Delivering revenue for renewable assets in 2020’s energy market
By Kristina Rabecaite, Business Development Manager, Limejump
It might seem a long time since we gathered with our colleagues for a conference but it was just the start of March – in pre-lockdown Britain – when I took to the stage at the Energy and Rural Business show.
As it may be some time until we can meet up in person again or join together for engaging conferences, I’m eager to share my top insights from the show in case they are of value for you and your operations during this time.
The year-on-year growth of this particular conference is testament to how far the agricultural renewable market has come since we started talking about wind as the new ‘cash crop’ a decade-or-so ago.
Renewable energy assets crept into Britain’s farms against a backdrop of lucrative subsidies designed to stimulate emerging zero carbon generation methods. These subsidies led to a glut of lucrative installations across the country and a valuable and welcome addition to renewable generation figures.
As we enter the new decade, renewable assets are not just for the early pioneers, but wind, solar and anaerobic digestion are now commonplace. The subsidy landscape has altered drastically, but with the benefits of on-site generation still attractive, together with the ability to sell surplus, this market is still very much open for business.
What changes did the last year bring?
Whenever I’m speaking at an annual conference, I always like to take a step back and consider the changes that have taken place since the last one.
Critically, the last year has seen power prices on a downward trend, but with a few notable spikes.
We are now starting to see a lot of short-term volatility. Three years ago power prices would have hardly moved on day to day basis and generally prices would be fairly flat throughout the day. Now significant daily spikes are becoming a lot more common, and this is in addition to seasonal changes.
This is best illustrated with an example from last September. There were a couple of days (the 13th of September in particularly jumps out at me) where prices picked up by over £5 per MWh in one day. Locking in your PPA at a peak of that day would have made extra £145k for 1 MW of baseload. That’s not an amount to be sniffed at and shows that generators have to act fast to take advantage of market volatility, because even if the price picks up one day there is no guarantee it will last till the next.
How can we continue to bring renewable revenue to British farms via PPAs?
This new pricing landscape has led to distinct approaches when it comes to PPA: sharper price lock in for fixed PPAs and a new ‘track and trade’ method.
Given the huge revenue advantages in locking in on the ‘right day’ (remember the £145k example above) we are seeing generators move away from their old way of tendering for a Fixed PPA with lengthy decision times that ultimately lead to missed revenues.
For generators in this category, we take care never to expose them on a day ahead market and make sure they are fixed ahead at all times, but we track the market 3 to 6 months in advance to make sure that we’ve given them a chance to lock in at a peak, rather than a last minute lower price after a tender.
This replaces the old-style approach of a generator (or their broker) setting a tender day and inviting 10+ different suppliers to respond with a power price. Under this approach, generators got the best supplier-price but it was only the best priced supplier for that day. Often this means the difference of an extra £0.1 because most supplier tend to be pretty close together in pricing on a fixed price offer. What this allow generators to benefit from is that volatility we have been speaking about. By setting a specific day to make a decision on, they could have missed out on a market spike the day before, which could have gained them an extra £2 per MWh. What that means, is that suppliers no longer compete on price, but the service they provide.
To provide a new modern way of locking in a PPA at the best possible price – no matter your risk appetite – at Limejump, we have developed a flexible PPA that tracks the market and makes use of Artificial Intelligence (AI) and Machine Learning technologies to deliver optimal revenue return at all stages of the contract – much like an advanced tracker mortgage. This harnesses the volatility and makes it work for the operator, rather than against.
The new landscape is fast and benefits from automation blended with intelligence and experience. Fundamentally, the market has sped up and we need to act near instantaneously.
The most crucial element of maximising revenue in a flexible PPA comes from WHEN power prices are locked in and from our perspective, this is where our tranched contractual signup is designed to reduce risk exposure and we have a three step approach to seeking out every pound of value we can from agricultural renewable assets.
Step 1 – pre-contract: Step one happens before we even come to the contract start date for any new (or renewing) PPA client. We use current market data to sit down with clients and agree what the price floors and ceilings will be. This takes out the old-style back-and-forth approach that now risks missing optimum pricing. Then in the months prior to the start date, we analyse the market (including wind data) to identify and patterns that guide our approach.
Step 2 – contract kick-off: Using the market intelligence gathered we respond to spikes in price to lock in a contract timeframe, using the market pricing signals to choose what suits the customer best (i.e. it might be three or six months’ worth of the contract – or in some cases we might want to lock a particularly high price in for three years). This allows us to work with, not against, market fluctuation and safeguards against clients being locked into contracts that are lower than current market value.
Step 3 – ongoing: as the contract develops, this process is repeated with careful analysis and support at each step to ensure the best possible asset value is realised. Crucially, even after we have lock in for a period of time, we continue tracking the market until we hit a suitable spike that can be used to locked in the remaining months in the contract.
This three-step process set Limejump apart from other contractual agreements. It is more akin to the trading of physical commodities and is especially popular with solar, hydro and battery clients as well as those whose generation asset is not their core business with agriculture being a standout sector for these PPAs. Ultimately, many are already trading crops in a commoditised methodology.
We are developing different PPA structures to constantly adapt to changing market conditions and to suit different customer needs, however there is a common theme. Watching the market and locking in your power price at the right time is essential no matter what PPA structure you are locking into.
Next up on the blog: Jason Stocks, Head of Demand & Flexible Generation, will share highlights from his talk at the Energy & Rural Business Show.
Kristina Rabecaite joined Limejump in 2015, where just 15 people were in the company. Her keen eye for market trends has supported the developers of the Power origination, PPA strategy and PPA product development areas she Leeds in her role as Business Development Manager. Playing an integral part in bringing Limejump’s portfolio to more than 1GW, she has signed over 750MW of renewable capacity in the past 4 years. She was named Woman of the Year at ‘Solar & Storage Live’ in 2019. https://www.linkedin.com/in/kristina-rabecaite-14117662/