Optimising PPA Revenue in the Post Energy Crisis Era

The last few years have been an eventful period for the energy industry. In the 12 months following August 2021, wholesale energy prices rose by more than 500%. Prices have since stabilised at rates closer to pre-crisis levels, but this recent volatility leaves renewable energy generators questioning when is best to renew their PPAs. This post explores the current market influences that may shape prices moving forwards. 

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What caused the price uplift in 2021-2022?

The increase in prices during the energy crisis can be primarily attributed to supply constraints brought about by the Russia-Ukraine war. A harsh winter (2021-2022) coupled with low renewable generation, global increase in demand for gas due to a heatwave, supply reduction in french nuclear output and reduced hydro generation across europe all contributed towards the energy crisis. These were a set of unique circumstances and you can read more about it in this blog looking back at 2020-2023.

What is happening with wholesale electricity prices in the UK in 2024 ? 

The downward trend began in the last quarter of 2022, but ultimately power prices fell to their lowest level (£61.38/MWh – weekly average of forward delivery contracts) in the first quarter of 2024. This was only slightly higher than the 2010s level when adjusted for inflation. The trend was the result of decreased demand as consumers used less energy as a result of the cost of living crisis, compounded by a mild winter and ample gas storage. 

Since prices hit their most recent floor in February 2024, there have been 3 minor spikes in prices and multiple factors at play:

1. Mid-April: 
   • Russian attacks on major Ukrainian energy infrastructure
   • Increased demand from Asia due to a heatwave
   • High industry growth rates in China, consequently increasing their demand for power. 
2. Mid-May: 
   • News that Russian gas exports may completely stop
   • Unplanned outages in Norwegian facilities
   • Warmer temperatures in Asia increased the demand for gas to generate electricity for cooling .
3. Early August:
   • Increasing conflict in the Middle East
   • Ukraine making military advances into Russia
   • High gas demand in Asia
   • Maintenance of facilities in Norway. 

Each of these price spikes were ultimately reversed due to a combination of:

• High aggregate gas storage levels in Europe
• Norwegian gas facilities covering any shortage of supply,
• Increased renewable energy production 
• Forecasts of warmer weather. 

These price spikes generally last for a couple of weeks before moving down again, which has kept the average of forward delivery contracts at £77.16/MWh, moving within the range of £61.38/MWh to £90.66/MWh (based on data from 1st January 2024 to 30th September 2024).

What does this mean for my PPA renewals? 

The high prices seen in 2021-2022 were a result of the energy crisis, termed by many as a black swan event, when a series of bullish factors occurred one after another. Events around the world will still have an impact on UK prices but the biggest impact will be events closer to home. 

The energy industry learnt a lot through these times, and with new controls and mitigating actions it is expected similar events can be better managed in the future. There is now more European gas extraction and renewables deployment, as efforts are being made to become more self-reliant and diversify from energy supplies in or near conflict zones. This indicates that there is a lower chance of prices going back to 2022-2023 levels in the short term, subject to anything extraordinary happening!

We understand that as a generator of energy, you will be hopeful in securing prices similar to 2022-2023, but to get back to that price level a number of crucial fundamentals need to be significantly affected, some of which have been mitigated against. We have a number of suggestions which may help you with finding the route to secure the best value from your PPA.

Suggestions: 

1. Closely watch price movements. Prices may not always respond in the same manner and degree to an event the way they have in the past. You can log in to the Renewable Exchange platform to see your latest forecast.
2. Set a trigger price on the platform that is within reach of your target price. This will alert you when your forecast reaches your desired level.
3. Be prepared to move quickly when prices are within your target to make sure you don’t miss out on a good price. You can instantly launch a tender on the Renewable Exchange platform and agree a new PPA contract within 24 hours!

Avoid:

1. Going out of contract waiting for prices to go up. This is a definitive way to lose revenue. You are exposed to negative pricing when out of contract and do not get paid for Embedded Benefits and REGOs (This may be anywhere up to £25/MWh, depending on your site) and ROCs (>£55/MWh). Instead, secure a short-term PPA.
2. Waiting until the last minute to tender. If you want maximum participation from offtakers you need to allow them enough time to price up your site, and switch over the Export MPAN if you select a different winner than your incumbent. 

Fixing your PPA price is the best way to get stable and assured revenue for power and to all embedded benefits, even if it is a short term PPA i.e. 6 months. If, within this 6 month period prices rise you can renew your next PPA immediately. Our price forecasting tool, which generates accurate forecasts, will aid you in making the best decision for your asset.

The above are Renewable Exchange PPA indices, indicating PPA power prices for the years 2025 and 2026. If you want a forecast for your site including prices for power, embedded benefits, REGOs and ROCs then register to the Renewable Exchange platform. If you are already on the platform login here.

Want to learn more tips and tricks when it comes to getting a PPA? Contact us on [email protected] and one of our PPA executives will be happy to help.