Considering going out of contract on your PPA?

Why you should carefully consider your options before going out of contract

Waiting for prices to rise while out of contract might feel like a strategic move, but in almost all cases it ends up costing more than expected.

In this article we will outline the implications, the trade-offs, and how Renewable Exchange can help you strike the right balance between flexibility and predictable revenue.

How does being out of contract affect you? 

When you’re out of contract, the electricity you export to the grid isn’t tied to an agreement, leaving you vulnerable to sharply reduced returns and even losses. It’s comparable to letting your home energy contract expire and being defaulted onto far less favorable rates. Being out of contract with some offtakers will pay you only  £0 / MWh.

Here are some important considerations:

• Lower Revenue: Without a contract, your incumbent offtaker cannot sell your power in forward markets, often paying you around 80% of the System Sell Price (SSP), depending on market conditions. While on a Variable contract, you can get up to 98.5% of SSP or day ahead price. For a 0.5 MW wind site, you can lose up to £10,717.21/year by being out of contract**
• Negative Pricing Risk: You will be exposed to market volatility, including negative pricing, where you could effectively pay to export power.
• No Embedded Benefits: Embedded benefits (up to £25/MWh in some cases) are not paid if you’re out of contract, depending on your grid connection and export profile. See your custom free forecast in the Renewable Exchange platform to see how much your site’s embedded benefits are worth.
• No REGO Payments: Renewable Energy Guarantees of Origin (REGOs), currently worth £3-£6 per certificate, won’t be paid. Finding a route to market for REGOs may be challenging outside of a contract if you did try to sell them separately.

**Below is an example using export data from a wind farm in Scotland with an export capacity of 0.5MW and the System Sell prices between December 2023 and November 2024

If the site were out of contract on a 85% SSP, it would have earned £42,841.58 in export revenue. On the other hand, on a variable contract with a 95% System Sell price and a 100% pass through of all Embedded benefits (for a high voltage site)would have earned £53,558.80 per year(not including REGOs in this case).

If this wind farm was out of contract, it would have resulted in a revenue loss of £10,717.21 per year.    

Alternative Options to Maximize Revenue While Retaining Flexibility

At Renewable Exchange, we offer tailored solutions to suit your needs, ensuring you make the most of your exported power without compromising stability or performance.

• Variable contract: 

A variable contract provides flexibility, leaving you open to market price movements (e.g. System Sell Price or Day Ahead prices). While Renewable Exchange has secured rates above 99% of System Sell Price for our clients, there is no guarantee of stable returns. Embedded benefits and REGOs are included but fluctuate based on market dynamics.

This option works well for those wanting to be open to market risk, both positive and negative.However, timing is critical, and missed opportunities can quickly erode returns. Signing a 3 month variable contract (which is the shortest contract that you can sign) enables you to react to market movements and fix for the next contract period when prices reach desired level. 

• Partial Fix

If you want some stability without giving up market exposure, a partial fix contract offers a middle ground. You lock in prices for part of your exported power, securing steady revenue, while the remaining portion remains indexed to market rates. This provides a mix of predictability and potential upside, but only a portion of your income is guaranteed.

• Fixed contract 

A fixed contract is the most reliable way to secure stable, predictable revenue over a defined term. Renewable Exchange has primarily helped generators secure these  fixed-term contracts.These contracts can range from 3 months to 10 years, but contracts of 6 to 36 months often provide the best pricing and balance of risk.

• 6-Month Term: A flexible option for generators monitoring market trends, allowing adjustment if prices rise.
• 12-Month Term: The preferred choice for most small-medium capacity generation, offering competitive pricing and greater peace of mind in an uncertain market.
• 24 or 36-Month Term: For generators seeking longer term stability.

The majority of PPAs contracted are for 12 month terms to balance risk and opportunity.

• Feed in tariff export: 

FiT-accredited sites have an additional option: exporting power on the FiT Export rate. This is a fixed price which is set by Ofgem. This has typically been at a lower rate than PPAs in recent years.

Compare your PPA forecast with your FiT Export rate via the Renewable Exchange platform.

An important consideration for sites on the FiT Export rate is that you’ll still receive REGOs, which can be sold separately. Through Renewable Exchange’s FiT+ service, we can help you maximize the value of these REGOs with a risk-free, pay-as-produced structure.

However, while FiT export payments are typically less competitive than PPAs, generators do still receive REGOs which can be sold separately.

Choosing the best route to market

Here’s a comparison of the main routes to market:

Why Choose Renewable Exchange?

With years of expertise and proven results, Renewable Exchange offers unmatched credibility in securing competitive PPAs and providing expert guidance. Whether you’re looking for long-term stability or short-term flexibility, we ensure you make informed decisions to maximise your revenue.

Join 1000’s of other generators and contact us today to explore the best contract options for your site and secure the maximum value for your energy exports.

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Glossary of Terms

1. System Sell Price (SSP):
   The price at which electricity is sold in the wholesale electricity market when there is excess supply. It is a key reference for many variable PPA contracts.
2. Day Ahead Price:
   The wholesale electricity price is set one day in advance based on forecasted demand and supply. It serves as a benchmark for some variable PPAs.
3. PPA (Power Purchase Agreement):
   A contract between a generator and an offtaker for the sale of electricity, typically specifying pricing, duration, and terms for exporting energy to the grid.
4. Offtaker:
   A company, typically an electricity supplier, that purchases power from a generator under a PPA or other contractual agreement.
5. Embedded Benefits:
   Payments or savings that generators receive for contributing to the local grid. These can include avoided transmission charges or other incentives, often dependent on location, grid connection, and export timing.
6. REGO (Renewable Energy Guarantee of Origin):
   Certificates issued for every megawatt-hour (MWh) of renewable electricity generated, used to prove the energy’s green origin. REGOs have monetary value and can be sold separately.
7. FiT (Feed-in Tariff):
   A government-backed scheme that guarantees payments to renewable energy generators for the electricity they produce and export. FiT rates are typically less competitive than PPAs in high-price markets.
8. Negative Pricing:
   A situation in the electricity market where generators must pay to export power, often due to oversupply during periods of low demand.
9. Indexed Contract:
   A contract where prices are linked to a specific market index, such as SSP or Day Ahead price, meaning revenues fluctuate with the market.
10. Fixed Contract:
    A PPA with a pre-agreed price for exported power, providing stable revenue regardless of market fluctuations over a set term.
11. Partial Fix Contract:
    A hybrid PPA where a portion of the exported power is sold at a fixed price, and the remainder is linked to market prices, combining stability with market exposure.
12. Renewable Exchange’s FiT+ Service:
    A service offered by Renewable Exchange to help FiT-accredited sites maximize the value of REGOs with risk-free, pay-as-produced structures.
13. Half-Hourly (HH) Data:
    Granular data that shows electricity generation and export in half-hour intervals. It’s used to analyze performance and calculate potential revenue under different market conditions.
14. Tender Period:
    The time frame during which a generator seeks and secures a PPA by submitting offers or bids to multiple offtakers to achieve the most competitive terms.
15. Export Metering Point:
    The specific connection point where electricity is exported to the grid, crucial for determining grid payments and embedded benefits eligibility.