1. PPA’s What are the alternatives for Renewable
projects?
By Warwick Forster
Energy Markets Manager
Union Fenosa Wind Australia
23rd July 2014
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2. PPA’s
Power Purchase Agreements (PPA’s) have been the traditional
source of revenue for renewable energy projects as they
provide long term pricing certainty and hence reasonable
revenue certainty.
PPA’s were traditionally signed with government owned
instrumentalities.
Since energy market deregulation in the late 1990’s, PPA’s
usually signed with energy retailers.
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3. Contracted Australian wind farms
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AGL, 963.9, 30%
Origin, 566.1, 18%
Energy Australia,
177, 6%
Merchant, 457,
14%
Unknown, 232.7,
7%
Hydro
Tasmania,
286, 9%
Synergy,
286, 9%
Verve, 35.4, 1%
Alinta, 89.1, 3%
Aurora Energy, 75,
2%
Int power, 46, 1%
MW Capacity
AGL
Origin
Energy
Australia
Merchant
Unknown
Hydro
Tasmania
Synergy
Verve
*Data from various sources including
Websites, annual reports etc.
4. Alternatives to PPA’s
Merchant operations:
Spot market revenue only – undesirable and risky.
Hedged either by contracts or retailing – difficult to
establish without a portfolio of projects and requires a
sophisticated trading/risk management function .
Feed-in-Tariff (FiT) opportunities - such as the ACT
driven by 90% renewables plan which is rare in
offering a FiT for large scale projects .
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5. Merchant Operation
A limited number of projects have utilised merchant
operations to establish a project.
Riskier than a PPA but potentially a higher return.
Requires expected risk adjusted price to be higher and usually
lower levels of finance.
Take spot revenues or use contracting.
Current wholesale market contract prices:
Merchant Price = LGC Price + Wholesale Price +/- Risk premium
NSW ~ $34.47 + $32.40 = $66.87 +/- Risk premium
VIC ~ $30.28 + $32.40 = $62.68 +/- Risk premium
SA ~ $42.58+ $32.40 = $74.98 +/- Risk premium
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* Cal 2015 prices as at 18th July from GFI
6. Merchant Operation-risk premium
Risk premium/discount is potentially significant and can be
negative or positive.
Difficult to reliably predict but observations are usually borne
out about spot prices based upon correlation of wind output
with demand (positive or negative) as well as the level of low
SRMC electricity generators such as solar, wind and coal fired.
Historically, SA shows a discount with NSW a premium, whilst
Victoria is more neutral – many wind farms in a region can
influence spot price to the detriment of financial returns for
all generators.
Factoring in risk premium/discount may negate higher
contract prices.
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7. ACT Government 90% Renewables
ACT government released Climate Change Action Plan 2 in
October 2012.*
Comprehensive plan to reduce emissions through a
combination of energy efficiency, waste management
strategy, transport utilisation and energy purchases from
large scale renewable projects.
Goal of 90% renewable power by 2020.
Reverse Auction process was used to award 40MW of solar
20 MW Royalla (FRV)
13MW Zhenfa Canberra Solar Farm One – Mugga Lane
7MW Elementus Onesun Capital solar farm at Coree 30km west of
Canberra
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*http://www.environment.act.gov.au/__data/assets/pdf_file/0006/581136/AP2_
Sept12_PRINT_NO_CROPS_SML.pdf
8. ACT Government 90% Renewables
ACT announced first wind reverse auction for 200MW of wind
farm projects on March 12, 2014.
Original date for tenders was 10th of July and has been put
back to 13th of August 2014…Final awarding of tenders still
planned for December 2014.
A second future tender of around 180MW is proposed “in a
few years”.
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9. ACT Government Reverse Auction - Wind farms
No single proponent will be awarded more than 100MW.
Solely wind only i.e. no mixed source.
20 year FiT, with a nominal price fixed for the duration of the
project – will possibly exist post RET.
Works just like a PPA, with a contract for difference payment
made between electricity spot price and contract price.
REC’s transferred to government each month for acquittal
against the territory's plan.
Project can potentially be anywhere in the NEM.
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10. ACT Government Reverse Auction - Wind farms
Criteria for awarding tender not based solely upon price,
rather a combination of:
Price
Benefits for the ACT economy
Local community engagement
Minimal requirement for ACT government guarantee
Project management & risk management plan
Projects are favoured within the Australian Capital Region (ACR),
which is defined as the ACT & surrounding local government regions.
For projects in the NEM but outside the ACR, their ACT business plan
must be in the top 20% of all proposals to be included in the 600MW
shortlist.
Price is an objective criteria, nominal price assessed rather than the
net cost to ACT consumers i.e. lower PPA price and higher spot price
can mean lower cost to ACT community but this is not assessed.
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11. ACT Government Reverse Auction - Wind farms
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Wind Farm Region
Premium
(discount)
Wind Farm Region
Premium
(discount)
Crookwell 2 (est) NSW $13.23 Woolnorth Tasmania -$2.23
Capital NSW $11.04 Mt Millar South Australia -$3.01
Cullerin Range NSW $4.17 Wattle Point South Australia -$6.17
Challicum Hills Victoria -$0.84 Cathedral Rocks South Australia -$6.77
Portland Victoria -$1.30 Lake Bonney South Australia -$7.30
Yambuk Victoria -$1.45 Starfish Hill South Australia -$7.45
Waubra Victoria -$1.48 Canunda South Australia -$7.77
Spot market Premium: August 2009 – December 2012
*Data from AEMO MMS & micrositing study
12. ACT Government Reverse Auction - Wind farms
ACT plan has received much national attention as its effectively
the only opportunity in the near term means will likely get
competitive offers.
Delay in tender caused by issues around the size if proposed
guarantee, which was viewed as unsatisfactory by some financiers
with maximum potential guarantee increased from $0.5m/MW to
$1.23m/MW…my banking colleagues can best expand on this this.
Ultimately a question of perception of political risk in the ACT
and the risk of legislation being repealed or contract revoked – 1
year into a 4 year fixed term, high levels of community support
and with less political opposition than exists federally.
Nonetheless, a good example of how to develop a greater share
of large scale renewables at a competitive price through a tender.
Does not impact RET as the scheme is additional.
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13. ACT Government Reverse Auction - Wind farms
Key factors
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Item Positive Negative
Fixed price Long term certainty.
Cost to consumers will
fall in real terms.
Potentially, ACT will
receive money in later
years.
ACT pays more now.
Difficult for
proponents to
accurately forecast
CPI and future costs.
100MW Cap Less concentration of
risk in a single
project.
Encourages diversity.
Some projects will be
ineligible.
Price may be higher.
Assessed on Nominal
PPA price
Objective measure not
reliant upon forecasts
Overlooks potential
savings.
200MW total auction Fits ACT total. Difficult to find
economic projects.
14. Renewable Energy Target
At the moment there are approximately 28m LGC’s in the
registry.
Production at the moment is around 10 - 12m per annum.
Following chart predicts shortfall in 2017 i.e. 2018 Acquittal.
Retailers can likely wait until late 2015 or 2016 before making
a commitment.
Possible that liable entities wait until 2016 for election and
another RET review to argue for delay…by then it may likely
be difficult to achieve 2020 target.
It’s positive that the target has been kept but the surplus,
withdrawal of the Carbon Price and uncertainty post 2030
continue to make large scale renewable investment
challenging.
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