As Senior Manager at Flogas Enterprise, I have been at the forefront of facilitating renewable energy adoption through Power Purchase Agreements (PPAs) across the island of Ireland. It has been a fascinating journey, particularly over the last couple of years as businesses like yours have been grappling with unprecedented energy price volatility.

The good news is there’s light at the end of the tunnel. We are finally seeing some stability in wholesale energy prices. But the million-dollar question remains: will this translate into lower prices for PPAs? Let us delve into this crucial question and explore what it means for your business.

Sunshine After the Storm? Deciphering the Energy Price Drop

Before we get ahead of ourselves, it is crucial to understand the context of the energy price crisis. A confluence of global events, including the conflict in Ukraine and the lingering effects of the pandemic, created a perfect storm of high demand and supply chain disruptions. This, naturally, sent energy prices soaring.

However, we are now witnessing a welcome easing of these pressures. European gas storage facilities are at healthy levels, and there has been a significant surge in renewable energy capacity, particularly in solar and wind. This increased supply, coupled with a milder winter and concerted efforts to reduce energy consumption, has contributed to the stabilisation of prices.

PPAs Demystified: A Quick Refresher

At Flogas Enterprise, we have seen firsthand the transformative power of PPAs. For those unfamiliar, a PPA is a long-term contract where your business agrees to purchase power at a fixed price from a renewable energy generator, such as a wind farm or solar park. This arrangement provides much-needed price stability and helps you lock in lower electricity rates, effectively shielding your business from the volatility of the wholesale market.

PPAs have witnessed a surge in popularity across ROI and NI as businesses actively seek ways to manage their energy costs and reduce their carbon footprint. But with the recent price fluctuations, the question arises: are they still a sound investment?

Understanding the Two Flavors of PPAs: Operational and Additional

When considering a PPA, it’s important to understand the two main types: operational and additional.

Operational PPAs are agreements with existing, post-subsidy wind farms. These PPAs offer businesses a direct contractual link to a specific renewable asset, providing energy price hedges, Guarantees of Origin (GOs), and contract terms up to five years. They offer a streamlined contracting process with certainty on dates and prices reflective of (but discounted to) the wholesale energy market.

Additional PPAs are agreements with yet-to-be-constructed, greenfield renewable assets, like new wind or solar farms. These PPAs focus on “additionality,” bringing new renewable power to the grid and supporting decarbonization efforts. They involve longer contract terms (10+ years), fixed PPA prices, and require businesses to be creditworthy to secure project financing for the developer.

The key differentiator between these two types of PPAs is additionality, and the risks and benefits arising as a result (and how these risks and benefits are negotiated and allocated).

What Has All This Got to Do with Falling Energy Prices?

The key takeaway here is that the price basis for Operational PPAs is directly related to the energy market, while the price basis for Additional PPAs is the cost of developing the renewable facility.

This means:

• Operational PPA prices will fluctuate with wholesale energy market prices.
• Additional PPA prices are not influenced by short-term energy market fluctuations.
• Prevailing wholesale energy prices are not the cost-basis for new build PPAs and therefore have no impact on the PPA price of a new build renewable asset.

This is a critical distinction for businesses considering PPAs. While lower or more stable energy prices might seem like an opportune time to secure a lower PPA price, this is only sometimes the case.

The Million-Dollar Question: Will Falling Prices Affect My Additional PPA?

This is where things get interesting. While lower or more stable wholesale energy prices are undoubtedly a positive sign and influence operational PPA pricing, their impact on additional PPA prices is a bit more nuanced.

Here is why:

• Additional PPAs are long-term commitments: Unlike fluctuating wholesale prices, additional PPAs offer price stability over an extended period, typically 10-15 years. This means that while wholesale prices might be lower now, they could easily rise again in the future. An additional PPA acts as a safeguard, protecting you from those potential future price hikes.
• Developers take a long-term view: When developers set additional PPA prices, they factor in long-term OPEX costs projections. They need to ensure the project remains financially viable over the entire contract duration.
• Other factors come into play: additional PPA prices are also influenced by factors like project development costs, financing rates, and government policies.

To PPA or Not to PPA? Making the Right Call for Your Business

So, what does this mean for you? Should you hold off on signing a PPA, hoping for even lower prices in the future?

