In September, community energy company Egni Co-op caused a stir when it actioned new power purchase agreements (PPAs) for 25 solar farms simultaneously, using Renewable Exchange’s online platform. In October, PPAs for 157MW of renewable power were successfully executed through the platform. RE chief executive Robert Ogden says that is just the start of an easier and more equitable process for renewable energy sellers. New Power spoke to him about enabling the renewable energy market to grow.
Renewable Exchange (RE) founder and chief executive Robert Ogden says he wants even the smallest local energy generators to be ready for a subsidy-free world. That means one where they can capture value from their plants themselves, and be able to sell their power with as much information as their buyers, who are often much larger and better resourced.
Ogden says that small operators are at a disadvantage because they “don’t know what the price of electricity is, don’t understand about embedded benefits – they barely know the value of their Renewables Obligation Certificates (ROCs).
“We saw the opportunity to build some really awesome tech and push it out to the market and let people have that information and use it to contract very easily.”
The RE platform brings together sellers with energy suppliers who can contract PPAs. There are about 30 suppliers (although there are some other potential buyers who may want PPAs, such as aggregators or corporates, “to directly contract a PPA you need a supply licence to register the meters”). The platform is now used by nearly 5GW of generators with all types of renewables, with wind and solar the largest groups, followed by hydro.
Smoothing the way
Ogden explains: “Our concept is to create an ‘end to end’ solution for a generator to execute and manage their PPA digitally”.
In a traditional tender, a generator can ring round suppliers and get quotes back, but getting ‘like for like’ offers is very difficult and there are different charges in different contracts. Ogden says, “We have removed all those issues. The utilities will bid through the platform, the platform analyses every bid and presents the results back to generators so they can make a really informed decision.”
The idea was to remove the information disadvantage between generator and offtaker, “so we felt very strongly we should provide access free of charge to generators, so they can come onto the platform free of charge, track renewal prices, understand their benefits, see what is going on.” He adds, “we have a very good feedback loop on what you will get if you go to market. … Generators can access that.” RE earns its fee when participants run a tender.
At first, RE executed the PPA on the standard terms of the winning supplier. That is typical in the market, but it was also slow and had a risk, even for the supplier whose PPA offer has been accepted. Ogden explains, “they can’t hedge that power until the generator has also signed the PPA – they have to produce a document, get it signed, send it back – it can take an hour, and in a volatile market like it is now that can massively impact the price, and the supplier either pulls the price, because the market has changed too much, or the generator loses out on some value.”
to produce a document, get it signed, send it back – can take an hour, and in a volatile market … that can massively impact the price
The answer was the so-called ‘Lightning PPA’ – a standard contract that allows for immediate, one-click execution. It sounds simple, but it has been a two-year project for RE, which built standardised documentation in consultation with law firm TLT. It resulted in “a neutral contract that is supposed not to be favourable to generators or offtakers – just manage the balance of risks appropriately between supplier and generators.” It was finalised after consultation with the exchange users.
Although parties are not required to take the Lightning option Ogden says he was surprised by its enthusiastic reception. He says, “We built it mainly for the generators, but we didn’t realise how good it would be for the buy side. They love it because it is so much easier for them. One click and they can send a notice to the trader, who hedges the position and it is ‘job done’.” There is no need, he says, to chase colleagues as the time approaches when the trading window closes, so they will have to refresh the price overnight.
The two year investment was “well worth the time, because now every PPA that comes through has the same set of terms, instant execution and everything is really easy for them”.
How have generators using RE been affected by the ongoing energy crisis and suppliers closing? In fact, very few of the small suppliers manage their hedge positions with PPAs, says Ogden. “A handful of generators [contracted with] one of the suppliers that failed, but the way we built RE was that you could tender whenever you like and as flexibly as you like. So within 24 hours of that failure notice coming in the generator launched a new tender on the platform, got the results back, locked in with a new [PPA] provider and they had switched”. Because wholesale prices have risen so much they have benefitted, because they have signed PPAs at better prices, he says.
Because wholesale prices have risen so much … they have signed new PPAs at better price
The risk of contracting with a small supplier remains with the generator, “but we provide the full results of any tender to a generator and they can see who was second, third, etc. They might not like or know those names. They will get down to companies they are more comfortable with. That’s not our choice.” RE’s role is to be the information hub.
Preparing for the surge
RE has just launched a platform in Germany – it did its first German PPA a couple of weeks ago for a 4MW wind farm – and it plans to take the same approach as it does in the UK.
The German market is a target for RE – and an interesting forerunner for the UK – because “There are a huge amount of assets in Germany just rolling off state subsidies.”
German assets that were built from 2000 onwards under 20-year feed-in tariffs (FITs) – extended by a year due to Covid – are about to be thrown into the market with usually at least another five years of useful life. They need an easy route to market and it is “a huge amount of assets for us to go at”, says Ogden.
He sees a similar surge coming in the UK, but “we probably have another six or seven years before the bulk of the UK projects start coming off of those subsidy schemes.”
In the meantime, where is the action in the UK? I ask about corporate PPAs, which have had a lot of publicity. But Ogden says that despite “a lot of noise” and people looking for a corporate PPA “you just don’t need them any more.” There are very few corporate PPAs because they are less attractive than utility buyers.
He says, “The one thing that used to hold back utility PPAs was the term – you couldn’t get a ten-year fix from a utility. But that has completely changed. There are five year, ten year fixes, they are super-flexible and the credit rating is considerably better than almost every corporate”.
