Connecting Renewables and the
Power Purchase Agreement

          Tim Foster
SmartestEnergy


• Licensed Electricity Supplier
• Leading independent provider of Power Purchase
     Agreements – short ...
Overview


• Connecting to the Grid
     – The Regulated Process
     – Connection Offers
     – Typical Technical Issues
...
Connecting to the Grid – The Regulated Process


• 14 Distribution Network Operators
     (DNO)
• 1 Transmission GB System...
The Connection Agreement

• Agreement between the generator and the Distribution Network Operator
        or The Transmiss...
The changing shape of the network




                                                                               Trans...
Distributed Generation Capacities


Transmission 275 kV
                                        500 MW
               132 ...
Typical connection issues that are encountered


• Historical “passive” DNO network designs coupled with the
     Prolifer...
Thermal Characteristics and Limits

               Overhead line Safety clearance




               Transformers
        ...
Voltage Rise


                              Power Flow




                    Voltage
                  Max
No Generatio...
Generation Contribution to Faults


  • Contribution of current to a fault on network can lead to an
     overstressing of...
It is never as simple as just plugging it in…..


• There is no such thing as a
     standard Grid Connection
     and cos...
The Meter Operator Agreement


• Meter requirements depend on
     the generating capacity
      – Greater than 30kW – a h...
Elements of the Power Purchase Agreement


• The Power Purchase Agreement values the revenue streams for
     a renewable ...
Electricity – Wholesale Prices


• For any PPA electricity        UK Wholesale annual baseload electricity price
     is p...
Electricity – Pricing Structures and Storage

•    The relative value of
     electricity changes during the
     day and ...
Embedded Benefits


• An embedded generator receives a
     number of benefits because it is
     located within a distrib...
Climate Change Levy


•    Climate Change Levy was
     introduced to encourage energy
     efficiency
•    Companies can ...
What is a ROC and how is the value of a ROC is Derived


•     The Renewable Obligation
       –   Obligation on Electrici...
ROC Out-turn Projections


• The future value of a ROC for
     each Compliance Period
     depends on:
      – Size of th...
The PPA - Electricity


• The PPA outlines the commitment to purchase output from the
     generator/facility over a term
...
The PPA – Embedded Benefits and LECs


• Embedded Benefits
     – For fixed price PPAs Embedded Benefits are usually inclu...
The PPA - ROCs

• Route to market is dependent on the risk/reward appetite of the
     generator (or more often the provid...
Summary - Power Purchase Agreements


• The power purchase agreement encapsulates the risk/reward
     aspirations of the ...
SmartestEnergy


• For indicative prices, contractual terms,
     further information or a general
     discussion please ...
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Grid Connections And PPAs: Tim Foster, Smartest Energy

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Bioenergy West Midlands
Anaerobic Digestion Event and Site Visit
17th March 2009

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Grid Connections And PPAs: Tim Foster, Smartest Energy

