Iran conflict drives rise in short-term PPAs as buyers seek protection from energy price shocks

Rising gas prices and increased volatility across European power markets have prompted off-takers and generators to focus more heavily on shorter-duration contracts, where hedging value is greatest and pricing signals react most quickly to geopolitical events.

Short-term hedging returns to focus

Montel’s analysis shows that activity is increasingly concentrated in shorter contract durations during periods of market stress, reflecting renewed demand for near-term hedging strategies.

Based on data from Montel’s PPA Deal Tracker, which analyses reported PPA agreements across Europe, a clear increase in shorter-term PPAs can be observed. By grouping PPA deals concluded each year by contract duration, Montel's analysis shows that the share of PPAs with durations of one to four years increased from around 6.8% of PPAs in Europe in 2025 to approximately 14.6% in 2026 (to date).

These percentages reflect the share of PPAs with this contract duration, relative to the total number of PPAs signed each year. The share of PPAs with durations of five to nine years also rose significantly, from 12.3% to 20.8% between 2025 and 2026. A similar pattern was already visible during the energy crisis between 2020 and 2021, where the proportion of PPAs with one- to four-year tenors increased from 1.7% to 10.98%.

“Short-term PPAs are benefitting most directly,” Senior Energy Analyst at Montel, Josephine Steppat said.

“Rising volatility increases the value of locking in nearer-term energy prices, particularly for off-takers seeking budget certainty. For power generators, elevated near-term future prices can also improve achievable revenues," she added.

Long-term PPA fundamentals remain intact

Despite the shift towards shorter contracts, Montel said the structural foundations underpinning Europe’s long-term PPA market remain unchanged.

Renewable deployment, electrification and decarbonisation targets continue to support demand for long-dated PPAs, with future price expectations further along the curve only marginally affected by current geopolitical developments.

Steppat added: “As a result, long-dated PPAs continue to trade more on structural fundamentals than on short-term shocks.

“Short-term PPAs become more attractive as hedging tools, while appetite for long-term contracts remains restrained. The market is becoming more selective rather than more active overall, representing a shift in composition rather than scale.”

Renewable revenues under pressure

Montel’s analysis also pointed to deeper structural challenges emerging across European renewable markets.

"Declining capture rates and increasing cannibalisation effects are putting growing pressure on renewable revenues, raising concerns about the long-term value available to renewable generators. The PPA market will not be defined by volatility itself but by whether it can still deliver sufficient and stable value for renewable investment over time,” Steppat said.

Figure 1. Percentage of PPAs signed in Europe by contract durations. Source: Montel.

Read the article online at: https://www.worldpipelines.com/special-reports/27052026/iran-conflict-drives-rise-in-short-term-ppas-as-buyers-seek-protection-from-energy-price-shocks/