He notes that a lot of subsidy-free wind and solar projects in the financing phase are benefitting from the current price rises. “At these kind of prices they are able to build out next year, capture some of the current uplift in the market, fix out for five or seven or ten years and bring new capacity to market – which is exactly what we are here for.”
Despite a lot of noise and people looking for a corporate PPA you just don’t need them any more.
He says the rising power price that has disadvantaged consumers has brought investment decisions forward, because, “Lots of developers have GW of pipelines that are almost shovel ready… They were trying to make it work at £40-£50/MWh on a seven year contract and all of a sudden you can get £60/MWh on a 5-10 year contract. It completely moves the needle”.
The shift is such that Ogden anticipates a capacity issue in the ‘engineer, procure, construct’ phase for those projects – a problem he blames on the unexpected withdrawal of FITs. “If we could have had a more managed transition away from subsidies, and not had a hiatus four or five years with nothing being built, you would have been able to leverage the development capabilities,” which, as he says, was the whole point of the subsidies.
Even government subsidy as low as 10% was relatively comfortable for banks as they were funding a ‘FIT project’, he says, but “pulling the plug shook the market and all of a sudden the banks had to take a different view.”
A liquid market
Another way for banks to have confidence is a liquid market and after the post-FIT hiatus Ogden says, “That is absolutely where we are now.” Back in 2012 banks insisted on a 20-year PPA because they wanted a guaranteed offtaker for the electricity – and at the time of the ‘big six’ there were fewer offtakers, and they were vertically integrated.
Now “the market is a completely different beast. There is never going to be an issue with getting a PPA, there is always a price and always an offtaker,” on one to three year contracts and “plenty of options” up to ten years. They are all being contracted through the platform, Ogden says proudly – it executed 70 PPAs the week before we speak and 700 contracts so far this year.
To show comparable offers to PPA sellers RE has complex data to analyse. It is clearly a process that should become much easier and more reliable if the industry’s ‘open data’ initiatives succeed. I ask what would be help and Ogden asks for more data.
He says the GB energy market “is back in the late 90s on access to data and frameworks for data structure are arcane.” Progress is being made, but he pleads for standardised APIs, open access to data – “all this is going to help us.”
First, he says “There is no reason a person has to sit and enter the PPA prices into our tool”. That should be ‘computer to computer’ with an API getting the prices back.
Second, “we are standardising the process, but the data is the next step.” He wants “meter technical details, maybe historical production data, asset information, all of that. If we can just build up a really good registry of all of this and open that up to the market, the market can take that and build the tools that we need to reduce operational costs”. That will improve returns on renewable energy projects and ultimately bring more projects to market.
Open data is not just about how it is exchanged, Ogden notes. DNOs all have different charging methodologies and different charging statements. “They are all in excel files, they are not consumable by machine interfaces – you have to do a lot of human manipulation of that data before you can injest it.
“A lot of resource our side goes into bringing in the line loss factor, the DUOS charging statements, analysing all that data, keeping it up to date and setting up the pricing engine.”
There is absolutely no reason why the Renewables Obligation and FITs can’t be administered from the half-hourly data that flows into industry bodies
Talking about other places in the system where the ‘pdf approach’ is still a barrier, he refers to Ofgem programmes: “there is absolutely no reason why the Renewables Obligation and FITs can’t be administered from the half-hourly data that flows into industry bodies and is settled by that data that flows to Elexon. It could flow directly into Ofgem’s systems and the ROCs and the REGOs are just issued. Instead you have teams of people writing it in and trying to read tariff codes and doing all this manual work to administer these schemes.”
As regards industry bodies in general, he says “National Grid has been pretty good at how they do this, with APIs and standardised data transfer, but the DNOs are far behind.”
What about central bodies through which industry data flows? He gives them a mixed scorecard, saying they could all do more, and although they are offering data back to the industry some have been too expensive to engage with.
Taking the platform elsewhere
Low-cost platforms are needed for a variety of new marketplaces in the energy sector that have been held up by outdated structures.
Flexibility markets are an example that Ogden sees as “a massive opportunity and from what I have seen, the data structure and the way the data has been made available has been better” in those new markets.
He says in developing markets like those for local flexibility, system operators’ priority should be “standardise data and make it easily consumable. Don’t think about pushing data out for people to consume … think about pushing data out for machines to consume. That’s the future. That enables companies like us to build automated tools and efficiencies and contractual relationships.”
Don’t think about pushing data out for people to consume … think about pushing data out for machines to consume. That’s the future.
I ask whether RE can adapt its platform for coming markets, like flexibility. Ogden says, “Absolutely”.
It is partly from necessity: “customers are getting more sophisticated; the infrastructure funds are investing in a mix that includes flexibility assets and batteries. … we have to pick up the pace and evolve what we provide to them. They do need different routes to market for flexibility assets and there are all kinds of things that could be in infrastructure portfolios in the future like batteries or distributed EVs.” PPAs would not work for storage, he says. Flexibility, “is a different model and a different route to market … but there will still be a need to be able to evaluate those options”.
Although there is nothing to announce yet, “we are very focused on working on what we can do to ensure the tools are available. We need to provide them with the correct route to market”
He also wants to look at the REGO market and particularly real-time matching of green supply – look for that next summer, he hints. “We need a few things to happen, like access to a half hourly REGO market, but there are a lot of parties who are interested. We are looking at how we can support the market and help generators access value.”