WEBVTT
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The purpose really is to help Britain achieve net zero.
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We've got a Clean Power Action Plan 2030, and the Contract for Difference is one of the ways that can help get new renewable projects built.
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When that customer signs that PPA, it allows the project then to go and build.
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And you're really making a difference because you'll bring in new renewable power onto the system, which is going to displace gas.
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Welcome to the Talking Power podcast by the Energist and EDF.
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Today we're going to be looking at navigating the PPA landscape, CFDs versus corporate PPAs.
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I'm joined today by Tom Abbott from EDF.
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Hi Tim, I'm Tom Abbott, PPA Director at EDF.
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So we're the largest buyer of renewable power in Great Britain through power purchase agreements, or PPAs for sure, buying from all sorts of renewable generators.
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And within that we do a lot of work on corporate PPAs as well, facilitating corporates buying renewable power directly from renewable developers.
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And Andy Payman from Innova.
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Yeah, hi Tim.
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I'm Andy from Innova.
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I'm head of energy sales there.
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We're a renewable developer, so we have a number of solar sites and battery storage sites.
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And so we work with people like EDF and other suppliers to find routes to market through various means, and one of which is PPAs, another is CFDs.
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And so we've heard a lot about corporate power purchase agreements as a route to corporates to support renewable development, build, and new renewable projects.
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But what's the alternative options for development?
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The contract for difference.
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How does a CFD work in this in this context?
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In terms of what is the contract for difference?
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It's basically the latest iteration of um renewable subsidy or support mechanisms from the um from the government.
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And it's the purpose really is to help Britain achieve net zero.
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We've got a Clean Power Action Plan 2030, and the contract for difference is one of the ways that can help get new renewable projects built.
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And it can help renewable developers because it can guarantee them, in some ways, a fixed price, which is what they need to get um investment approval for those new projects.
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The government runs auction rounds.
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They tend to be once a year at the moment, where it invites renewable developers such as Innova to submit their renewable projects, kind of bidding a strike price.
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And then based on government's ambitions and budget, they award those contracts for difference to the winning projects.
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And it's only recently the CFDs really sort of come back on the agenda, I think, for SolarSites.
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So if you look back sort of two or three years, um the CFDs weren't really that strong.
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Um price was relatively low compared with costs.
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And so we as a developer and and independent generators were relying a lot on other markets.
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And so the corporate PPA market was pretty attractive.
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Corporates were offering long-term fixed prices that we couldn't get elsewhere, and that's why you know companies like us put a lot of effort into corporate PPAs.
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What we found last year with um auction round six, AR6, as it's often referred to, is it was a really strong um auction for SolarFarm and onshore wind as well.
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Um and the price that we got was um really attractive, and so that's where kind of the focus is now for developers.
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And I think what the other thing that's happened in the meantime is market price has has fallen.
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So it means the price that the corporate is willing to pay is slightly lower.
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And so it's just created this um I think this position we're in at the moment where PPAs just aren't getting away to the extent that they used to.
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So why does a renewable developer need one of these two options, the CPPA or the CFD, to develop a new renewable project?
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Andy.
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Yeah, um, that's a really good question, Tim, and and we're often asked that by off-takers.
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You know, why do you need such a long-term agreement?
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The simple reason or the simple answer is it costs a lot of money to build um renewable projects up front.
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So unlike, say, traditional thermal assets where maybe there was a lower build cost, but there was a cost to run the site as you as you move through the um site's life, with a renewable project, most of the cost is up front.
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And so you're asking investors to invest multi-million pounds in an asset.
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And to do that and not have any certainty over income is is quite a challenge.
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And and most funders of projects aren't aren't willing to do that, or if they do, they're going to charge quite a lot for their capital.
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So a fixed price really is gives that kind of certainty to investors, and investors are often funds like pension funds, for example, who are after a steady and known return.
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So that's what a PPA does.
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And you know, these these assets um when when we build them, they they have a 40-year life.
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So we don't need a fixed price to cover the full life of the asset.
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But something like 10 to 15 years, even 20 years, gives that um initial investor that solid return so they're willing to put that money up front and risk it in terms of the build.
