Shaping Italian PPA Market - Virginia Canazza
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Shaping Italian PPA Market
Virginia Canazza
PPA Committee main goals
o Review PPA perception and experiences from participants
o Understand the risks and opportunities offered by the contractual instrument
for the different market players
o Identify a range of best practices to refer to or to meet counterparties'
expectations
o Identify Italian market possible barriers for PPA diffusion
o Review possible actions to remove possible barriers
o Make proposals shared by the Committee itself
The PPA Committee has verified the existence of a community of interests and a widespread
consensus around PPA as a market tool for the development of renewable capacity
3
Operators' expectations of the use of PPA in the short and long term Questionnaire
Target % of electricity volumes to be covered by PPA for
different market players
Consumatore
Consumer
The prevailing trend
Integrated operator
Operatore integrato identifies as more effective
the Corporate PPA or in any
case a PPA of a physical
Produttori
Producer nature in which there is an
off-taker aggregator of end
0% 10% 20% 30% 40% 50% 60% consumers (trader or utility)
Quale è il valore
2030 PPA target obiettivo al 2030
Quale
Next 3è year
il valore di obiettivo PPA nei prossimi 3 anni
PPA target
4
About 500 MW of PPA signed (July 2019) in Italy, about 4% of PPA in the world
Evolution ofdella
Evoluzione the contracted power through PPA
potenza contrattualizzata in ItalyPPA in Italia
tramite
(MW)
600
500 1.3%
1.3%delle nuove
of new RESFER
necessarie per
400 needed to reach
raggiungere target
300
PNIEC 2030
PNIEC targets
2030
200
100
0
mag-18
mag-19
ott-18
ago-18
feb-19
set-18
feb-18
apr-18
apr-19
nov-18
giu-18
giu-19
lug-18
gen-19
gen-18
dic-18
mar-18
mar-19
Apr-18
Jan-18
Feb-18
Mar-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Fonte: elaborazioni REF-E
Source: REF-E elaborations
5
Offer: PNIEC 2030 +71 TWh vs 2018, 100 TWh renewable energy on the market
Hydro not included
by
by
triple
Incentivized Refurbishment New power plants
double
Giro di affari potenziale per i nuovi investimenti
Potential turnover for new investments
without including the
refurbishment of existing
installations and the
development of network 10 Mld €
hydro wind PV geothermal bioenergy infrastructure and storage
Fonte: Elaborazioni
Source: REF-E based
REF-E elaborations su dati
onPNIEC, GSE.
data from Producibilità
PNIEC, annua normalizzata
GSE. Normalized Yearly
producibility 19 Mld €
Wind Solar 6
Eolico Solare
estimate
Stima based
basata on medi
su capex average capex as at 2019
al 2019
Market conditions are in place for the development of PPA as a model for energy trading
and growth of RES
CAPTURED PRICES SCENARIO REFERENCE E RANGE LCOE SOLARE • Market parity under consolidation for
(€/MWh)
80 Range LCOE Solare NORD CENTRO NORD CENTRO SUD PV and wind power
SUD SICILIA SARDEGNA LCOE Caso Studio
75
70
• Potential interest of end users in
65 subscribing to PPAs against the
60 expected rising electricity price in the
55
long term
50
45
40
2019 2023 2027 2031 2035 2039
Fonte:
Source:Previsioni REF-E
REF-E forecasts
CAPTURED PRICES SCENARIO REFERENCE E RANGE LCOE EOLICO
(€/MWh)
90 Range LCOE Eolico NORD CENTRO NORD CENTRO SUD
Potential countereffects:
85 SUD SICILIA SARDEGNA LCOE Caso Studio
• “cannibalization” effect
80
75
• Commodity trends,
70
particularly in the ETS
65
60 • Transmission capacity cost
55 risk
50 7
Fonte:
2019
Previsioni REF-E
2023 2027 2031 2035 2039
• imbalance charges
Source: REF-E forecasts
Bearish effects on the market could limit the development of new capacity
EVOLUTION OF SOLAR AND WIND INSTALLED CAPACITY AS A FUNCTION OF THE LEVEL OF CAPTURED PRICES
The values shown in the graph express the % of achievement of the PNIEC
objective
Evoluzione
Italian windinstallato eolico evolution
installed capacity Italia al 2030
by 2030
Evoluzione
Italian solar installato solareevolution
installed capacity Italia al 2030
by 2030 GW
GW
50 • With reference 20
94%
90% trends, 35 GW are
90%
45
94% 94% developed at 2030 83%
compared to the 40 15 75%
72%
40
75% GW required for the 76%
83% 72%
PNIEC targets.
