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Electricity supply and private wire export Traditionally, electricity generated by renewable power projects has been sold directly to licensed suppliers who then trade the power on the wholesale market or supply direct to their customers. Corporate customers wishing to purchase green electricity have been able to sign up to green tariffs. Such tariffs generally will not offer a “guarantee of origin” and provide no direct link with the generator or greater security of supply than traditional brown power tariffs and may be less competitively priced. Although electricity supply, transmission and distribution activities are heavily regulated, for a number of years private wire arrangements and on-site generation has allowed smaller generators to supply local customers directly, on a licence exempt basis. While this may be a suitable arrangement in certain circumstances, unless there is constant demand for the generating plant’s output, the generator often will require grid access anyway so that surplus power can be exported to grid and revenue generated provide considerable benefit, helping to help spread the risks associated with fluctuations in electricity prices by acting as a fixed price “hedge” against rising energy costs. In addition it provides a contractual link to an identifiable source of renewable energy generation.
Direct power purchase agreements Direct power purchase agreements (“Direct PPAs”) can bring electricity consumers and generators together irrespective of location, generating capacity and supply requirement. From our experience, there are now two contractual structures prevalent in the Direct PPA market and these are summarised below.
In Direct PPA structures, as the Generator is not supplying the Customer directly (as with a private wire), whichever structure is chosen the Customer will need an electricity supply agreement which is compatible with a Direct PPA structure, allowing the on-selling and crediting arrangements described in this paper. A compatible supply agreement can be more complicated to put in place than standard electricity supply arrangements and it is likely that the Customer will need to have a sizeable supply requirement for this to be an attractive proposition for both the Customer and its Licensed Supplier. As such it will not be suitable for all business customers. However, for a public or private sector organisation with significant electricity usage this kind of structure can result in significant savings.