PPAs Power, ROCs and the rest... David Taylor

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PPAs Power, ROCsand the rest...David Taylor
BioenergyWM meetingHarper Adams University
CollegeThursday 21st September
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SmartestEnergy

• Licensed Electricity Supplier
• Leading independent consolidator (purchaser) of
  export electricity in the UK
• 1200MW, 80 customers, 200 sites
• CHP, open cycle, landfill, wind, waste to energy,
  mine methane, hydro, biomass
• Fixed price off-take or trading services
• Licensed Gas Shipper and Gas Supplier
• Supply Contracts fixed price or Trading Service
• Load Management and Demand Side activities
• Wholly owned subsidiary of Marubeni Corp
• Our business is focused on power purchase
  arrangements for the embedded generation sector

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Elements of a Power Purchase Agreement

• Export Electricity Prices
• Wholesale Electricity Price
• Embedded Benefits
• Imbalance Risk
• Margin
• Levy Exemption Certificates (LECs)
• Renewable Energy Guarantees of Origin (REGOs)
• Renewable Obligation Certificates (ROCs)
• Total Package?

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The Wholesale Electricity Market
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Wholesale Electricity Prices Winter 06
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Embedded Benefits

• An embedded generator will receive a number of
  benefits because it is located within a
  distribution system
• Distribution and Transmission losses
• Balancing System Use of System charges
• Embedded benefits typically add c.a. 1-2/MWh to
  the revenue stream for a generator
• Transmission Use of System Charges (Triad)
• usually broken out as a separate benefit and is
  calculated after the event
• Average Generator output is derived against the
  three winter peak periods i.e. 100kW
• Triad benefit gives a locational signal where to
  build generation plant
• i.e. as far south as possible
• 2006/07 triad charge for the South West is
  22.22/kW
• Triad benefit is usually 80 (paid to the
  generator)
• For a 100kW output triad payment would be 1,780

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Export Electricity Prices

• Indicative Export Electricity Prices for a 1MW
  Landfill Gas scheme.
• Q4-06 Peak 60.54 / MWh
• Q4-06 Off-Peak 38.16 / MWh
• Q1-07 Peak 71.95 / MWh
• Q1-07 Off-Peak 45.19 / MWh
• Q2-07 Peak 47.91 / MWh
• Q2-07 Off-Peak 33.02 / MWh
• Q3-07 Peak 47.34 / MWh
• Q3-07 Off-Peak 32.35 / MWh
• Where
• Q1 1st January to 31st March
• Q2 1st April to 30th June
• Q3 1st July to 30th September
• Q4 1st October to 31st December
• Peak 0700-1900, Monday to Friday
• Off-Peak All other times
• 12 month time weighted average is 44.21/MWh (for
  information only)

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Climate Change Levy

• Climate Change Levy was introduced to encourage
  energy efficiency
• Companies can comply to legislation in a number
  of ways
• Pay the CCL currently 4.30/MWh (will rise by
  inflation from 1st April 2007)
• Enter into a negotiated agreement i.e. rebate
  of 80 of CCL
• Present a Levy Exemption Certificate (LEC)
• LECs are generated by accredited generation
  stations
• Renewable
• Good quality CHP
• Market price typically 80-85 of CCL
• 3.44 - 3.65/MWh

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Renewable Energy Guarantees of Origin (REGOs)

• REGOs are a European wide mechanism for
  labelling renewable energy
• REGOs are issued to all types and sizes of
  renewable generation
• However the scheme must be accredited (same
  series of forms as for ROCs and LECs)
• 1 REGO is issued for 1kWh of generation output
• REGOs are required as part of the proof for the
  Fuel Mix Disclosure legislation
• No apparent value at present

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The Renewable Obligation

• Obligation on Electricity Suppliers to source an
  amount of their supply position from renewable
  sources
• The Obligation can be met by one (or a
  combination) of two methods
• Purchase an amount of renewable output embodied
  in Renewable Obligation Certificates (ROCs)
• Pay the Buyout Price
• The level of RO increases annually from 3 in
  2002/2003 to 10.4 in 2010/2011 (15.4 in
  2015/2016)
• Financial Year 2006/2007 (Compliance Period 5)
• RO 6.7
• Buyout Price 33.24/MWh

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The Value of a ROC

• For every MWh of eligible electricity generated
  by eligible sources one ROC is issued.
• The future value of a ROC is determined by the
  level of the Buy Out and the Buy Out Recycle such
  that
• Forward ROC Price PV (Buy Out Price
  Expected Recycle Value)
• Buy Out is defined in the order and escalated by
  RPI. Paid by licensed electricity supply
  companies.
• When a Supplier chooses to pay the Buy-Out, the
  money they pay is placed in the Buy-Out Fund.
• At the end of the 12-month Obligation period
  (April March), the Buy-Out Fund is recycled
  to Suppliers pro rata to the number of ROCs
  presented Recycle Value

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The Value of a ROC CP3

• The value of a ROC is derived from two elements
• Buyout Price and Final share of the Buyout Fund
• The larger the difference between the Obligation
  and the number of ROCs presented the larger the
  Buy Out Recycle fund and the higher the ROC
  price.
• Compliance Period 3

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Selling ROCs

• ROCs are sold on a forward basis before the
  out-turn is published via two basic routes
• Both generator and purchaser are estimating the
  out-turn price in order to assess the most
  favourable route for selling/purchasing ROCs
• Fixed price
• fixed and final payment upon transfer of ROCs
• influenced by purchasers view of build rate,
  generation volumes, supplier default, cost of
  cash and margin view.
• Processing
• buyout / recycle or fixed fee taken from
  recycle
• Buyout payment made at transfer recycle payment
  when Ofgem publish recycle fund (typically
  November after end of Compliance Period)
• Generator take the risk on recycle fund i.e.
  build rate, generation volumes, supplier default.
• Sale Buy Back

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Elements of a Power Purchase Agreement

• Export Electricity Prices 40/MWh - 50/MWh
• Wholesale Electricity Price
• Embedded Benefits
• Imbalance Risk
• Margin
• Levy Exemption Certificates (LECs) 3.44/MWh -
  3.65/MWh
• Renewable Energy Guarantees of Origin (REGOs)
  0/MWh
• Renewable Obligation Certificates (ROCs) 35/MWh
  - 45/MWh
• Total Package 78.44/MWh - 98.65/MWh

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Further Information

• For further information on PPAs, contracts for
  on-site use of energy and indicative prices
  please contact

David Taylor Marketing Manager T 020 7448
0930 F 020 7448 0987 M 07711 079438 E
david-taylor_at_smartestenergy.com
www.smartestenergy.com