Improving Power Purchase Agreements

Introduction

  • GQ is the quantity generated in the given half hour
  • PQ is the quantity consumed by the purchaser
  • CQ is the quantity supplied under the PPA
  • f is the fixed price (in £/MWh)
  • p is the market price (in £/MWh) for the given half hour, for example, that from the Great Britain imbalance market. (Note that distribution and transmission costs are typically passed on to the purchaser separately, via a utility — I have therefore ignored them in this discussion).
  • Generator receives GQ x p from the market
  • Generator receives CQ x (f-p) from the purchaser
  • Purchaser pays PQ x p to the market
  • Purchaser pays CQ x (f-p) to the generator

An alternative approach

  • Generator receives GQ x p from the market
  • Generator receives (IQ-GQ) x p from an insurer
  • Generator receives IQ x (f-p) from the the PPA purchaser
  • Purchaser pays PQ x p to the market
  • Purchaser pays IQ x (f-p) to the generator

Term risk

Credit risk

Volume risk for the purchaser

Legal/contractual risk

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Fascinated by what makes societies and markets work, especially in sustainable energy. http://guylipman.com. Views not necessarily reflect those of my employer.

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Guy Lipman

Guy Lipman

Fascinated by what makes societies and markets work, especially in sustainable energy. http://guylipman.com. Views not necessarily reflect those of my employer.

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