  1. 1. Connecting Renewables and the Power Purchase Agreement Tim Foster
  2. 2. SmartestEnergy • Licensed Electricity Supplier • Leading independent provider of Power Purchase Agreements – short and long term • 1200+MW, 350+ sites, 10% of the UK’s Renewable Output • CHP, AD, landfill, wind, waste to energy, mine methane, hydro, biomass • Supply Contracts – fixed price or flexible • Load Management and Demand Side activities • Our business is focused on power purchase arrangements for the embedded generation sector 2
  3. 3. Overview • Connecting to the Grid – The Regulated Process – Connection Offers – Typical Technical Issues • Metering • Power Purchase Arrangements 3
  4. 4. Connecting to the Grid – The Regulated Process • 14 Distribution Network Operators (DNO) • 1 Transmission GB System Operator (NGETL) and 3 transmission owners (NGETL, SP Transmission Ltd, Scottish Hydro-Electric Transmission Ltd) • Licences to distribute / transmit electricity - Regulated by Ofgem • Remit to operate economically, efficiently and in a non-discriminatory fashion 4
  5. 5. The Connection Agreement • Agreement between the generator and the Distribution Network Operator or The Transmission Network Owner that allows the import/export of electrical energy to/from a site • DNOs / NGET obliged to offer terms to connect to network • The Generator must submit competent application and pay fee • DNO Obligated to make offer within 3 months • Offer open for acceptance for 30 days or 3 months • Disputes referred to Ofgem • The Connection Offer includes: – Outline of connection solution – Outline of DNO works, reinforcements and construction programme – Technical and communication requirements – User’s construction obligations – Outline of operational constraints – Price 5
  6. 6. The changing shape of the network Transmission- connected generator Transmission system Distribution Grid supply point connected generator Wind farms Distribution network Customers/ CHP PV generators 6
  7. 7. Distributed Generation Capacities Transmission 275 kV 500 MW 132 kV 132 kV 33 kV 20 MW Distribution 33 kV 11 kV Typical 5 MW 11 kV Connection Voltage for 400 V 5 kW AD Generators 7
  8. 8. Typical connection issues that are encountered • Historical “passive” DNO network designs coupled with the Proliferation of “distributed generation” can give rise to Network constraints or reinforcement • Historically burden of cost upon developers – Move to “shallow-ish” charging helping certain developers. • Some typical issues: – Thermal ratings – Voltage rise issues – Fault level contribution – Reverse power flows • Unfortunately a potential embedded generator will pay to resolve many of these issues 8
  9. 9. Thermal Characteristics and Limits Overhead line Safety clearance Transformers • Overheating leads to insulation failure • Reverse power flow capability? Switchgear • Overheating leads to insulation failure Cables • Overheating leads to insulation failure 9
  10. 10. Voltage Rise Power Flow Voltage Max No Generation Distance Min Summer Voltage Winter Max Generation Distance Min 10
  11. 11. Generation Contribution to Faults • Contribution of current to a fault on network can lead to an overstressing of existing switchgear and is a major limiting factor to the connection of embedded generation Primary Substation Fault Current G Fault Currentg 11
  12. 12. It is never as simple as just plugging it in….. • There is no such thing as a standard Grid Connection and costs will depend not only on the level/capacity of connection but also the “upgrade” works required • Recent experiences suggest an average grid connection cost of £100,000 per MW but costs can be doubled or halved • Check how much of the work is “contestable” – Why pay the DNO for trench digging! 12
  13. 13. The Meter Operator Agreement • Meter requirements depend on the generating capacity – Greater than 30kW – a half- hourly meter (HH) is required – Less than 30kW – a non half- hourly (NHH - monthly, seasonal or annual reads) is required • NHH metering is arranged by your electricity supplier • HH metering is the Generator’s responsibility – The Generator must enter into a Meter Operator contract with their chosen meter supplier – Western Power Distribution, Metering Services, SSE Metering Services, Siemens 13
  14. 14. Elements of the Power Purchase Agreement • The Power Purchase Agreement values the revenue streams for a renewable generator – Decision on type and term is usually dictated by the risk/reward appetite of the Financier • The PPA articulates the price structure for the following key elements: – Electricity (Power) – Embedded benefits – Climate Change Levy Exemption Certificates (LECs) – Renewable Obligation Certificates (ROCs) • The PPA will also document; – Payment terms, transfer of benefits, change in law, early termination, generator obligations (forecasts), new benefits, limits of liability, dispute resolution, etc.. 14
  15. 15. Electricity – Wholesale Prices • For any PPA electricity UK Wholesale annual baseload electricity price is priced/indexed to the UK Wholesale Electricity forward curve • Prices are discounted to take account of the risks associated with non-delivery of generation output (“imbalance”) and if applicable any “floor price” or structured payment terms 15