10
35
CP_Ref -1 €/MWh
CP_Ref -2 €/MWh
CP_Ref -3 €/MWh
CP_Ref -4 €/MWh
CP_Ref -5 €/MWh
CP_Ref
• With a lower trend of
CP_Ref -3 €/MWh
CP_Ref -4 €/MWh
CP_Ref -5 €/MWh
CP_Ref -1 €/MWh
CP_Ref -2 €/MWh
CP_Ref
5€/MWh 20 GW are
developed
Font e: elaborazioni REF-E
Font e: elaborazioni REF-E Source: REF-E elaborations
Source: REF-E elaborations
Average PUN 2019-2030 baseline
scenario: 61.7 €/MWh (real terms)
8
Theoretical demand 2030: 70-110 TWh - enabling role of consortia to limit exposure to
competition and counterparty risk
Corporate:
75% of free market sales are for
Utilities/traders • 55% energy intensive:
consumers < 100GWh
• have adequate expertise exposure to
and portfolios for risk competition mitigated
36%
management 46% through consortia
• End customers in LV with • 15% trade: large
right of withdrawal but consumers on high
low exposure to the number of connection
energy component 18% points, aggregated by
utilities/traders
Public demand potentially • 30% communications
subject to public procurement Fonte: Elaborazioni
Source: REF-E
REF-E elaborations and transport:
(also through CONSIP):
concentration in a few
• 4.5 TWh PA
• Mainly highly fragmented non-
companies with limited
• 6 TWh Public Lighting
core manufacturing industry risk on the final price
energy, potential off-
takers
9
Lesson learned from international experience: favourable context elements stimulate the
meeting of stakeholders
✓ Increasing cost competitiveness of renewables in relation to market prices
✓ Adequate availability of renewable projects in substantial market parity
✓ Ambitiousness of environmental and decarbonisation objectives at corporate level and imposed at
public level
✓ Level of pressure from institutions and stakeholders about these objectives
✓ Motivation of final consumers
✓ Proactivity and support of governmental/institutional bodies
✓ Stability and transparency of the regulatory environment
✓ Availability of tools to mitigate risks of various kinds
✓ Phase out incentives
✓ Tax credit
✓ Last resort buyer
10
Questionnaire
Despite favourable fundamentals, barriers and risks persist
Main barriers identified by operators
Barriers related
Cumulated score
to
authorization
+
processes for
Regulation
RES not
Contract
Demand
Regulation
Market
compatible
Market
with the needs
of a
Risks Low Difficulties in Risk of Lack of clarity Coverage not competitive
associated propensity of forecasting litigation on the future possible in the market
with changes consumers to commodity between the of RES support long term
in regulation bind in the costs in the parties mechanisms
long term long term
11Uncertainty of the future scenario: complexity of opposing factors
• Hard coal phase out
• Electrification consumption
Volatility range
• Reduction in imports (energy policies in
other countries)
• Bidding strategies
Recent bullish dynamics
?
related to contingency
and commodity markets
• Macroeconomic drivers and demand
• Commodities trends
• Renewable Variability
• Accident and contingent phenomena
• Impact of regulatory reforms
• Energy efficiency
• Technology development (accumulation)
Historical trend of decreasing • Network development
prices
2030
Source:elaborazioni
Fonte: REF-E elaborations
REF-E suondati
GME data
GME
12The use of flexible pricing formulas and best contractual practices allows for an optimal
allocation of market risk between counterparties and agreement endurance
• Adequate only on short deadlines (up to about 5
years)
• Probability that the PPA will Fixed price
go out of the money during • On longer contractual deadlines (10 years and
the validity period more) the fixed price is risky also in consideration
of the impossibility of implementing adequate
hedging instruments available on the markets
• Risk of leakage, triggering
greater possibilities of
default and compromising
bankability requirements • They can allow for a dynamic rebalancing of
opportunities and risks between counterparties in
Flexible price
relation to the dynamics that take place in the
markets
13Questionnaire
PPA as a private instrument
The main orientation is to exclude Should the PPA be an exclusively
private instrument, in which there is
public intervention to support PPA no intervention by the public
sphere?
Cumulated score
• Subscribeable PPA volumes depend on
market variables and parties' expectations
in the LT
• Option to develop renewable capacity in
line with national policy but cannot in itself
guarantee the achievement of the
objectives of the PNIEC
Not at all agreeable Totally agree
14Shared position within the PPA Committee
Market conditions for the PRIORITY
development of PPA are met
FIRST STEP: Strengthening of authorisation and
market mechanisms
• Presence of market parity • efficient and timely authorisation processes
conditions for renewables • completion of dispatching market reforms, including
by fostering storage
• Quantitatively more and more • acceleration in completing network reinforcements
challenging and unsustainable Field experience
RES objectives with public
EVENTUAL SECOND PHASE: Public intervention in
intervention support of PPA
• Demand incentive
15PPA Committee: not an end, but a new starting point!
Analysis of new demand
• Italian companies are ready to establish themselves drivers: finance and
as conscious protagonists in the transition process climate
Art.2 Paris Agreement
• PPA, a model for energy trading and growth of RES
in the absence of incentives, are now the most
appropriate response
• Decision-makers and policy makers can (and must)
contribute by ensuring a robust market organisation PPA Pilot
and efficient authorisation processes
Market evolution
• In a context of certain rules, the market will be able
monitoring vs.
to find contractual forms that establish themselves auctions
as best practices, allowing the appropriate
distribution of risks and the spread of PPA
Focus on authorization
processes
16Thank you for your attention!
Q&A
virginia.canazza@ref-e.com
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