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And thinking about the fixed price that um a CFD can deliver.
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The CFD itself isn't all that you need.
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What you also need is a CFD PPA, as we would term it.
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So the CFD has settled through a difference payment between a wholesale market reference price and the renewable project's fixed CFD strike price.
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So for the developer to actually achieve their fixed CFD strike price as their revenues for their power, they need to sell their power into the market at a price as close as possible to that reference price, which is called the intermittent market reference price, or IMRP for short, which is built up from two kind of day-a-head wholesale market um indices.
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So therefore, a developer will seek what we call a CFD PPA, where an off-taker such as EDF or others pays the developer a price linked to the IMRP, subtracting certain balancing costs from that, to allow the generator to achieve close to their CFD strike price for the power they produce, and then it can deliver all that Andy's just said.
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Yeah, and and I'd just like to add to that, um, to what Tom's saying.
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We've really seen utilities and suppliers step up to the plate over the last couple of years.
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So we went to market recently for some we've we've got some AR4 sites, actually.
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The CFD started 1st of April this year.
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So we went out to market in Q1 and and we were staggered by not only the amount of off-takers there were out there willing to offer CFD PPAs in the way that Tom describes, but also the competitiveness.
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Um and it was really interesting to see there were a lot of off-takers offering 15-year agreements, which is ideal because it it fits with a 15-year CFD.
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Um the structures were also there to kind of fit much better with the CFD than they would have done two or three years ago.
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So I think the market's kind of adapting to that kind of position in supporting um in supporting renewable developers alongside the government with the CFD.
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I mean, how does the CFD, CFD with a PPA, compare with a C PPA?
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Yeah, and that's the um that that's the interesting question, and I think that the one we're all grappling as developers, it's the one we're grappling over.
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So I'll give you an example.
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We've got um we've got 10 Innova have got 10 sites um which could apply for the upcoming CFD auction round, so AR7, which last week it was announced the timing for that um will be applications in August this year.
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But the process is quite um long and arduous.
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So although the application opens in August this year, potentially depending on timing of appeals and things like that, the results might not come out until Q1 next year.
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So that's quite a long time for us to wait.
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So the direct answer to your question is, you know, what's what's the difference?
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What's the difference in attractiveness?
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The CFD, as is often pointed out, does give us a government-backed um, you know, uh security for our um our price alongside the the PPA from the off-taker.
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So that's really good.
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It's government-backed, so that's high credit.
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Um, is CPI index linked, which again is something that's really important for investors.
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However, it does only come around once a year, and actually it's been 18 months since the last one, so it does only come out come out around once a year or once every 18 months, by which time we have a whole load of sites.
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You know, we're not we're not developing our sites to time with the auction, the auction happens.
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So we've got all these sites that are ready to build, they've got their planning consents, they've got their grid consents, they've got their land options.
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They've just been sitting there waiting for the CFD auction.
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So the CFD auction's brilliant, the price is great, but also it's not necessarily that flexible in terms of timing.
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Now, CPPAs, on the other hand, we can go to market and say at any point in time, okay, this project's ready, we're ready for a CPPA.
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Now, the the the challenge with the CPPA is they can take a long time to negotiate.
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So you often got three parties in the room.
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You've got the developer, you've got the off-taker, the the final off-taker, the company, but you've also got a supplier sitting in the middle as well.
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And so that is the challenge around getting to a point where you can agree price, but then getting the the contract negotiated in good time, such that you're not then sitting across a CFD round.
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I think that's the challenge that is sitting the market at the moment.
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Aaron Powell And to pick up on a couple of points Andy was making there, I think price is a key point of difference between a CFD and a C PPA.
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So a developer such as Innova will need to choose between these two different routes to market for their project ultimately and pick what they think is best.
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But um when a corporate would normally look at what do I want to pay for a corporate PPA, they would normally look at Ford power prices, future power price curve, determine the price they'd be willing to pay.
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Um, because that's the comparator.
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And recently Ford power prices have, in the main, stayed broadly flat looking over the long term.
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However, on the other hand, the price developers are willing to sell at um is the other part of the equation here.
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Um and in a corporate PPA it's driven by costs, supply chain, um and these have risen, supply chain, cost of capital, inflation, etc., so we're hearing.
