Three ways to make money from your power
18th January 2019
Organisations across the UK are reaping the benefits of Power Purchase Agreements (PPAs). But what are the three most popular options?.
Broadly speaking, a PPA is a contract between a generator of electricity and an individual or organisation that wants to buy it.
However, if you’re generating your own electricity, there are a variety of PPA options in the marketplace. Your selection will also depend on your risk appetite and level of expertise.
Below are our three most popular PPA options. One of these could help you get the most from the electricity you generate.
This option means you can benefit from favourable market prices by trading your import and export electricity. So, if you both generates and use your own electricity and draw additional power from the grid to consume, a flexible PPA gives you two options. The easiest way to understand this choice is to look at an example:
Let’s assume you need 3MW of power, while also exporting 0.5MW of your own power. When market conditions are right, the first option allows you to sell your 0.5MW of exported power at a higher rate before (or after) buying your full 3MW requirement at a lower market price.
Should market rates not favour this approach, you can instead choose to ‘sleeve’ your 0.5MW of exported power into your 3MW of import power purchasing. Doing so would mean you’d only need to trade for 2.5MW of your import power requirement. In turn, this could help you save money by avoiding the bid/offer spread on electricity prices. This also reduces your exposure to unfavourable market conditions. In effect, the 0.5MW that you sleeved is delivered at a net zero wholesale cost.
System sell-price PPA
This option allows you to sell all the power you generate during a given period to Drax, without forecasting the volume in advance.
At the end of each month, we calculate how much power you’ve provided and pay you an amount based upon a weighted average of the system sell price during the periods in which you exported.
This is a good PPA option if your self-generating capacity is small or depends on intermittent technology such as wind turbines or solar photovoltaic (PV) panels. What’s more, if a variable, monthly rate isn’t a concern, it gives you complete flexibility on the amount of electricity you generate without any variance penalties.
All of this makes a system sell-price PPA a good choice if you’re a new entrant to the market. That’s because you’re balancing any uncertainty about how much power you’ll be able to provide initially by knowing you won’t be penalised if your predictions are wrong. This applies to delays in commissioning, and to when generation conditions aren’t favourable, such as the sun not shining if you have solar panels. A system sell-price contract is also a great way to build an export history on a new installation. This makes it easier in future to explore Fixed Price and Flexible PPAs with suppliers.
Fixed Price PPA
In contrast, a Fixed Price PPA gives you a degree of price security. You agree to provide a certain amount of electricity, over an agreed period, for a fixed price per kWh. If the cost of producing your electricity remains stable, and your exported electricity outputs are predictable, you can forecast your budgets and margins with greater accuracy.
All the Drax Renewable Power PPA options outlined above also include provisions for any embedded benefits associated with the electricity you export.
To discover how we can help your organisation benefit from PPAs, please get in touch.