Which PPA best fits your risk strategy?

With subsidies removed and embedded benefits reduced, the financial landscape for generators is changing. Following our recent generators webinar, Chris Smith, Head of Renewable Sales, discusses the range of Power Purchase Agreements we provide to match the requirements of our customers.

Changes to generation subsidies and embedded benefits tend to dominate the headlines, but a key aspect of a generators’ revenue is still very much in their control – how much they are paid for their power.

Generators typically choose their Power Purchase Agreement (PPA) based on their risk appetite and whether they have any ability or resource to monitor the market. This usually means they take a fixed PPA for all of their power output for a period of time or take a flexible PPA and follow the market, hedging in blocks in line with risk policy and future expectations.

But as the market has evolved over recent years, so too have PPA options. Fixed and flexible arrangements are still widely-used and successful for many generators, but there are many new commercial structures being developed to suit changing business models.

In the time since 2001 when we began selling PPAs, our portfolio has expanded to meet the changing needs of independent generators across all technologies, subsidy schemes, sizes and risk strategies.

Price certainty with simple decision making

For generators requiring a stable revenue, a Fixed PPA or Framework PPA would be ideal.

Both products involve fixing the power price for the full output of the generation project. On a FixedPPA, the price fix is for the length of the contract, so it’s just one simple price decision.

The Framework PPA offers more flexibility, allowing the generator to fix their power for various months, seasons or years within the contract, keeping future periods open to take advantage of market movements.

Increased market opportunities with structured approach

According to a survey we conducted last year, 77% of generators believe they could achieve better returns by actively hedging their energy.

ManagedPPA is a way for generators to do this without increasing their resource or cost base to monitor the market. It provides a rolling four season hedging horizon and power is hedged in line with customer-agreed price and time triggers.

The Framework Plus PPA is the next step on from our Framework product. Generators can fix their power for time periods of their choosing and opt to hedge in blocks of 25% or 50% of reference volume, providing more opportunity to take advantage of market movements.

Long-term price guarantee

Recently we’ve seen more generators interested in long-term PPAs as a way of supporting new subsidy-free projects.

Corporate PPAs are becoming increasingly popular as major brands look for new ways to support the renewables agenda. Under this arrangement, an energy user commits to a long-term contract to buy the power from a new renewable generator.

Our experience as both a supplier and generation aggregator has enabled us to develop a product which solves the challenge of producers wanting to sell above market and buyers wanting to buy below market.

Price control for market experts

As the market has matured, many generators now have their own in-house expertise. In this case, the generator might want to be able to flexibly change when and how much they hedge, or even just have access to a supplier’s hedging desk.

FlexiPPA allows generators to hedge in blocks and take a market price from one of multiple indices for anything above a month, providing the ability to react to market movements as they happen.

An Energy Services Trading Agreement (ETSA) provides access to the wholesale market without the full cost of setting up an in-house trading desk. Generators can trade the full range of markets and have 24/7 access to the within-day market if needed.

Our experienced Renewables team would be happy to discuss our PPA options with you, so please get in touch with us.

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About the author

Chris joined SmartestEnergy’s Renewables team in 2017 from Danish energy trading company Neas Energy. He works with generators to develop solutions to help them maximise returns in a changing environment for renewable projects. Chris began his career in the energy sector in 1996 with Eastern Natural Gas. He went on to work as a Generation Services Senior Business Development Manager at RWE npower, developing PPA solutions for customers. He has also worked on the supply side with industrial and commercial users. His role as Business Development Manager at Neas saw him build its UK PPA and CHP portfolio from market entry. Chris has a BA in Business Studies from De Montfort University, Leicester.

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