Frankly, there is no one-size-fits-all answer. While wholesale prices might continue to fall in the short term, there is no guarantee they will stay low. Here is my advice:

• Assess your risk tolerance: If you are comfortable with price volatility and willing to bet on further price drops, you might consider waiting. However, remember that only operational PPA prices will move with the market.
• Additional PPA prices of new build assets move in line with development costs: Development costs are affected by macro non-wholesale energy factors such as inflation, cost of capital and more.
• Focus on your long-term strategy: If price stability and reducing your carbon footprint are top priorities, a PPA still offers significant benefits, even with the current market fluctuations.
• Shop around and negotiate: Do not be afraid to compare offers from different wind farms and solar parks and negotiate the terms of the contract.
• PPAs can be complex: speak with industry experts to navigate the market and understand the risks.

if you would like to know more about a PPA for your business, please get in touch at PPA@flogas.ie.

The post Will My Business Finally Catch a Break? – The Impact of Energy Prices on PPA prices in Ireland appeared first on Flogas Enterprise.

This sentiment is not lost on Large energy users (“LEUs”) in Ireland in 2022. Never more so than in recent months have we at Flogas Enterprise been having more serious and determined conversations with corporate LEUs about decarbonising energy supply in a sustainable and impactful way.

The most beneficial way to decarbonise energy supply is through on-site or direct-wire (i.e. renewable generation supplying power directly to your site by wire) energy supply.  Irish regulation needs to play catch up in the area of direct-wire electricity supply, meaning for now the only direct supply option is on-site generation. This is a sustainable and impactful approach, but in most cases is limited for LEUs by roof space, site size and/or availability/appetite for capex investment.

With on-site or direct wire options limited, then the most meaningful option to decarbonise power and gas supply in Ireland in 2022 is therefore by contracting with a production facility of renewable electricity or biomethane. This means contracting with a facility, somewhere on the electricity or gas network, to supply your business with energy through the network, usually in the form of a long-term supply contract – with the contract “sleeved” through the energy supplier such as Flogas Enterprise

In today’s volatile energy market, the benefits of securing a locally supplied, long-term, fixed price energy hedge are stronger than ever. Other benefits also include budgeting i.e. knowing your energy costs have been secured ahead of time; the decarbonisation associated with the contract in the form of traceable certification of the energy; supporting Ireland’s renewable ambitions; and often supporting communities local to the renewable development as part of the arrangement. It is also reassuring to see the recent policy developments by government which should, in time, create a nurturing environment for the corporate renewable energy contracting market in Ireland.

We at Flogas Enterprise have been buying and supplying renewable power for over a decade in Ireland and more recently we have been doing the same for biogas/biomethane. However, now is the time of LEUs to step up and take ownership of the carbon impact of their energy supply and address it through corporate offtake agreements (known as “Corporate Power Purchase Agreements” (CPPAs) for electricity and “Corporate Biogas/Biomethane Purchase Agreements” (CBPAs) for biogas or biomethane).  Flogas Enterprise are strategically focussed on bringing corporate LEUs to the renewable market as qualified, educated and committed CPPA and CBPA counterparties, to unlock the potential of the Irish renewables pipeline. Using our expertise, experience, and established relationships in the renewables market, we can provide real options to decarbonise the energy supply of LEUs and access to the Irish renewable development pipeline.

We are excited to bring Irish LEUs to the Irish renewable market, who are seeking to secure Corporate Power Purchase Agreements (CPPAs) and Corporate Biomethane Power Agreements (CBPAs) – and we don’t just mean data centres! The motivation has never been greater than it is today from LEUs, which is necessary but also timely considering the recent IPCC report mentioned above.

The CPPA and CBPA markets are well-established in other countries, such as the US, with LEUs already demonstrating the benefits. However, these markets are in their infancy in Ireland. We are ready for the LEU trailblazers to make their mark and we are here to support them. It has never been more important for LEUs to consider CPPAs and CBPAs than it is today, for an ever-increasing number of reasons. As time goes on, these options will surely become the norm for LEUs in the Irish market – but today, urgency and intent are required from LEUs to make a sustainable impact on decarbonising energy supply.

It’s now or never.

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To achieve the overall 16% target, national sub-targets have also been set for each of the main modes of energy use: electricity (40%), heat (12%), and transport (10%). Renewable electricity makes the largest contribution to the overall 16% RES target and the most recent data from the Sustainable Energy Authority Ireland (SEAI) shows that we have reached the national target to provide 40% of electricity from renewable energy by 2020. However, converting transport and heating to renewables is a major challenge for Ireland, where electric vehicles currently make up a small percentage of the total number of vehicles sold and approximately 70% of homes are heated by fossil fuels.

