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FEATURE: UK's Renewable Exchange rides wave of short-term PPA bidding interest

Highlights

91 short-term PPAs secured in January

Near-instant response to rising prices

Transition in action as FiT projects switch

London — January was a record month for the UK's Renewable Exchange. The online digital marketplace helped 91 UK generators secure short-term power purchase agreements (PPAs) following the rise in power prices in January this year.

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Installed capacities gaining PPAs ranged from 45 kW up to 40 MW across wind, solar and other renewable technologies. Some 18 different suppliers competed on tenders, with 10 successful.

"The sharp rise in prices that followed depressed conditions through most of 2020 acted as a catalyst for generators to embrace tech solutions and respond quickly to market opportunities," the exchange's chief commercial officer Chris Smith said.

With prices rising above the fixed Feed-in-Tariff export rate of GBP55/MWh, generators have been encouraged to go to market, using platforms like Renewable Exchange to reach suppliers.

"The platform values what a parties' PPA is worth over time. Those on the feed-in tariff have a choice, they can opt to stay on the government's guaranteed tariff or they can go to market if certain thresholds are triggered. At around GBP58/MWh, for instance, generators would have been notified that now might be a good time to go to tender," Smith said.

Data from the exchange showed that, when this price was achieved on Feb. 8, there were 20 tenders executed the following day (see chart).

Daily forecasts

The platform provides its generator customers with bespoke PPA price forecasts updated daily, based on an asset's position on the network and its generation profile. Generators can react to these prices at any time. These is no set-date group auction, a key differentiator to auction platforms.

"We'll calculate what a generator can expect to get from a PPA on any given day in the market, then the generator controls who, when and how long PPAs are executed for," said the exchange's sales and marketing manager Oliver Hunt. If accredited under the Renewable Obligation, generators tend to include these certificates in PPA offers, he added.

An update to the platform is set to refine the process. "Generators will be able to launch a tender in two or three clicks. They can immediately find a price they like, accept and transact," he said.

Realistic discount

The exchange's price modelling is sensitive to technology and season. It will look at forward baseload prices in the market and adjust them to, for instance, an asset's solar profile with a greater weighting for summer over winter.

"We don't say you're going to get 100% of the baseload price. With solar cannibalization, realistically you're going to see around a 4% discount to base," Smith said. Solar cannibalization refers to the downward pressure on hourly prices when solar irradiation peaks, and solar output surges.

Once a generator has half-hourly data going back a year or more the exchange can ingest that to create a better individual load profile for the asset, Hunt said.

"The spread of bids can illustrate how different suppliers have different needs. On a larger tender we expect to get upwards of 15 bids, and we've seen aggressive bidding -- over 100% of forecast price -- from reputable suppliers if they want a particular shape of asset, or they need hydro REGOs [guarantees of origin] for instance," Smith said.

Growth prospects

The platform has around 4.2 GW of capacity registered across 1,400 generators. Not all are active tenderers, some are using the site for its analytics tools and market tracking. Around 40% of assets on the platform are solar, 40% onshore wind, 10% hydro and 10% other, including anaerobic digestion and landfill gas.

"The platform concept is very different from going direct [to suppliers], and people are buying into that now. We see growth coming from assets coming to the end of longer term [15-year] PPAs," Smith said.

While subsidy-free asset owners tended to be looking for a corporate PPA, there was only a limited number of large creditworthy corporates able to enter into the kind of long-term PPAs needed to bring new assets to market, he noted.

"We have seen better value from taking mid-term [five to seven year] utility PPAs instead, providing much greater scale and efficiency for constructing new projects," Smith said.

Meanwhile Renewable Exchange is looking to expand abroad, with continental Europe in its sights.

"A lot of sites are coming off their state subsidy and have never really had a PPA, so that looks to be a really deep market for us," Smith said.

UK outlook

With between 20%-25% of asset value coming from embedded benefits, the UK's distribution-connected generators have had a tough time in recent years following the regulator's Targeted Charging Review and Significant Code Review, reforming Balancing Services use of System (BSUoS) charges.

"For maybe a quarter of our customers, BSUoS charges going was a good thing as it was a massive cost on their businesses, but for the rest it was quite a good revenue stream," Smith said.

The issue is particularly relevant for subsidy-free solar developers looking at projects in the north of England and Scotland. They face a host of network charges due to their distance from more southerly load centers, he said.

Was the recovery in UK prices this winter a blip or a sign of things to come?

"If you look back, in 2018 we had prices continually rise through the whole year in a knock-on effect from the Beast from the East," Hunt said.

That led to record prices in September and through to December, before a steady decline in 2019 and then a steep drop in 2020 caused by the pandemic.

"Prices have picked up this winter roughly to where they were at the start of 2020, so it's not a sustained high price blip -- but volatility is definitely increasing," Hunt said.

Growing doubts about the reliability of EDF's UK nuclear fleet was a significant factor that could take a lot of cheap power off the system, Smith said, offset by increased interconnection and offshore wind.

"We're still in COVID-19 and we've seen some record price spikes, so I agree we're probably going to see more extremes in volatility. If you can react quickly to that you're in a good place," he said.