Power purchase agreements have become one of the most discussed instruments in Serbia’s industrial energy transition. For manufacturers under pressure to decarbonise, stabilise costs and demonstrate long-term energy security, PPAs appear to offer a clean solution. A renewable generator supplies electricity at a fixed or indexed price over many years, emissions are reduced, and exposure to volatile wholesale markets seems contained. In practice, however, most industrial PPAs in Serbia underperform expectations. The reason is structural rather than contractual: PPAs are being deployed in a power system where timing matters more than volume, and most PPAs do not address timing at all.
The typical industrial PPA in Serbia is solar-based. This is unsurprising. Solar projects are easier to permit, cheaper to build, and offer predictable daytime output. For developers, industrial offtake improves bankability. For industrial buyers, solar PPAs signal decarbonisation and appear to hedge energy costs. Yet the Serbian electricity system does not reward solar energy uniformly across all hours. It rewards it precisely when industrial demand is often least aligned.
Solar output peaks at midday, when system demand is moderate and prices are increasingly suppressed by renewable cannibalisation. During these hours, electricity is abundant and cheap regardless of whether a PPA exists. In contrast, industrial electricity risk concentrates in the evening, early morning and winter periods, when solar contributes nothing and the system relies on coal, hydropower and imports. A solar-only PPA therefore hedges energy in low-risk hours and leaves high-risk hours untouched.
This misalignment explains why many industrial buyers are disappointed by realised savings. On paper, a PPA may cover a significant share of annual consumption. In practice, it offsets electricity during hours that would have been cheap anyway, while the buyer continues to purchase power from the grid during the most expensive periods. The result is a lower carbon footprint but limited protection against volatility and scarcity pricing.
Wind-based PPAs offer a different profile, but not a complete solution. Wind output in Serbia often peaks at night and can contribute during winter, which is when risk is higher. However, wind is inherently volatile and difficult to forecast precisely. Wind PPAs therefore introduce balancing exposure. When output deviates from expectations, the buyer or supplier must cover the difference at imbalance prices, which are often highest during stress periods. Without careful structuring, wind PPAs can shift rather than reduce risk.
The core issue is that most PPAs are energy-based instruments in a system where capacity and flexibility drive cost outcomes. They deliver kilowatt-hours but not firmness. They do not guarantee availability during peak hours, nor do they reduce the system’s need to balance renewable variability. From the grid’s perspective, a solar PPA adds generation during already saturated hours. From the industrial buyer’s perspective, it leaves exposure to the very hours that define annual cost risk.
This is where storage becomes decisive. Storage transforms a PPA from a symbolic decarbonisation tool into a genuine risk-management instrument. When renewable generation is paired with storage, energy can be shifted from low-value hours to high-value ones. The buyer gains partial control over timing, not just volume. Evening exposure is reduced. Balancing costs are dampened. The PPA begins to hedge the hours that actually matter.
In Serbia, however, storage remains rare in industrial PPA structures. Capital costs, regulatory uncertainty and lack of clear revenue streams slow adoption. As a result, many PPAs deliver emissions benefits without delivering cost stability. This gap will widen as solar penetration increases and midday prices fall further. Without storage, the marginal value of solar PPAs declines, while the marginal risk of peak exposure remains.
Another structural weakness lies in contract design. Many PPAs assume flat offtake obligations or fixed volumes that do not reflect the buyer’s load profile. When industrial demand and renewable output diverge, imbalance costs accrue. In a system with rising volatility, these costs become material. Buyers who focus solely on headline PPA prices may underestimate the total cost once imbalance settlements are included.
The Serbian market context amplifies these challenges. Wholesale liquidity is limited, and balancing markets are still developing. This makes it harder to hedge residual risk externally. In more liquid markets, industrial buyers can complement PPAs with financial hedges. In Serbia, such instruments are less accessible, increasing reliance on physical solutions such as storage and flexibility.
From a strategic perspective, PPAs should be seen as one component of a broader energy strategy, not as a standalone solution. They are effective at reducing emissions and securing renewable supply, but they do not inherently reduce volatility exposure. Without storage or load flexibility, they may even increase it by adding variable generation to an inflexible consumption profile.
The implications for industrial decision-makers are significant. A poorly structured PPA can lock a buyer into a long-term arrangement that looks attractive on paper but underperforms economically. Conversely, a well-designed PPA that integrates storage, flexible offtake and realistic imbalance allocation can stabilise costs and enhance competitiveness.
By the late 2020s, this distinction will become increasingly visible. As Serbia’s power system becomes more renewable-heavy, the gap between energy value and flexibility value will widen. PPAs that deliver only energy will struggle to justify themselves economically. PPAs that deliver flexibility alongside energy will set the standard.
For Serbia’s industrial sector, the lesson is clear. PPAs are not a shortcut to energy security. They are tools whose effectiveness depends entirely on how well they address the temporal realities of the power system. Without storage, most will continue to underperform—not because renewables are flawed, but because timing has become the dominant variable in electricity economics.
Elevated by clarion.energy