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Um and this is we we believe leading to a bit of a growing bid offer spread on corporate PPAs, where corporates are willing to only pay at one price, perhaps developers need a higher price to be able to um, you know, build the prop the the project profitably.
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Um so that's become a bit of a challenge.
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Whereas in the CFD, um the prices that um that we've seen in recent allocation rounds, auction rounds, have been a bit higher than the prices that we're more frequently seeing from corporates at the moment when bidding for a CPPA.
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So um there's that that that's a that's a a key point of difference between a CFD and a CPPA.
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Um another factor is what Andy also said about um with a with a CPPA, there's often a third party at the table, um, what we'd refer to as a firming partner.
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Um this is where if the corporate PPA is a is a physical corporate PPA, then someone like EDF will need to take the intermittent power that comes from the renewable project, shape it into a baseload block of power through doing some buys and sales in the market, and then sleeve it into the corporate's supply agreement to make that make that structure work.
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And that, of course, does lead to an extra set of agreements that need to be negotiated.
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So it is that needed for the s both for the CFDs and the CPPAs?
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Aaron Ross Powell, Jr.
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So it's not needed for the CFD, indeed.
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So there's in a in a CFD PPA.
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I guess you could say there's still multiple parties, there's the government who's putting in place a a CFD with the developer, but that is the document, you have to just sign it or not.
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Um but then there's only one other document, which is um between the the developer and their project and the um and an off-taker of a CFD PPA.
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Whereas in a corporate PPA, you have um the agreement between the developer to sell the power to the corporate, then the corporate on-sells that power to someone such as EDF, a firming partner, who can do that firming from intermittent variable output to base load, and then an agreement where you where that firming partner sleeves the power of that base load blocker power into the supply agreement.
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So there's there's an extra agreement there, if you see what I mean.
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An extra agreement to negotiate.
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So it adds a little complexity.
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Aaron Ross Powell But from an EDF point of view, it's no real problem if they go down either route.
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Absolutely.
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We're you know very happy to to work with developers whichever route they're um they're going down, be it um working on a CFD PPA for a new asset where it has a has a CFD, or um or working to facilitate a corporate PPA where a developer and a corporate have agreed a price that they're both happy with.
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Yeah, and I I'd say on the on the same note, we're really happy to do either as well.
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And I think from a sort of funder risk point of view, at the moment we're in a position where you know I've mentioned we've got these 10 sites and there'll be other developers with more sites and others with less.
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To put all our eggs in one basket is quite a risk.
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Because one thing we haven't mentioned about the CFD is there's no guarantee of the price of the CFD.
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So the CFD is very much um budgets are set every year.
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We don't know what the budgets are yet for this year, even though the auctions um or the application window is coming up in July.
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Um and so it's a function of the budgets that are set, the administrative strike price, which is the maximum price that can be achieved, and that's set again by the government and hasn't been released yet, and also the competition.
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So if there's, you know, if we're up against um thousands of megawatts or multiple gigawatts of other solar and onshore wind farm, because we'll be in a pot with our solar sites with onshore wind as well, and the budget's lower than last year, then the outturn's likely to be lower, and maybe we'll end up with with you know some of our sites not even achieving a CFD.
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So, you know, like uh Tom said, from EDF's point of view, they're fairly um agnostic, I guess, towards the route.
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I think we are as well, and for us, having all our eggs in that CFD basket is not a position we'd we'd like to be in.
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So, you know, we're doing what we can to encourage customers to the table.
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Um, and we recognise the challenges for customers, and it's something I think you know we'll also work with suppliers with to try and sort of bridge that gap if we can.
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With the recent increase in the frequency of CFDs and prices, how will that affect the CPPA market?
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And if developers, after leaning towards CFDs, how can they corporate still secure a renewable project in the CPPA and to arrive at an effective procurement strategy?
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Yeah, maybe maybe I'll it's okay if I start with that one.
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So I think the challenge at the moment, um and again sort of coming back to looking at things, and it sounds very developer-centric what I'm saying, but the challenge for us at the moment when we do have, you know, a known auction, a known CFD auction, that we, given the kind of the drive towards net zero, I think we're fairly confident, and I think most people are, that this CFD auction should be a good one in terms of the number of projects that get awarded a CFD.
