OFF-TAKE UNDER THE CFD - BUSINESS AS NORMAL? - Electricity Market Reform: Edging Towards Delivery 24 September 2014
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OFF-TAKE UNDER THE CFD - BUSINESS AS NORMAL? Electricity Market Reform: Edging Towards Delivery 24 September 2014
Statkraft – providing Pure Energy
Statkraft is Europe’s largest
generator of renewable energy
Hydropower, wind power,
gas power and district
heating assets.
Statkraft in the UK owns and
develops on and off shore
wind and hydropower assets
Market leader independent
long term PPA provider
Over 2000MW under
contract
ROC and CfD Off-take
contracts
2
The UK renewable support system is changing
Renewables Obligation
Top-up to the energy price for 20 years
Generator exposed to the future electricity price
Any surplus
not retained
Contract for Difference Index linked income
Fixed, index-linked ‘Per MWh’ income for 15 years
Designed to de-risk capital-intensive investments
But much remains the same
Legal
PPAframework Terms
terms Electricity market
in Route
place to market Participation,
confirmed, costs
investable
State
LegalAid Return
Grid
framework
Sale and received
approval purchase Connection,
adequate; operation
index-linked
Consenting/Financing Energy industry
Project costs, debt Evolution, replacement
The first auction is imminent
Deadline for applying: 29th October
Much smaller allocation than
anticipated
Offshore wind – maybe just one
project
Wind and Solar PV will compete
with each other
- Paid as cleared not Bid
- Will bids at the margin be sensible
Tight timescales post allocation
5
Business as normal?
With a few notable exceptions off-take
under the CfD is very similar to off-take
under the RO
- Counterparty financial and credibility
covenants
- Tenor of agreements
- Discounts against the Reference Price
- Operations (registration, billing and
settlement, information)
- Contracts
Much of this will continue to be driven by
who (debt or equity) is funding the
project
6
Off-take decision process
• Difference between hedging forecast and last usable forecast
Basis Risk
• Priced into power price discount
• Difference between last usable forecast and delivery
Imbalance
• Priced into power price discount
• Discount covers basis and imbalance risks, operational costs, credit costs and profit
Discount • Floor price option fees and working capital (ROCs) not required
• CfD difference is calculated on ta Day-Ahead Reference Price
Index
• Doing anything else introduces risks (or opportunities) of not matching the index
• Strength and performance of off-taker
• Future view on basis and imbalance risks
Term • Availability of competitive off-take
• Less payment obligations to support
Credit
• Off-taker of Last Resort caps “Delivered Unpaid” exposure
7
Basis risk – an illustration
Re-trading Risk
Imbalance
8
CfD basis risk
Basis risk exists from day one,
however, success of EMR (and the Negative
Cost
RO) in delivering renewables will prices
drive up basis risk Intra-day
- Within day trading (from confirmation trading
of reference price to Gate Closure)
- Imbalance Imbalance
- Negative Prices
Price the risk now or take it on
Early 2020’s
Current
Late 2020’s
later?
9
CfD PPA Contract
CONTENTS
Structurally a CfD PPA will look very
Clause Heading Page
1 DEFINITIONS AND INTERPRETATION 4
2 CONDITIONS PRECEDENT 34
3 COMMENCEMENT OF THE COMMISSIONING PERIOD 34
4 COMMENCEMENT OF THE COMMERCIAL OPERATIONS PERIOD 35
5
6
7
SALE AND PURCHASE
REGISTRATION & ACCREDITATION
TRANSFER OF BENEFITS
35
36
38
ROC similar to a ROC PPA
8 TRANSFER DEFAULT 40 References
9
10
11
BENEFIT REVOCATION
REGOS & NEW BENEFITS
PAYMENTS
41
44
45 Removed - References to CfD legislation,
12 ALLOCATION ERRORS & ESTIMATES 49
13
14
15
PAYMENT TERMS
FLOOR PRICE
SET OFF
51
53
53
processes and dates
16 CREDIT SUPPORT 54
17 EXTENSIONS 55
18
19
METERING
FORECASTS & DATA PROVISION
57
58
- Eligibility
20 MAINTENANCE, OUTAGES AND AVAILABILITY 58
21 FORCE MAJEURE 59
22
23
24
TERM & TERMINATION
CONSEQUENCES OF TERMINATION
INSURANCE
61
66
68
- Termination provisions and cross
25 LIMITATION OF LIABILITY 69
26
27
28
REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS
TRANSFER OF RIGHTS/OBLIGATIONS
CHANGE IN LAW
71
75
78
default
29 NOTICES 85
30
31
32
CONFIDENTIALITY
DISPUTE RESOLUTION
GENERAL
86
87
89
- CfD Counterparty Credit
33 GOVERNING LAW AND JURISDICTION 90
34 APPLICATION OF THE NATIONAL TERMS OF CONNECTION
SCHEDULE 1 – AGREEMENT SPECIFICS
SCHEDULE 2 – CONDITIONS, COMMISSIONING REQUIREMENTS AND OPERATIONAL
91
93 - Settlement
REQUIREMENTS 95
SCHEDULE 3 – PRICES & SHARING PERCENTAGES 97
SCHEDULE 4 – FLOOR PRICE
SCHEDULE 5 – FORECASTING REQUIREMENTS
SCHEDULE 6 - CONTACT DETAILS
103
106
110
- Negative Prices
SCHEDULE 7 - DIRECT AGREEMENT 119
SCHEDULE 8 - PARENT COMPANY GUARANTEE
SCHEDULE 9 – BANK GUARANTEE
143
154 - Ancillary Services
10CfD market operations
Trading and re-trading of power
Registration and reporting
Interaction with Grid
Interaction with the CfD Counterparty
- Settlement
- Information provision
- Credit
Comparisons with running a large power station
- are independent generators willing or able?
11Market requirements
Financing market unlikely to rapidly change its view:
“Principally we are looking for a counterparty who purchases all power and related
benefits for the duration of at least the debt term, removes those risks and
uncertainties relating to power sales that a SPV with a project finance loan cannot
manage well or at all (i.e. balancing, downside price protection), and has the
capabilities and financial strength to manage and stand behind these obligations”
Gerard Pieters, NordLB
DECC expects the PPA to be in place prior to CfD allocation:
“PPAs should be signed on a conditional basis before a strike price needs to be
submitted, allowing independent generators to receive indicative financing terms from
lenders, and reducing their cost uncertainties” DECC's latest CfD consultation
response
12Route to Market for Pure Energy
Statkraft still has a massive appetite for
short and long term offtake (1-15 years)
Route to market decision driven by;
- Counterparty credibility
- Sponsor and/or Funder view of long term
risks (imbalance, basis, market activity)
Contract very similar to ROC PPA
Discounts broadly less
- Lower working capital and credit costs
- Potentially higher imbalance and basis
costs
13TAKK
Tim Foster
DIRECT +44 (0)20 74488206
MOBILE +44 (0) 7966 023462
Switchboard +44 (0)20 74488200
Fax +44 (0)20 74488241
Email tim.foster@statkraft.com
Statkraft UK Ltd
4th Floor
41 Moorgate
London
EC2R 6PP
United Kingdom
www.statkraft.com
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