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The numbers behind PPAs
- 1. Webinar presented on 26/06/19 hosted by: Lachlan Jacobson Senior Business Development Manager An analytical approach to renewable PPAs with the University of Melbourne The numbers behind Power Purchase Agreements Sarah Cork Senior Analyst Ernesto Llamas Gomez Graduate Student
- 2. The numbers behind Power Purchase Agreements + Page 2 Introductions → Many years of experience in finance in Australia → Rides horses in her spare time Sarah Cork Senior Analyst Lachlan Jacobson Senior Business Development Manager → 8 years of experience in energy markets → Raised in a town called “Katikati” which translates to “nibble nibble” in English. Ernesto Llamas Gomez Graduate Student → Currently studying a Masters of Energy Systems at the University of Melbourne → Born in a state called “San Luis Potosi” which looks like the outline of a dog
- 3. The numbers behind Power Purchase Agreements + Page 3 Overview 1. Overview of Power Purchase Agreements 2. Creating a natural hedge 3. The research 4. Putting it into practice 5. Questions
- 4. Making sure you always have innovative ways to access fair rates and find efficiency savings fuels us. Flow Power is a licensed retailer providing wholesale electricity. We’re reshaping how Australian businesses experience energy, so they can have real power when it comes to their energy.
- 5. The numbers behind Power Purchase Agreements + Page 5 Overview of Power Purchase Agreements
- 6. The numbers behind Power Purchase Agreements + Page 6 + Coal fired stations exiting the market + Increased reliance on gas + Historically high wholesale energy prices + Excellent solar and wind resources + 7.5GW new entrant renewable pipeline + Currently, 21% of total electricity generated from renewable sources – the highest ever level The NEM A snapshot of the changing energy market
- 7. The numbers behind Power Purchase Agreements + Page 7 Onsite generation ONSITE + Installed behind the meter on the customer site + Normally one source of generation and longer term + Offsets energy, network and environmental costs + Needs space and maintenance OFFSITE Financial Power Purchase Agreement + Direct agreement with generator + Outside retail agreement and not matched to load + Requires legal, compliance and accounting engagement + No capital investment Virtual Generation Agreement + Flow Power’s version of a PPA + Integrated into retail agreement + Offsets energy and possibly environmental costs + No capital investment + Ability to have a hybrid of wind and solar generation There’s a few options…
- 8. In 2017, Flow Power launched its Virtual Generation Agreement for businesses to buy power from large scale wind and solar farms. We now have 10 wind and solar offtake agreements across all of the mainland NEM states, totalling: 445 MW The future is renewable
- 9. The numbers behind Power Purchase Agreements + Page 9 Common customer questions What happens when the wind does blow and the sun doesn’t shine? Why should I contract a PPA through a retailer? How does this compare to a fixed price contract? What are the benefits of using a combination of wind and solar?
- 10. The numbers behind Power Purchase Agreements + Page 10 Creating a natural hedge
- 11. The numbers behind Power Purchase Agreements + Page 11 Looking at variability… 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 $0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 $160.00 $180.00 $200.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Wholesale price Consumption (MWh) 0 0.5 1 1.5 2 2.5 $0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 $160.00 $180.00 $200.00 1 2 3 4 5 6 7 8 9 101112131415161718192021222324 Wholesale price 100% Solar Financial PPA Wholesale + Exposure to variability from buying at a fixed-rate and selling at floating wholesale rate + Variability due to nature of the wholesale spot market
- 12. The numbers behind Power Purchase Agreements + Page 12 Adding more certainty to the equation 0 0.2 0.4 0.6 0.8 1 1.2 1.4 $0.00 $20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00 $160.00 $180.00 $200.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24Wholesale price VGA 50/50 Consumption (MWh) Wind and solar hybrid VGA + Connect to a fixed wind and solar rate + Balance of supply delivered through wholesale + Minimises exposure to variability
- 13. The numbers behind Power Purchase Agreements + Page 13 The research
- 14. The numbers behind Power Purchase Agreements + Page 14 Some things to keep in mind… This research: + An ‘energy only’ analysis + Excludes network and environmental charges + 100% renewable contracting + Excludes retail margins
- 15. The numbers behind Power Purchase Agreements + Page 15 The project aims Demonstrate benefits of wind and solar contracting Help customers understand the impact of volume risk Test effectiveness of renewables as natural hedge
- 16. The numbers behind Power Purchase Agreements + Page 16 The project method A VGA modelled through a stochastic model, that includes: + Wind generation + Solar generation + Market prices on the wholesale market The model was run over 1000 years of random simulation Generate random solar month Generate random wind month Generate random market month Financial calculation for the year Annual average $/MWh Start End
- 17. The numbers behind Power Purchase Agreements + Page 17 The solar results RINA Model (run over 600 years) Yearly Generation P50 (GWh) 626 627 Yearly Generation P75 (GWh) 599 594 Capacity factor P50-Average 24% 24% P50 vs random year generation in half hour intervals Jan Dec
- 18. The numbers behind Power Purchase Agreements + Page 18 The wind results Jan Dec P50 vs random year generation in half hour intervals Engineering Yield Study Model (run over 1000 years) Yearly Generation P50/Mean (GWh) 411 412 Yearly Generation P75 (GWh) 383 391 Capacity factor P50-Average 42.9% 43%
- 19. The numbers behind Power Purchase Agreements + Page 19 The market price results + Input is historic RRP from the last five years + Data is divided by half-hour, month, weekday/weekends + Exclude peaks based on price duration curves + Not a forecast model QLD market price in half hour intervals Q1 Q3 Jan Dec $/MWh
- 20. The numbers behind Power Purchase Agreements + Page 20 The market price results: Q1 Q1 – 3 day comparison $/MWh
- 21. The numbers behind Power Purchase Agreements + Page 21 The market price results: Q3 Q3 – 3 day comparison $/MWh
- 22. The numbers behind Power Purchase Agreements + Page 22 -10% 0% 10% Price variability against VGA rate The project outcomes Fixed contract rate
- 23. The numbers behind Power Purchase Agreements + Page 23 Putting it into practice
- 24. The numbers behind Power Purchase Agreements + Page 24 Julie is the Operations Manager of a large manufacturer. The company tasked her with finding an energy solution to power them with 100% renewables. But they have questions around the long-term price outcomes and the variability of renewable power. Julie reached out to Flow Power for a solution and an answer to these questions… She heard that we were working with other businesses, and had offtake with wind and solar farms across the National Electricity Market. Sept 2017 Jan 2018 Julie chooses Flow Power Julie begins looking at PPAs Flow Power runs a finds a solution that matches her business’ needs to renewables Flow Power runs a simulation on Julie’s output From model to action
- 25. The numbers behind Power Purchase Agreements + Page 25 Flow Power analysed how the business operated and used the simulation tool to compare different renewable energy strategies. Julie’s business has a relatively flat load. So, we ran our simulation on her annual business load. We then compared this to wind and solar. Based on the results, a hybrid of wind and solar would give the best outcome for the business. A hybrid solution -30% -10% 0% 10% 30% Hybrid Solar Wind
- 26. The numbers behind Power Purchase Agreements + Page 26 After modelling Julie’s business energy profile, Julie began to see the results Access to lower cost energy Support renewable energy development More certainty around price variability Case study outcome
- 27. The numbers behind Power Purchase Agreements + Page 27 Questions?
- 28. The numbers behind Power Purchase Agreements + Page 28 Next steps? Give us a call on 1300 08 06 08