Innovation in Corporate Renewable PPAs
Webinar on 19th December, 3pm CET Agenda for today
1 Welcome and introduction to the RE-Source Platform Bruce Douglas, Coordinator, RE-Source Platform
2 Accelerating the adoption of corporate renewable Power Purchase Agreements Lucy Hunt, Renewable Energy Associate, WBCSD
3 Corporate PPAs – types, risks and common approaches Andrew Hedges, Partner, Norton Rose Fulbright
Followed by Q&A
4 A lender’s view on Corporate PPAs Marjella de Vries, Vice President Project Finance, Rabobank
Followed by Q&A Questions & Answers - Instructions Do you have any questions to the presenters? Please send them during the webinar through the questions function in the control panel.
1 Search for the control panel. If it is not visible, use the hide/show button to display it.
2 Type in the question box and click on the Send button. A selection of questions will be answered at the end of each presentation. RE-Source Platform
• Influence EU and national renewable energy and energy market legislation to advance corporate sourcing
• Raise awareness and educate all stakeholders on the advantages of corporate sourcing renewable energy.
• Provide business opportunities: connecting corporate renewable energy buyers and sellers
“Move from 100 buyers to 100,000” #100to100k RE-Source Platform
AnnualAnnual volume PPA (GW) volumes in Europe 1.9
1.1 1.0 1.1 0.2 0.8 0.3 0.4 0.1 0.2 0.5 0.3 0.2 0.5 0.2 0.5 0.1 0.2 0.1 0.2 0.2 0.1 0.2 0.2 0.1 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Denmark United Kingdom Germany Netherlands Sweden Belgium Finland Italy Iceland Norway Ireland
Official data partner: RE-Source Declaration
Over 100 organisations call on policy makers to:
• Remove barriers • Provide clarity on Guarantees of Origin • Encourage cross-border transactions • Enable a wide variety of models
#100to100k Task Forces
1. Policy and lobbying: • National Energy and Climate Plans (NECPs) • Market Design • Implementation of RED II 2. Simplification and innovation of transactions 3. Cross border PPAs 4. Heating, cooling and transport Title with 2 lines of text Image background
Accelerating the adoption of corporate renewable Power xPurchase Agreements x Lucy Hunt, Renewable Energy Associate, WBCSD Who we are
WBCSD is a global, CEO-led organization of 200 forward thinking businesses working together to accelerate the transition to a sustainable world.
World Business Council for Sustainable Development GLOBAL UNIQUE BUSINESS PLATFORM Our 200 members span across the Our members enjoy access to a diverse business globe and all economic sectors. community across sectors and a safe space to exchange ideas, know - how and information with Our mission is to accelerate We have 60+ Global Network partners who peers. Together, we develop business solutions the transition to a sustainable engage with sustainable business at a to global challenges that no single company can national level. tackle alone. world by making more sustainable business more successful.
Our vision is to create a world where more than nine billion CEO-LED MARKET-DRIVEN people are all living well and within WBCSD is oriented towards collective We consider sustainable development as a strategic the boundaries of our planet, by action and led by our member company business opportunity. We strive to make more CEOs. member companies more competitive. 2050. The REscale project
Ambition Action
Renewable energy is reliable and Leading companies representing the full increasingly competitive and we renewable supply chain are working believe that 3.5 TW of capacity can be together on solutions to accelerate the deployed before 2025. deployment of renewables beyond average growth and transition to a low- carbon electricity system. REscale: Corporate Renewable PPA Forum
The Forum increases understanding and use of corporate renewable PPAs – globally.
The Forum consists of: The Forum’s activities:
Buyers incl. Lawyers, accounting Global topical deep-dives: energy-intensive industry firms, investors Multi-technology PPAs, Cross-border PPAs
Country deep-dives: India, Argentina, EU, Brazil
Corporate Renewable Renewable PPA Forum Regulators and Communication work developers policy makers / utilities
Read more: https://www.wbcsd.org/Programs/Climate-and-Energy/Energy/REscale/Corporate- renewable-power-purchase-agreements-PPAs Innovation in PPA structures
The objective of the guidance is to help power-purchasing companies overcome challenges and set up innovative, successful renewable PPAs. The publication is aimed at energy procurement and sustainability teams.