  16. 16. Electricity – Pricing Structures and Storage • The relative value of electricity changes during the day and across months/seasons depending Weekday Weekend on the supply/demand 120 balance – 100 Prices will often be in the Average Price (£/MWh) form of a Seasonal Time of 80 Day (SToD) structure • The ability to store and 60 deliver energy at a given time gives biogas a 40 considerable advantage over other renewables 20 • Storage allows 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 – Guaranteed delivery Half-Hour Period – Instant response to price triggers 16
  17. 17. Embedded Benefits • An embedded generator receives a number of benefits because it is located within a distribution system – Distribution and Transmission losses – Distribution Use of System – Transmission Use of System Charges (Triad) 70,000 5th January 2nd February 28th November – Balancing System Use of System 58,511MW 58,660MW 59,406MW 60,000 charges Peak System Demand (MW) 50,000 – Elexon Charges • Embedded benefits typically add 40,000 c.a. £1-2/MWh to the revenue 30,000 stream for a generator 20,000 • Triad can be a significant windfall 10,000 0 – 2007/2008 triad charge for the 05 05 05 05 05 06 06 06 06 06 06 06 06 06 05 05 05 05 ov ov ov ov ov b b b b n n n n n ec ec ec ec Fe Fe Fe Fe Ja Ja Ja Ja Ja South West is £23.77/kW N N N N N D D D D 03 10 17 24 31 07 14 21 28 01 08 15 22 29 06 13 20 27 17
  18. 18. 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 (has risen 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 18
  19. 19. What is a ROC and how is the value of a ROC is Derived • 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 routes – Purchase an amount of renewable output embodied in Renewable Obligation Certificates (ROCs) – Pay the Buyout Price • The value of a ROC is derived from two elements – Buyout Price and Final share of the Buyout Fund UK Demand 321,654,429 MWh Obligation 15,761,067 MWh ROCs Presented 10,855,848 Buyout £31.39 Recycle Fund £153,259,789 Recycle £14.12 ROC Value £45.51 19
  20. 20. ROC Out-turn Projections • The future value of a ROC for each Compliance Period depends on: – Size of the obligation for that year – UK electricity demand – Renewable energy output • Load factor • Weather • Build rate • Diversity • Fuel diversion – Most scenarios show that the UK is unlikely to meet it’s Renewable Obligation and therefore there will always be some recycle 20
  21. 21. The PPA - Electricity • The PPA outlines the commitment to purchase output from the generator/facility over a term • Electricity is generally purchased on a non-firm basis (i.e. variability risk priced in) • Fixed Price PPA – Multiple years (up to 3-5) are locked in at the start of the PPA – Current market prices are c.a. £45+/MWh – Prices can include embedded benefits • Long Term PPA – Can includes a floor price (c.a. £20-25/MWh) – Electricity price indexed against an industry report NOT RPI – Price set annually – Discount to index typically 10-15% 21
  22. 22. The PPA – Embedded Benefits and LECs • Embedded Benefits – For fixed price PPAs Embedded Benefits are usually included in the price – For long term PPAs or for new sites Embedded Benefits are “shared” between the Generator and Supplier • typically 90%/10% of value received – Triad Benefit is always “shared” between the Generator and Supplier • typically 90%/10% of value received • Levy Exemption Certificates (LECs) – LECs are transferred monthly by the Generator to the Supplier – Purchase price is a percentage of the prevailing value of the Climate Change Levy (CCL) – Market price typically 85-90% of CCL • c.a. £4.00/MWh 22
  23. 23. The PPA - ROCs • Route to market is dependent on the risk/reward appetite of the generator (or more often the provider of the finance) – 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. – Gives cash flow certainty but not necessarily full value • Processing – % buyout / %recycle (c.a. 90%/90%) or fixed fee taken from recycle (c.a. £2.50/ROC) – 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. 23
  24. 24. Summary - Power Purchase Agreements • The power purchase agreement encapsulates the risk/reward aspirations of the generator and are constructed accordingly • Output needs to be “sold” to a Licensed Electricity Supplier • Current market prices are very buoyant and there is a great incentive to build renewable energy generation plant – Indicatively a three year fixed price PPA will deliver c.a. £90+/MWh (assuming 1 ROC/MWh) – This equates to £350k/year of income for a 500kW AD plant (1.5MW wind turbine) exporting to the grid – Energy use on site also offers big savings as you are avoiding distribution and transmission costs • Indicative prices and structures are easy to provide and early engagement with an electricity supplier is very useful 24
  25. 25. SmartestEnergy • For indicative prices, contractual terms, further information or a general discussion please contact; • Tim Foster – Sales & Marketing Manager – 0207 4480900 – tim-foster@smartestenergy.com – www.smartestenergy.com • SmartestEnergy Informer keeps you in touch with Industry news and market information 25

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