In terms of renewable electricity generation, wind is the main technology in Ireland and for all of 2020, wind generated on average 36.3% of electricity demand compared with 32.4% in 2019 according to Eirgrid’s data published 2nd January 2021. Renewable electricity brings many benefits to Ireland, including the displacement of carbon and other greenhouse gas emissions from fossil fuel generation, decreasing reliance on imported fuels and a depressing effect on the wholesale price of electricity.

What’s next?

The formation of a new Government last year further bolstered Ireland’s commitment to renewables. Ireland set ambitious renewable targets outlined in the Climate Action Plan, mandating that 70% of electricity must come from renewable sources by 2030. To put this into context, over the next 10 years, Ireland needs to deploy more than double the existing renewable electricity capacity in the country, in half the time it has taken us to get to where we are today!

How will we get there?

This will be mainly achieved by the Government’s Renewable Electricity Support Scheme (RESS), which will see a series of competitive auctions held annually over the next few years. The RESS aims to promote the generation of electricity from renewable sources by providing financial support to renewable electricity projects in Ireland. The first RESS auction was held successfully in summer 2020. In total, 82 projects were successful (63 solar and 19 onshore wind) with almost 1,300 MW of generating capacity approved under the scheme. Under RESS, the successful generators are now required to enter into a Power Purchase Agreement (PPA) with a licenced supply entity.

It is evident that Ireland cannot rely solely on wind to meet its ambitious targets. A suite of renewable energy technologies, including solar PV, will play a key role in Ireland’s renewable energy transition. RESS will also pave the way for large offshore wind projects as Ireland seeks to take advantage of its naturally abundant wind resources off its coast. Importantly, RESS also enables local communities to play an important role in the delivery of our renewable energy future by benefitting from local renewable developments and supporting them in the development of their own “Community-Led” projects.

The Benefits

As we see more renewables lowering the wholesale price of power every year, frameworks, like RESS, support projects by offering them a guaranteed price for their electricity. This is funded by the Public Service Obligation (PSO) levy which is charged to all electricity consumers in Ireland and changes each year. However, the good news of more renewables via competitive auctions such as RESS (as per Pöyry’s ‘Greener and Cheaper report), is that it should reduce wholesale power prices, outweighing the cost of supporting renewables, thus benefiting Irish homes and businesses.

If you would like to learn more about Renewables and how Flogas can you support you with renewable solutions or PPAs  please contact Flogas by email at renewables@flogasenterprise.ie or by telephone at 01 8849400.

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Below are some of the key take-aways for us from the conference. We look forward to the next conference, things are moving quickly (as always) in the world of energy.

• Local communities will play an important role in the delivery of our Renewable energy future. We must enable them to join the national effort to decarbonise our society. Flogas commends the seven community projects successful in RESS-1 for their motivation and innovation.
• The island of Ireland is world-leading in the integration of wind and other renewables to an electricity system. To achieve our 2030 electricity targets, our grid will need to facilitate 90% “non-synchronous” generation on the system at any given moment. Today that limit is 65%, which itself is still world leading. So much so that renewable technology manufacturers look to Ireland to see what requirements other electricity grids will have from their machines in 10-15 years’ time!
• General consensus that some sort of policy interventions will be needed to encourage CPPAs to meet Ireland’s target of 15% of demand coming from CPPAs by 2030 and ideally like to see CPPAs and RESS coexist together.
• Integrating high levels of renewables will also bring with it many challenges that haven’t yet been solved. There are many innovative solutions being developed to ensure we avoid having to curtail wind and other renewable energies in future – you can be sure that energy storage will play an important role here.
• Further to this, innovation is required around design of future system service markets and indeed perhaps even the energy market.
• Lastly, offshore wind will have a separate RESS auction to the onshore RESS-2,3 etc. This is to help stimulate the relatively young offshore industry in Ireland. Thankfully, we can draw on the experience and talent from quite a developed offshore industry in the neighbouring UK. Offshore wind is a massive and underutilised resource that Ireland needs to take advantage of to meet and surpass its targets.

Contact Flogas at: renewables@flogasenterprise.ie and see how we can help you with your energy options.

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