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Potential Impact on PPA Contracts IWFA Workshop 24 th January 2014.

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Presentation on theme: "Potential Impact on PPA Contracts IWFA Workshop 24 th January 2014."— Presentation transcript:

1 Potential Impact on PPA Contracts IWFA Workshop 24 th January 2014

2 PPA Solutions Established in Aug 2012: Hugh Mullany and Rory Mullan - Mullany Engineering Consultancy and Mullan Grid What we have been doing? – Restructuring Supplier Lite Registrations – Reviewing PPA Options – Negotiating PPAs for Merchant, REFIT II and REFIT III – Review Terms & Conditions of PPAs – Audit and review of REFIT I PPAs – Setting up Supplier Lite Structures – Due Diligence – Review SEM prices for Generators – Registering Generators for LECs – Supporting REFIT audited year-end submissions

3 Today Current PPA Position of Generators Questions to consider to understand impact of European Target Model on Existing PPAs

4 The Power Purchase Agreement 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 Supply Co. BILL PPA

5 Types of Generator PPAs Support Scheme PPAs AER – Electric Ireland REFIT I & II -Any 3 rd Party Irish Supplier -Supplier Lite Outside Support Scheme PPAs Merchant - market pass through -3 rd Party Suppliers -Supplier Lite Fixed price with 3 rd party supplier Hybrid with 3 rd party supplier

6 Current Market Structure - SEM PPA Supply Co. BILL Single Electricity Market Supply Co. BILL GENERATIONSUPPLY POWER MONEY Intermediary Wind > 10MW Wind <10 MW Outside SEM/ Negative Demand PPA

7 SEM Payments & Charges GENERATIONSUPPLY Wind > 10MW Wind <10 MW PPA Supply Co. BILL Single Electricity Market Supply Co. BILL POWER MONEY Intermediary Payments - Energy (SMP) - Capacity Charges - Energy (SMP) - Capacity - Imperfection - Market Operators Outside SEM/ Negative Demand PPA

8 2012/13 SEM Prices SEM 2012/13 Average (/MWh) SEM 2012/13 Wind Weighted Average (/MWh) Energy - SMP Capacity Payment Capacity Charge Imperfection Charge4.7 Wind Generator > 10 MW69.3 Wind Generator < 10 MW83.2 Difference (/MWh)13.9 % Difference20%

9 Benefits of Current SEM Structure Identical generators producing the same power at the same time receive the same revenues – Shared SMP and Capacity Payment Transparency of prices Wind prices are relatively close to average prices Generators < 10 MW can register as negative demand Relatively low cost to operate in SEM

10 New Market Changes New prices: – Day Ahead – Within-Day – Balancing Supplier who has bought your power under a PPA can choose how to trade-on your power That choice impacts how much money your windfarm makes – Choice may be restricted by lack of available counterparty Identical generators producing the same power at the same time receive revenues based on their trading skill

11 Impact of new Market on Existing PPAs Support Scheme PPAs - REFIT I & II Relevant differences in REFIT I & II – The REFIT II reference and technology rate (not including balancing payment) is guaranteed and has to be passed on to the generator – Less potential for market upside in REFIT II Market Change Clauses in PPAs – Two general types of Market Change Clauses: Allow mechanical changes, for examples changes in payment timelines Reopening of price negotiations to allow both parties to maintain commercial positions If the supplier is making less money trading your power, they may – PPA permitting – seek to change the price under the PPA

12 Impact of new Market on Existing PPAs Support Scheme PPAs - REFIT I & II - continued What market prices will be utilised by CER for REFIT? – For forecasts (Day Ahead, Within Day, Balancing) – For reconciliation (REFIT currently tops up any supplier to the guaranteed rates, irrespective of how much or little money the supplier has made selling on your power) Impact on potential for upside if allowed under the PPA Impact of changes in PPA on loan agreements Should also consider impact of new market on project revenues post REFIT term

13 Impact of new Market on Existing PPAs Outside Support Scheme PPAs Merchant - market pass through – Term of current PPAs generally end in 2016 or earlier – Availability, structure and price of new PPAs post 2016?? Fixed price with 3 rd party supplier – Depends on Market Change Clauses in PPA – Need to also consider new markets impact on future project revenues PPA structure required for repowering?

14 Impact of new Market on Existing PPAs General Will there be Capacity Payments & Capacity Charges? What will market revenues be like in the European Target Model? – Will the choice of when to trade make much of a difference on revenues? Will <10MW generators still see the benefits of offsetting demand? Cost of forecasting and trading in the new Market? Implementing of priority dispatch? And of course the detail ….

15 Conclusions Know Your Own Position Too early to fully understand potential impact Need to stay informed Ensure this sector has a strong voice, individually and collectively

16 Thank You Rory Mullan


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