is a procurement paradox: industrial buyers sign long-term PPAs to stabilise costs and decarbonise supply, yet end up facing higher volatility, weaker cash-flow predictability, and greater operational exposure than under traditional supply contracts.
The industrial load profile has not changed
Despite automation and efficiency gains, the fundamental shape of industrial electricity demand remains stubbornly flat. Most energy-intensive processes in SEE still operate with one of three profiles:
- Continuous baseload — processes that cannot be easily stopped without damaging equipment or product quality
- Extended shift load — high consumption during daytime and early evening hours
- Evening-weighted demand — processes aligned with labour availability, logistics, or thermal cycles
These profiles share one common feature: they peak when solar generation does not.
Industrial demand tends to be highest in the late afternoon and evening, precisely when solar output collapses and system prices spike. This was irrelevant in a coal-dominated system where marginal pricing was stable across hours. In today’s SEE markets, it is decisive.
PPAs were designed for energy, not for time
Most industrial PPAs in SEE are structured around annual energy volumes. The buyer agrees to purchase a fixed number of megawatt-hours per year at a fixed or indexed price. The generator delivers energy when available, and financial settlement reconciles deviations.
On paper, this appears sensible. In practice, it ignores the most important variable in modern power markets: time.
A solar-heavy PPA delivers most of its volume during a narrow midday window. Industrial load, by contrast, is spread across 24 hours, with critical exposure during high-priced evening periods. The PPA covers energy, but not shape.
The missing energy during expensive hours must be purchased from the market. Surplus energy during cheap hours must be sold back. The price difference between those two actions is the real cost of the mismatch.
This is not a marginal effect. In solar-heavy SEE systems, the spread between midday prices and evening peak prices can exceed the headline PPA price itself.
Why “baseload PPAs” are mostly a fiction
The term “baseload PPA” is frequently used in SEE procurement discussions, but it has become increasingly misleading. True baseload delivery requires either dispatchable generation or firming mechanisms. Solar and wind, on their own, cannot provide it.
Some PPAs attempt to simulate baseload through financial netting. The buyer receives variable physical supply but settles financially against a flat profile. This shifts risk rather than eliminating it.
The party ultimately exposed is usually the industrial buyer, either directly through imbalance charges or indirectly through higher contract pricing. The illusion of baseload persists until a stress event reveals the underlying exposure.
Imbalance costs reveal the mismatch
Balancing and imbalance settlement is where the structural mismatch becomes visible in cash terms. In many SEE markets, imbalance pricing has become sharper and more punitive as system flexibility tightens.
When industrial consumption exceeds PPA delivery during evening peaks, the shortfall is settled at imbalance prices that reflect scarcity. When PPA output exceeds consumption during low-price hours, surplus energy is absorbed at discounted or even negative prices.
The buyer is exposed on both sides of the curve.
These imbalance costs are often underestimated at contract signing because historical averages do not capture future volatility. As renewable penetration rises, imbalance pricing becomes more extreme, not more benign.
The hidden correlation risk
Another underappreciated issue is correlation. Solar output, system prices, and industrial demand are increasingly correlated in adverse ways.
High solar output coincides with low prices. Low solar output coincides with high prices. Industrial demand is least flexible precisely when prices are highest.
This creates a negative hedge effectiveness. The PPA delivers energy when it is least valuable and withholds it when it is most needed.
From a trader’s perspective, this is obvious. From a buyer’s perspective, it often only becomes apparent after the first year of settlement.
Why hydro does not fully solve the problem
Hydropower is often cited as SEE’s natural balancing asset. While hydro provides flexibility, it is not a universal solution.
Hydro availability is seasonal, weather-dependent, and increasingly volatile. In dry years, hydro cannot compensate for solar intermittency. In wet years, it can depress prices but does not necessarily align with industrial load peaks.
Moreover, much of SEE hydro is already optimised for system balancing and cross-border trading. Industrial buyers cannot assume preferential access.
Hydro reduces volatility at the system level but does not eliminate shape mismatch at the contract level.
Financial consequences for industrial buyers
The structural mismatch between baseload demand and variable PPAs manifests financially in several ways:
- higher average effective power costs than headline PPA prices suggest
- volatile monthly invoices despite “fixed” contracts
- unpredictable imbalance charges
- increased need for short-term market exposure
- weaker hedge effectiveness
For CFOs, this undermines the core rationale for long-term PPAs: predictability.
In extreme cases, buyers find that their PPA increases earnings volatility rather than reducing it. This is particularly damaging for export-oriented industries facing fixed-price contracts downstream.
Why this mismatch is getting worse, not better
The mismatch is not a transition artefact; it is a structural trend.
Solar capacity in SEE continues to expand faster than storage or demand-side flexibility. Coal exits reduce inertia and firm supply. Cross-border coupling transmits volatility across markets.
At the same time, industrial load profiles are slow to change. Process redesign takes years, capital, and operational risk. The system adapts faster than industry can.
This widening gap explains why PPAs that worked five years ago increasingly fail today.
The trader’s view: industry as a shape problem
From a power trader’s perspective, industrial load is no longer just demand; it is a shape problem that creates spreads.
Evening peaks, ramping needs, and imbalance exposure create opportunities for desks that understand industrial profiles. For traders, volatility is monetisable. For industry, it is a cost unless actively managed.
This asymmetry explains why value is shifting from passive buyers to active market participants. Industry that remains passive effectively transfers value to the market.
What replaces the baseload assumption
The solution is not to abandon PPAs, but to abandon the baseload assumption.
Industrial buyers must recognise that:
- energy coverage is not shape coverage
- fixed prices are not fixed outcomes
- decarbonisation without flexibility is incomplete
PPAs must be embedded in broader procurement portfolios that explicitly manage time, volatility, and imbalance.
This requires closer integration between procurement, operations, and market access. It also requires a shift in mindset: electricity is no longer something to be bought once a year; it is something to be managed continuously.
Transition point
The structural mismatch between baseload industry and variable PPAs is now one of the defining features of SEE power markets. Companies that acknowledge it early can redesign procurement strategies, negotiate better contracts, and invest selectively in flexibility.
Those that do not will continue to experience “unexpected” costs that are, in reality, entirely predictable.
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