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Potential Impact on PPA Contracts

Potential Impact on PPA Contracts. IWFA Workshop 24 th January 2014. PPA Solutions. Established in Aug 2012: Hugh Mullany and Rory Mullan - Mullany Engineering Consultancy and Mullan Grid What we have been doing? Restructuring Supplier Lite Registrations Reviewing PPA Options

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Potential Impact on PPA Contracts

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  1. Potential Impact on PPA Contracts IWFA Workshop24th January 2014

  2. PPA Solutions Established in Aug 2012: Hugh Mullany and Rory Mullan - Mullany Engineering Consultancy and Mullan Grid What we have been doing? Restructuring Supplier Lite Registrations Reviewing PPA Options Negotiating PPAs for Merchant, REFIT II and REFIT III Review Terms & Conditions of PPAs Audit and review of REFIT I PPAs Setting up Supplier Lite Structures Due Diligence Review SEM prices for Generators Registering Generators for LECs Supporting REFIT audited year-end submissions

  3. Today Current PPA Position of Generators Questions to consider to understand impact of European Target Model on Existing PPAs

  4. The Power Purchase Agreement Supply Co. BILL PPA • Fixed: A fixed rate per MWh, without or without indexation • Pass through: All SEM/REFIT/LEC/GO revenues, less a flat • administration fee or price per MWh traded • Floor with upside, or price guarantee

  5. Types of Generator PPAs Support Scheme PPAs AER Electric Ireland REFIT I & II Any 3rdParty Irish Supplier Supplier Lite Outside Support Scheme PPAs Merchant - market pass through 3rdParty Suppliers Supplier Lite Fixed price with 3rd party supplier Hybrid with 3rd party supplier

  6. Current Market Structure - SEM Supply Co. BILL Supply Co. BILL GENERATION SUPPLY MONEY POWER Single Electricity Market PPA Wind> 10MW Intermediary PPA Outside SEM/ Negative Demand Wind <10 MW

  7. SEM Payments & Charges Supply Co. BILL Supply Co. BILL GENERATION SUPPLY MONEY POWER Single Electricity Market PPA Charges - Energy (SMP) - Capacity - Imperfection - Market Operators Payments - Energy (SMP) - Capacity Wind> 10MW Intermediary PPA Outside SEM/ Negative Demand Wind <10 MW

  8. 2012/13 SEM Prices

  9. Benefits of Current SEM Structure • Identical generators producing the same power at the same time receive the same revenues • Shared SMP and Capacity Payment • Transparency of prices • Wind prices are relatively close to average prices • Generators < 10 MW can register as negative demand • Relatively low cost to operate in SEM

  10. New Market Changes • New prices: • Day Ahead • Within-Day • Balancing • Supplier who has bought your power under a PPA can choose how to trade-on your power • That choice impacts how much money your windfarm makes • Choice may be restricted by lack of available counterparty • Identical generators producing the same power at the same time receive revenues based on their trading skill

  11. Impact of new Market on Existing PPAs Support Scheme PPAs - REFIT I & II • Relevant differences in REFIT I & II • The REFIT II reference and technology rate (not including balancing payment) is guaranteed and has to be passed on to the generator • Less potential for market upside in REFIT II • Market Change Clauses in PPAs • Two general types of Market Change Clauses: • Allow mechanical changes, for examples changes in payment timelines • Reopening of price negotiations to allow both parties to maintain commercial positions • If the supplier is making less money trading your power, they may – PPA permitting – seek to change the price under the PPA

  12. Impact of new Market on Existing PPAs Support Scheme PPAs - REFIT I & II - continued • What market prices will be utilised by CER for REFIT? • For forecasts (Day Ahead, Within Day, Balancing) • For reconciliation (REFIT currently tops up any supplier to the guaranteed rates, irrespective of how much or little money the supplier has made selling on your power) • Impact on potential for upside if allowed under the PPA • Impact of changes in PPA on loan agreements • Should also consider impact of new market on project revenues post REFIT term

  13. Impact of new Market on Existing PPAs Outside Support Scheme PPAs • Merchant - market pass through • Term of current PPAs generally end in 2016 or earlier • Availability, structure and price of new PPAs post 2016?? • Fixed price with 3rd party supplier • Depends on Market Change Clauses in PPA • Need to also consider new market’s impact on future project revenues • PPA structure required for repowering?

  14. Impact of new Market on Existing PPAs General • Will there be Capacity Payments & Capacity Charges? • What will market revenues be like in the European Target Model? • Will the choice of when to trade make much of a difference on revenues? • Will <10MW generators still see the benefits of offsetting demand? • Cost of forecasting and trading in the new Market? • Implementing of priority dispatch? • And of course the detail ….

  15. Conclusions • Know Your Own Position • Too early to fully understand potential impact • Need to stay informed • Ensure this sector has a strong voice, individually and collectively

  16. Thank You Rory Mullanrory@ppasolutions.ie 087 3287213

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