Power Purchase Agreements. Meitheal na Gaoithe Annual Conference Kilkenny 9 th November 2012

Transcription

1 Power Purchase Agreements Meitheal na Gaoithe Annual Conference Kilkenny 9 th November 2012

2 Introductions Who we are: Hugh Mullany and Rory Mullan Mullany Engineering Consultancy and Mullan Grid Why have we set up PPA Solutions? What do we do? Audit, negotiation, management, support Supplier-lite set up What have we done? Maximised Power Sales c. 50k savings per annum discovered per project

3 Today Basics of PPAs REFIT II what s new, what s the same What the supplier will have to do to sell your power, and the implications on your PPA price

4 The Power Purchase Agreement PPA Supply Co. BILL Fixed: A fixed rate per MWh, without or without indexation Pass through: All SEM/REFIT/LEC/GO revenues, less a flat administration fee or price per MWh traded Floor with upside, or price guarantee Percentage of revenues, guaranteed to be greater than an agreed price An agreed price, with a sharing of extra profit made by supplier Upside can pass through a portion of constraints/curtailment revenues

5 Evaluating PPAs Fixed Pass Through Floor + Upside Bank Certainty Yes No Yes Revenue (if supplier gets it right!) Complexity (small project hassle) REFIT II Compliant Duration (no REFIT) (Typically seen) Risk taken by Purchaser (no REFIT) Lower Best Lower No No Yes Yes, if Fixed at Reference Price No Low None Low Yes, if Floor at Reference Price

6 Market Activity Who s selling? REFIT II projects, Gate 2 REFIT III project (biomass, waste to energy, AD), Gate 3 and non-gpa AER completed term Step-down AER exiting before step-down rate (some fixed/floor+upside, some pass-through) The buyers Airtricity/SSE, Energia, BGE, ESB/Electric Ireland, and Vayu Supplier-lite (or REFIT-lite), particularly REFIT III Some banks will not accept PPAs from some suppliers REFIT SI in 2012 c. 55MW under REFIT II (wind, except c. 7MW landfill gas) c. 2MW under REFIT III (all AD)

7 Today Basics of PPAs REFIT II what s new, what s the same What the supplier will have to do to sell your power, and the implications on your PPA price

8 REFIT II Large Wind > 5MW /MWh Hydro /MWh Small Wind /MWh Landfill Gas /MWh 2012 reference prices, indexed with upwards CPI Plus 9.90/MWh (non indexed) balancing on top of those rates

9 Key Changes from REFIT I Balancing payment bundled with technology reference price Not a separate payment per MWh For large wind, means SEM price needs to be above for chance to beat REFIT rate, i.e. upside Equity returns affected if your PPA gives you upside No indexation of balancing payment Supplier balancing payment of 9.90 not indexed with CPI Lower overall guaranteed payments over PPA term Debt financing affected REFIT PPA must be at least the technology reference price Negotiations now about share of balancing payment, upside, further benefits

10 Same as REFIT I: Constraint Payments Not Guaranteed to be at Reference Price Example over PSO year (windfarm > 5MW, participant) 10MWh generated, 1MWh constrained Market revenue over year 810, made up of 770 energy and capacity payments for 10MWh energy 40 energy and capacity payment for 1MWh constraint REFIT reference price plus balancing payment: 80/MWh REFIT asks: how much was earned in total from market per MWh actually generated? 10MWh generated, 810 earned Earnings 81/MWh, higher than reference price No need for floor payment Note: CER/08/236 which sets these rules out for REFIT I needs reworking and reconsultation

11 Same as REFIT I: Challenges to Cashflow C E R April-July 13: Price Forecast Year 1 April-July 14: Price Forecast Year 2 April-July 15: Price Forecast Year 3 + R-Factor from Year 1 PSO Year 1 PSO Year 2 PSO Year 3 Pre REFIT Oct13-Sep14 Oct14-Sep15 Oct15-Sep16 S u p p l i e r April 13 Px Forecasts PSO Year 1 April 14: Px Forecasts PSO Year 2 April 15: Px Forecasts PSO Year 3 Audited Costs PSO Year 1

12 Today Basics of PPAs REFIT II what s new, what s the same What the supplier will have to do to sell your power, and the implications on your PPA price

13 UoS Supplier selling your power now GENERATION MONEY POWER SUPPLY T&SC: SEM Trading & Settlement Code PPA Supply Co. Single Electricity Market Supply Co. Supply Contracts BILL BILL PPA: Power Purchase Agreement to Intermediary Public Service Obligation Levy Supply Company Customers UoS: Use of system charges pay for wires

14 How will suppliers sell your power EU Target Model in 2016 in the future? What is it? Its Europe s core philosophy The internal market is one of the pillars of the European Union. Completed in 1992, the single market is an area without internal frontiers in which persons, goods, services and capital can move freely, in accordance with the Treaty establishing the European Community. applied to

15 Regional market integration by 2016 the trade and flow of power between European electricity markets. Four timeframes Long term contracts Day ahead (coupled price) Within day (coupled price) Balancing (coupled price) Source: EU Commission In a nutshell: With sufficient wires, a generator in France could set the price of electricity in Ireland Source: EU Commission

16 Day Ahead Trades Within Day Trades PPA Day Ahead Trades Within Day Trades Prices can match across Europe automatically, if there is enough interconnection Long Term Contract Day Ahead Cleared Price Within Day Cleared Price Balancing Cleared Prices Supply Co. BILL Supply Contracts Forecast Imbalances Better Forecast Imbalances Spill Top Up Compare Trades to What Actually Happened 24 hours to Now Now

17 Spill PPA Day Ahead Trades Within Day Trades What we may have Manages risk by giving lower PPA price Supplier sees spill price for power REFIT Supply Co. BILL Forecast Imbalances Better Forecast Imbalances Compare Trades to What Actually Happened Supply Contracts Think they need more power But contracted too much wind, no one to sell it to 24 hours to Now Now

18 Resulting Impact on REFIT II PPA Offers Suppliers will be hanging on to more of the balancing payment Upside will depend on how good suppliers are at forecasting wind output, and selling at right time What supplier will be the best at it? Market change clauses

19 Slow start to REFIT II Conclusions Activity around moving from AER contracts Market changes do change the dynamic of the PPA negotiation Price and competency of your purchaser How are new market developments reflected in PPA

20 Thank You Hugh Mullany