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
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3. Overview
• Connecting to the Grid
– The Regulated Process
– Connection Offers
– Typical Technical Issues
• Metering
• Power Purchase Arrangements
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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
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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
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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
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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
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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
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10. Voltage Rise
Power Flow
Voltage
Max
No Generation Distance
Min
Summer
Voltage
Winter
Max
Generation Distance
Min
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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
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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!
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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
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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..
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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
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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
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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
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South West is £23.77/kW
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03
10
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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
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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
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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
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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%
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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
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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.
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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
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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
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