The government has confirmed that it has tabled an amendment to the Energy Bill that is designed to help bolster the Power Purchase Agreement (PPA) market for independent generators.
The amendments are designed to provide a ‘back-stop’ solution that will see obliging suppliers purchase electricity from renewable generators if they are unable to agree a commercial contract.
The Department of Energy and Climate Change (DECC) says that the back-stop solution will be “used as a last resort, to strengthen routes to market and stimulate competition”.
Energy minister, Greg Barker said: “The Coalition is committed to driving much greater plurality, innovation and competition in the electricity market. Our new reforms will create the framework for a far more dynamic and entrepreneurial market, while still ensuring that we get the large scale investment that industry needs.
“Opening up the electricity market to more competition is a fundamental part of the reforms we are introducing through the Energy Bill. It will also allow new smaller players to gain a greater share of the exciting renewable electricity market.”
Reacting to the news, REA chief executive Gaynor Hartnell said: “The last resort contract is helpful, but it’s no silver bullet for independent generators. It may reassure debt lenders that they won’t lose their shirts if the project can’t find a buyer for the power, but it won’t be a comfort to equity investors. They take more risk, and will need confidence that projects will earn the strike price. They will need long-term power purchase contracts up front, not merely reassurance that someone will step in if all else fails.
“There is also a risk that this might just set a floor to the market, to which all contracts gravitate, and be used for all financial modelling of projects. Strike prices may then need to be higher, and so the end result could be that the discount will end up as a cost to the consumer and a contribution to profit for the supply companies.”
The route-to-market for independent generators has been a contentious issue for the Solar Trade Association (STA) which has raised concerns that there was no stakeholder engagement ahead of the back-stop PPA proposal being tabled. The association remains in support of the Green Power Auction Market (GPAM) and has lent its support to the Clause 14 amendment due in the Lords next week which leaves the door open for GPAM.
Leonie Green, head of external affairs for STA, explained why the association is backing GPAM, she said: “We have been backing the Green Power Auction Market as a solution for independent generators seeking to sell their power under the CfD model, because it is a low risk investment model that would support a lower strike price, and therefore deliver savings for consumers.”
