This is the second part of our series guiding you to get the best price PPAs every time. Here you’ll find answers to all your questions about the process for renewing or securing a new power purchase agreement and how to make sure you’re getting the best value for your power.
In Part 1, we talked about the methods for securing a PPA and how to go about receiving bids from offtakers. Read Your guide to PPAs – Part 1: How to secure the best PPA?
Whichever method of obtaining a PPA you choose, you want to go in armed with all the information possible. Today we’d like to talk about a very timely topic – timing the PPA execution process to achieve the best outcomes. As the power market has hit all-time highs across the last 12 months, we all wonder – will it happen again? While there’s no telling what the future will bring, there are a few things you can do to make sure you maximise the value of your PPA and minimise the risks associated with market volatility.
Track the market movements
If you want to make the right decisions for your asset, you must make sure that you understand how the power market movements are impacting your PPA price. This will help you choose the right time to go out to market and get the great results you want.
Granted, it is difficult to understand exactly how the wholesale prices correspond to PPA prices, as these get discounted when offtakers account for risk, different technology types, contract lengths and so on.
It’s actually one of the reasons why Renewable Exchange was developed – to help generators easily access this information in the context of their sites. We built our custom, highly-accurate model which analyses the market movements and shows you a site-specific PPA price forecast like the one below.
The PPA price forecast graph is updated every day so you can quickly understand the current trends. (This is a free feature available to all generators – just click the registration button to get started).
Don’t leave it till the last minute!
In the past, generators used to renew their contracts operationally a few months or weeks before their existing contract expired. This was very inefficient and would mean they could completely miss the ability to time the market and fix the renewal PPA when power prices were high!
Today with the improved visibility of the market movements and with the extremely high power prices, many generators choose to lock in for further out contracts and cash in on prices exceeding what they currently get.
Did you know you can tender your PPA even more than 2 years in advance of contract start date?
On the other hand, if you prefer to see what happens and leave it till just before the start date, you can. With Renewable Exchange you can launch a PPA tender and reach all the offtakers in just a few clicks, with your tender going live in the next 24 hours. However, it’s worth remembering that if you don’t lock in a price in time, you may be automatically locked in to a rolling contract with your current supplier. Make sure you leave enough time to serve notice and switch suppliers should your incumbent not offer the best price. Notice periods are usually 1 month, however it is worth checking this on your current contract.
What about market volatility…
Recently the power market has been going through real turmoil. Prices go up and down by values never seen before and traders have had to adjust their hedging strategies to account for extreme market movements. This situation is not easy for the energy suppliers who have to make sure they acquire sufficient future generation for their portfolios and account for how the markets might develop. Where the prices jump up and down a lot throughout the day and week (responding to national and global events), sometimes the traders are unable to support their positions and make confident decisions about pricing up PPAs. That’s when energy suppliers may decide to hold off on bidding.
There are many offtakers working in the PPA space in the UK and you can reach all of them while tendering through Renewable Exchange. However, at times of extreme market volatility, they may all withhold from bidding! That’s another reason why it is so important to time your tendering process well – with sufficient time to extend the bid submission window should there be an unexpected change in the market.
When the markets are very volatile, we also see greater differences between the top and bottom bids received in a tender. That’s because each energy supplier has a different methodology for calculating the discount applied to the PPA price. It’s especially important then to be able to reach as many offtakers as possible and get the complete picture of what the market can offer on your contract.
Set up price alerts
Does it make sense to check your PPA price forecast every day? It’s definitely worth knowing when prices go up. But if you have a specific price level that you’re trying to hit and a lot of time to wait around until the contract start date, the easiest thing to do is to set up a price alert. It can easily be done through our platform – just go to your site tab and click ‘edit site details’ – at the bottom of the site information screen you’ll be able to set or edit the Trigger Price (in £/MWh).
Setting up a trigger price alert will let you passively go about your business while the experts – that’s us! – are keeping an eye on everything for you. You’ll get an email when the trigger price is hit. You can then decide whether you wish to launch a PPA tender or continue to keep an eye on the market and your price forecast development.
Be reactive to price signals
Now that you can track the PPA price development and get notified when your target price could be achieved, you may decide it’s time to capture that price! You want to be able to respond to price signals to execute the best possible PPA price.
When you think the time is right to get a new PPA, it is crucial that you’re able to run a tender quickly and efficiently. Renewable Exchange lets you launch a PPA tender with a bid submission deadline even just a day in advance (rather than waiting weeks for a response) so you can capture the current price and lock it in immediately online.
What is your PPA contracting strategy? Do you actively respond to the market movements, or do you always wait till a few weeks before the renewal date?
Our PPA Experts would be happy to chat to you about the current PPA market, price developments and your assets. Get in touch with our team today or register to access the Renewable Exchange platform.
In the next episode of this series, we will look at all the elements that make up your PPA and how being flexible in your approach to PPA contracting can help you maximise results.