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So I think when we're when we're faced with that, um it's very difficult for us then as investors to then sink a lot of time and effort into a corporate um who's potentially not willing to sort of pay the price that the CFD is going to outturn at.
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Um but I think it's not just a price thing, because I think we would, as I said before, we we cannot really um determine the price of the CFD with with um with you know um ultimate certainty.
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Um but it's also the the process.
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And I think you know Tom will admit that you know we've been involved in CPPAs together, the process can take a very long time, partly because of the the number of contracts that um Tom alluded to earlier, but also none of those contracts are standard.
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So if we do a CFD, for example, you know, we've done CFDs before, so we know the terms that are coming out, they vary a little bit each year, um, but that's all sort of slightly small variations, and it's very much take it or leave it.
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And again, with the utility PPAs that go alongside the CFD, they're relatively straightforward.
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You know, they're they're gonna pay us the day-ahead price, they're gonna charge a bit of a fee.
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The terms are pretty well known in the industry.
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The corporate PPAs where you're working with a corporate, again, who I've got a lot of sympathy with because energy contracts isn't their core business, so they're gonna employ a really good lawyer and there's some great lawyers out there.
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We're talking about a 15-year energy deal.
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And then you've also got the the firming counterparty.
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Again, you know, EDF offer that service.
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There's, you know, numerous other um off takers who do that as well.
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We're happy with complexity, you know, there's val value there.
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The normal typical CPPA, I think, from start to finish, takes something between nine and twelve months.
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That's a lot of effort for a business um to sink in, pay lawyers, and and also time to wait when we've got a project that's ready to build, but we can't actually reach financial close until we've secured that contract.
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So I think as well as the price that we've mentioned earlier, and and obviously the forward curve is relatively flat at the moment, so maybe the price that corporates are willing to pay is not what it was.
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I think if we can, between us within the industry, achieve a kind of a greater speed to market so that we can get CPPAs wrapped up in say two to three months, I think they could be quite attractive for a developer who's got a project ready to go, but he knows he's gonna have to wait nine to twelve months for the next CFD auction.
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Would you know we'd happily go out and do very much?
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Are things becoming slightly more less bespoke, slightly more off the peg to make that, you know, contractually.
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I mean, maybe more.
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That that would that would be great.
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But I think that's uh I think we'd all like to do that.
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Um but uh there there's a there's a lot of willingness out there, but I I it's just not been done yet.
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I think um I agree with what Andy said there.
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Um no question, um CPPAs are more complex to get negotiated.
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Um, particularly, as you say, Andy, um when a corporate hasn't n some corporates haven't done many corporate PPAs before.
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So um it can be a bit new and a bit a bit different.
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Um we've um on the standardization of terms, we've um we try to standardize ours that we use as much as possible, starting from what we think is like a really you know fair position to try to make things as quick and fair and easy as possible.
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It's not always simple though, because um there are risks involved and um we have to be really transparent and open with those risks, where they're sitting and that kind of thing.
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Um so that that that can lead to um things being a bit more tricky.
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But we um we try as much as possible to start from a fair position um and a standard position, such that if we do more business with with certain corporates or developers, um we're kind of starting from the same place.
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In terms of um what can a corporate do, in in in our opinion, to um to give themselves as good a chance as possible of securing a CPPA, I think I think there's probably a few things.
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I think um uh I think uh knowing what you ideally want is uh is important.
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So is it do you do you particularly want wind or solar, for example?
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Do you know when you want this to start?
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Do you know how long you want it to be?
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Um the duration.
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Um with that kind of um knowledge of what was what would suit your business best, I think's um really useful right up front.
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I think, like Andy said, getting the right support as well is is really valuable, be it the right advisors to help with uh an RFP or a tender process, the right law firms with the right experience in corporate PPAs in the past, who'll have a good feeling for what kind of like market standard terms and positions are.
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I think that can be really helpful.
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I also think what's really useful is getting like the board on board early, such that um you know what your approval and governance route is to get a corporate PPA done.