1 Main PPA structures used today
2 Main features & risks in selected markets
3 Challenges & innovative market developments Contact
Lucy Hunt Associate, REscale
Mobile: +41 (0)79 5115 039 Main: +41 (0)22 839 3105 Corporate PPAs – types, risks and common approaches
Andrew Hedges [email protected] Norton Rose Fulbright LLP 19 December 2018 Basis for views…
• Long history with corporate PPAs • Teams in US, Australia, UK, Netherlands, France, Germany, Italy involved in current work on corporate PPAs – Australian team just launched Guide to Corporate Power Purchase Agreements: Helping energy buyers to make the most of the growing renewable energy opportunity - with Energetics Australia in partnership with WWF’s Renewable Energy Buyers Forum • Innovative deals: – UK subsidy free corporate PPA using new physically sleeved approach – Synthetic PPA for subsidy free UK solar – Proxy revenue swaps in the US and Australia – Scandinavian baseload PPAs for subsidy free wind
17 Virtual / Synthetic vs Physically sleeved PPAs
1. Buyer agrees a PPA price (strike price) with the 1. Buyer agrees a PPA price with developer to developer and a price for renewable certificates; purchase the electricity it will generate plus 2. Developer delivers renewable energy to the grid renewable certificates; and is paid by a utility a variable spot price; 2. Buyer enters into a back-to-back PPA to sell the 3. Developer and buyer settle the difference electricity to the utility between the variable market price and the strike 3. Generator will transfer the electricity to the utility, price and the developer delivers renewable which will sleeve / wheel it through the grid to certificates to the buyer; buyer sites 4. Buyer continues to buy its power from the utility, which is now (subject to basis risk) hedged by the synthetic PPA 18 Common risks
Development • Risk that generation facility is not constructed and commissioned on a timely basis or at all Performance • Risk that facility does not perform as expected • For eg: fails to achieve a minimum level of mechanical availability, meets its warranted power curve (wind) or performance ratio (solar) Volume • Intermittent technologies: risk re uncertainty of output of the facility over a period of time Shape / Profile • Risk that hour-to-hour output will be variable depending on relevant conditions such as wind or irradiation, even if the overall volume of an intermittent technology over a sufficient period of time can be forecast
19 Practice across different markets - US, Aust, UK, Netherlands, India Development • Across markets, common to see target milestone dates for completion. • Delay damages after a buffer period have been included on many deals (except UK). Australia relatively strong in approach to limited excuse events for breach of longstop dates. Performance • Minimum capacity availability requirements common for intermittent technologies • Breach can lead to shortfall payments and potentially termination Volume • Evidence from across markets that corporates are increasingly seeking minimum generation volumes as some corporate buyers look to pass volume variability risk back to developers Shape / Profile • Less clarity on common positions. For example, UK physically sleeved deals tended to leave to buyer to manage with its utility but this is changing
20 Volume Risk Innovation • Emergence of Proxy Revenue Swaps in US, now moving into Australia and (parts of) Europe • Simple example: • Contract–for-differences on annual revenue of a renewable energy project • Project receives fixed revenue ($/year, not $/MWh) and pays variable proxy revenue • Provides cash-flow and revenue certainty to the project by removing weather and price risk (for a cost) • Corporate PPA can provide mechanism for PRS provider to back off long term price risk
21 Volume Risk Innovation
• Proxy Revenue Swaps not the only solution
• Sellers are offering baseload PPA to corporate buyers for intermittent assets • For physical PPA, usually seller out-sources volume risk to trader to manage • Common topics for discussion are when baseload commitment adjusted (for example scope of force majeure or grid relief)
• Others discussing multi-technology PPAs as alternative
22 Q&A A lender’s view on Corporate PPAs Marjella de Vries - Rabobank Project financing and Corporate PPAs
Now that subsidies are phasing out, corporate PPAs become the backbone of the financing.
Project Finance • Project Finance requires long term stable, No assets in place at predictable cash flows: banks and investors take time of financing a view on volumes and prices for electricity and associated benefits sold • PPAs typically provide route to market for projects to sell production and associated benefits (Usually) Non-recourse • Clear allocation of responsibilities and risks (incl. balancing) between project and off-taker
Only the promise of future revenues (‘cashflows’) Bankability of corporate PPAs
Financing parties appetite for transactions with corporate PPAs very much depends on the (remaining) exposure to spot price and volume risk.
Price
If
combined CfD Volume with Tenor, Counterparty Risk & Credit Support
Tenor Tenor of the corporate PPA is generally 10 – 20 years: fixed price vs. tenor considerations. Debt tenor vs. PPA tenor.
Counterparty Risk • Rated vs. unrated entities • Top holding vs. subsidiary
Credit Support • Parent company guarantee, bank guarantee and/or letter of credit • Corporate offtaker sometimes also asks for credit support. If so, the level of credit support usually mirrors the one provided by the offtaker and should be consistent wih the potential total loss that could arise from termination of the corporate PPA (i.e. a declining profile along the way). Volume and Profile/Shape risk
Volume risk Profile/Shape risk • Risk that due to the intermittent character • Risk that hour-to-hour output will be of the technology the fixed volume variable depending on relevant conditions obligation over a longer period of time (e.g. such as wind or irradiation, even if the a year) will not be met: overall volume of an intermittent • “As produced PPA” : volume risk is not technology over a longer period of time applicable to generator and lender(s) can be forecasted. because no fixed volume obligation • “As produced PPA” – not applicable • “Baseload PPA” : volume risk is relevant because no hourly fixed volume for generator and lender(s). The obligation contracted volume is generally set at 60 - • “Baseload PPA” – fully allocated to 70% of P50 to ensure the fixed volume generator. obligation will always be met. Summary - main bankability considerations
Main considerations for lenders Explanation
Contractual Tenor Debt tenor depends on PPA tenor Counterparty risk Credit strength, track record and reliability Support package depends on strength offtaker, rating triggers included in Credit support contracts Merchant price risk versus fixed Majority of merchant price risk to be locked-in price Volume risk Hedge percentages up to 70% in case of baseload offtake Demand profile is baseload while generation is variable. Committing to hour- Profile/shape risk to-hour-output for a intermittent technology is difficult Termination conditions and calculation of termination payments are key Terminations provisions credit points Suspension of obligations during force majeure period of 6-12 months, Force majeure provisions thereafter yes/no termination payment
Security Lenders take security over project assets
In a default scenario, lenders would like to have the right to step into the Step-in rights for lenders shoes of the generator to keep the project alive Contact details Marjella de Vries Associate Director – Rabobank Project Finance Telephone: +31 (0)30 71 21359
E-mail: [email protected] Q&A Open discussion and questions
https://www.wbcsd.org/Programs/Climate-and-Energy/Energy/REscale/Resources/Innovation-in- Power-Purchase-Agreement-Structures Webinar: On-site renewables 16 January 2019 Register here: https://register.gotowebinar.com/register/4527878339002988803