ENERGI DANMARK GROUP. Thomas Elgaard Jensen, Director Strategic Business Development Energi Danmark A/S TO PPA OR NOT TO PPA THAT S THE QUESTION

Transcription

1 Thomas Elgaard Jensen, Director Strategic Business Development Energi Danmark A/S ENERGI DANMARK GROUP TO PPA OR NOT TO PPA THAT S THE QUESTION RE-Scandinavia, August , Malmö Börshus

2 Agenda 2 Introduction The market underlying PPAs Known market changes the coming years To PPA or not to PPA? Questions

3 Intro: The Energi Danmark Group 3 One of the Nordic region s leading energy trading groups and one of the largest purchasers of energy on the NASDAQ OMX Nordic energy market. Main activities: 1. Full service for consumers, producers, RES Balancing handling, Portfolio management, risk management, PPAs etc. 2. Trading (power and gas) Group service finance Contracts etc. Change of supplier Controlling and RM Settlement Customer reporting Financial reporting Turnover is over 17 bill DKK Group headquarter situated in Aarhus

4 The market underlying PPAs 4 The electricity market what are we talking about? Electricity (wholesale) markets are normally illustrated in order of time of the market before real time: Market time before realtime

5 The wholesale market how it works 5 Day ahead The electricity market is the sum of all submarkets Financial Intraday You cannot look at one sub-market in isolation Physics The electricity market Balancing Be careful to sell or buy anything from someone that only knows one electricity sub-market

6 The Financial market - system price 6 Bid Ask 39,00 38,00 37,00 36,00 35,00 34,00 33,00 32,00 31,00 30,00 29,00

7 The system price no liquidity after Open Interest Spread ,00 3,50 3,00 2,50 2,00 1,50 1,00 0,50 0,00

8 The market only supports 4-5 years ahead Navn Adding area prices only makes the pictures worse - in the Nordics Open Interest Spread 1,20 1,00 PPAs use the market prices as a starting or reference point ,80 0,60 0, ,20 Beyond years 5, buyers and sellers of PPAs needs to agree on the risk split /risk profile 0 SYSTOFUTBLYR-19 SYSTOFUTBLYR-20 SYSTOFUTBLYR-21 SYSTOFUTBLYR-22 0,00

9 Known market changes in coming years 9 European market integration Clean energy package (nov. 16) Ongoing change in production mix (from coal/nuclear to wind, solar, bio gas)

10 Known market changes in coming years 10 New balance setup (from 2019) New balance product (afrr fra 2019) New imbalance price (from 2020) 15min resolution instead of 1 hour (2020) The Nordics will implement (or try to) the Network Code before rest of Europe Power / Frequency Joint Action within Synchronous Area Frequency Containment Process LFC Area reserve activation Frequency Restoration Process FCR FRR manual FRR RR Reserve Replacement Process t frequency occurrence of the disturbance Time to Restore Frequency

11 What is a good PPA? 11 When the is no market, it is actually matchmaking and PPAs facilitate the matching Depending on how the partners want to arrange themselves, the PPA can handle all issues or only top level issues If it is difficult to understand the underlying risk, it might not be a good PPA A good PPA is transparent regarding all risk for all partners

12 Matching interests? 12 Sellers Business: Renewable Energy producers Profile: Varying production (wind/solar) Motivation: Securing financing for new projects Time horizon: Long horizon (5-10 years) Demand: High price level Buyers Business: Large power consumers Profile: Stable consumption Motivation: Budget security Time horizon: Shorter horizon (1-3 years) Demand: Low price level With the different nature of buyers and sellers it can be hard to find parties with perfect matching interest. Furthermore, fluctuations in the market (upswings/downswings) means that sellers and buyers does not demand PPAs simultaneously

13 To PPA or not to PPA? 13 PPAs is a great and flexible tool, where agreements can be structured in various ways (for example with fixed elements, variable elements and/or combinations of fixed and variable elements) It all depends on the risk profiles/appetite from seller and buyer To finance a new project, most developers need to go to the bank and provide a future fixed income statement PPAs is sometimes the only solution When there is no demand to show long term fixed income, PPA might not be the right solution

14 PROS CONS To PPA or not to PPA? 14 The market risk from a PPA can be extremely high (no market after 5 years - but for example an element of rolling market risk can solve this) The spread cost might be high (think of trading an illiquid stock, where the difference between buy and sell is big what is the right price?) With the right matchmaker and tailor, you can get at agreement that suites your needs perfectly The PPA can shelter your project from nearly all risk You can use it in the bank If PPA is for you depends on your risk profile and your needs. (if you finance your house with a 30 year bond, you should be aware that the 1 year bond has lower interest rate before making the deal)

15 Questions? Thomas Elgaard Jensen, Director Strategic Business Development Energi Danmark A/S Thank you!