As volatility becomes structural across South-East Europe, a quiet but decisive shift is taking place in how power contracts are designed. The era of simple, energy-only PPAs is giving way to a more complex contractual landscape in which reliability itself is being priced.
Firmed PPAs sit at the centre of this shift. They do not promise cheaper electricity. They promise electricity that behaves in a way industry can actually use.
For industrial buyers who have learned — often painfully — that energy volume does not equal usable power, firmed PPAs represent an attempt to realign contracts with operational reality. For the market, they represent a reallocation of risk. And as with all reallocations of risk, the key question is not whether firmness is valuable, but who pays for it.
Why reliability has become scarce
In traditional power systems, reliability was implicit. Baseload generation provided continuous output. System reserves absorbed shocks. Prices varied, but delivery was assumed.
In renewable-heavy SEE systems, reliability has become conditional. Power is abundant during certain hours and scarce during others. Forecast errors, congestion, and weather amplify this effect.
Reliability is no longer a default attribute of the system. It is a scarce resource.
Markets price scarce resources. Firmed PPAs are the contractual expression of that pricing.
What “firming” actually means
Firming is often discussed vaguely, but in practical terms it involves combining variable generation with mechanisms that ensure delivery during defined hours.
This can include:
- battery storage
- dispatchable generation
- market-based hedging layered on physical supply
- portfolio aggregation across assets and regions
The objective is not to eliminate variability entirely, but to constrain it within tolerable bounds.
From an industrial perspective, a firmed PPA is one that aligns more closely with consumption patterns, particularly during high-value hours.
From energy contracts to performance contracts
The shift to firmed PPAs marks a broader evolution: electricity contracts are moving from energy delivery toward performance delivery.
Instead of asking how many megawatt-hours are supplied annually, buyers increasingly ask:
- which hours are covered
- what happens during scarcity
- how deviations are settled
- what compensation applies when delivery fails
These questions reflect an understanding that reliability has economic value independent of energy volume.
How markets are pricing firmness
Firmness is not free. It shows up as:
- higher headline PPA prices
- explicit firming fees
- reduced upside participation
- more complex settlement structures
In many cases, buyers experience sticker shock when comparing firmed PPAs to simple energy-only contracts. This is not because firmed PPAs are overpriced, but because energy-only PPAs were underpricing risk.
The additional cost represents the market value of reliability.
The illusion of “cheap” energy-only PPAs
Energy-only PPAs often appear cheaper because they externalise risk. They deliver energy when available and leave the buyer exposed during scarcity.
Firmed PPAs internalise that exposure. They shift risk from the buyer to the supplier or intermediary. The price difference reflects that shift.
From a financial perspective, the comparison must be made on a risk-adjusted basis. A cheaper contract that produces volatile outcomes can be more expensive in reality than a pricier contract that stabilises cash flows.
Who actually provides firmness
In SEE markets, firmness is rarely provided by a single asset.
Instead, it emerges from combinations of:
- storage co-located with generation
- flexible thermal units
- hydro optimisation
- cross-border portfolios
- trading desks capable of active management
This is why many firmed PPAs are structured by traders or aggregators rather than pure generators. Firmness is not a physical attribute alone; it is a capability.
The counterparty question
Firmed PPAs raise an important counterparty issue.
When reliability is contractualised, the buyer becomes dependent not just on asset performance, but on the financial strength and operational competence of the counterparty.
This introduces credit risk, operational risk, and complexity. Buyers must assess whether the party providing firmness can deliver under stress, not just under normal conditions.
In volatile systems, this distinction matters.
Why not everyone should buy firmed PPAs
Firmed PPAs are not universally optimal.
For buyers with:
- high operational flexibility
- tolerance for short-term volatility
- access to active market participation
energy-only PPAs combined with self-managed flexibility may outperform firmed structures.
For buyers with:
- inflexible processes
- tight cash-flow constraints
- limited risk management capacity
firmed PPAs can be a rational choice despite higher prices.
The decision is strategic, not ideological.
Firmness as a competitive differentiator
As more industrial buyers recognise the cost of unreliability, firmed PPAs will increasingly differentiate competitive players.
Companies that secure reliable power at predictable costs gain an advantage in planning, pricing, and investment decisions. Those that chase the lowest headline price risk volatility-driven margin erosion.
In export-oriented SEE industries, this differentiation can be decisive.
The trader’s perspective: firmness is optionality sold
From a trader’s standpoint, firmed PPAs are structured sales of optionality.
The trader absorbs volatility risk in exchange for a premium. Profitability depends on the trader’s ability to manage flexibility better than the buyer could.
This dynamic reinforces the central theme of this report: value accrues to those who manage volatility actively.
Transition point
Firmed PPAs are not a panacea. They are a market response to a system where reliability is no longer free.
In SEE power markets, reliability is being repriced explicitly. Buyers must decide whether to pay that price, manage the risk themselves, or accept volatility.
What is no longer viable is pretending that reliability comes bundled with energy.
Elevated by clarion.energy