SmartestEnergy is launching a trigger-based managed power purchase agreement (PPA), that will allow generators to take advantage of a rising market and protects them when prices fall. With a so-called ManagedPPA, SmartestEnergy traders will monitor the market on behalf of each generator, working to agreed guidelines.When prices rise 10% above an agreed reference price it will trigger a sale, but a fall of only 5% is needed to trigger a sale.
Smartest said that in research, which included 39 generators representing 10% of the PPA market, it found that 77% believe that they could achieve better returns by actively hedging their energy but only 13% say they watch the market closely and are comfortable making decisions on when to sell. Only 13% had no plans to change their trading strategy, but 41% of those were unsure what changes to make. Only one in ten planned to increase staff numbers to manage more trading in-house.
The new Managed PPA would allow them to operate a two-year, four-season hedging strategy. In the nearest two seasons each time a trigger is hit 50% of remaining capacity is sold. However, in the two later seasons only 25% is sold at each trigger point in order to maximise the opportunity to benefit from future price growth.
Smartest Energy says this long-term hedging strategy can enable generators to achieve higher revenues than a once-a-year price fix.