00:18:51.440 --> 00:19:01.200
Because we have seen challenges in the past where um, for example, the procurement, the energy procurement team's done an amazing job pushing forward with a corporate PPA, gets to the uh the CFO and they go, hang about, what's this?
00:19:01.359 --> 00:19:03.039
Um not a chance for this reason.
00:19:03.200 --> 00:19:08.880
So um getting those key stakeholders internally on board really early is a really great way of being able to move at speed.
00:19:08.960 --> 00:19:29.359
Um if you've got the agreements in place and you're you know you've got the right advisors there and you've got your board ready to sign up to these, I think it gives the best possible chance of um of getting a CPPA done with a developer, especially bearing in mind that the s the developer is probably also going to be looking at potentially when's that next CFD round coming up for for the reasons we discussed earlier.
00:19:29.440 --> 00:19:38.240
Aaron Ross Powell I mean, from the point of view of uh corporate itself, you said obviously price is important, but are some prepared to pay a premium for certainty?
00:19:38.799 --> 00:19:45.359
Is that Yeah, I think I think there's a few reasons beyond just price that a corporate would um would choose a corporate PPA.
00:19:45.519 --> 00:19:58.160
Because uh a few years ago there was a strong price argument because the price a corporate could agree a corporate PPA with a developer at was a bit below long-term projections of price when prices were very high energy crisis times.
00:19:58.400 --> 00:20:04.160
That isn't the case quite so much anymore, but there are other-there are some other really strong reasons to still want to do a corporate PPA.
00:20:04.400 --> 00:20:22.880
For a start, like our uh energy market in GB is moving away from having lots of long-term forward liquidity that you know that currently, you know, and particularly in the past, a corporate could forward-hedge their purchases of power, um, and they could gain that budget certainty by by purchasing into the future.
00:20:23.119 --> 00:20:36.480
That forward liquidity is decreasing as more coal and gas come off the system and renewables aren't necessarily selling forward so much, and instead there's more more generation, more power going through the day-ahead market.
00:20:36.720 --> 00:20:49.519
So um actually being able to lock in the liquidity, the con you know, the confirmed power from a renewable project into the future is really valuable because you're guaranteeing yourself that liquidity and you know you're guaranteeing yourself some some price certainty.
00:20:49.759 --> 00:20:55.599
So that's a really important um uh factor as well, considering a corporate PPA.
00:20:55.759 --> 00:21:00.079
Also, of course, you've got the green credentials, the renewable credentials that it brings.
00:21:00.240 --> 00:21:04.000
You've you know, if it's a new project, you've got that you know that that additionality.
00:21:04.079 --> 00:21:05.680
You know, it's marketing gold dust, isn't it?
00:21:05.839 --> 00:21:09.279
You've actually helped this new renewable project get built.
00:21:09.440 --> 00:21:10.960
If it wasn't for you, it wouldn't have happened, kind of thing.
00:21:11.119 --> 00:21:21.519
So you've been truly instrumental in helping that developer bring new renewable megawatts onto the grid in GB and taking us that one step closer to like, you know, the the government's ambitions of Clean Power 2030.
00:21:21.920 --> 00:21:35.039
Yeah, and I think that's the it's the additionality piece, I think, that has driven a lot of corporates where we've seen successful corporate PPAs is because that corporate or that customer has made a lot of statements about you know wanting to do the right thing for the environment.
00:21:35.279 --> 00:21:41.680
And and obviously, you know, I d and and I don't really want to trash green tariffs here, but if you're buying a green tariff, it's it's good.
00:21:41.759 --> 00:21:46.400
You're getting the you are getting the megawatts and they've been certified from the um from the generator.
00:21:46.640 --> 00:21:48.720
However, that generator would have been generating anyway.
00:21:48.960 --> 00:22:02.799
What you're getting with the corporate BPA is you're you're buying into something that without your help, and this is genuine, because as I was saying earlier, you know, we're not gonna we can't develop, our investors aren't gonna invest until We sign something, whether that's a C F D or a C PPA.
00:22:02.960 --> 00:22:10.079
So it's is genuine to say that when that um customer signs that PPA, it allows the project then to go and build.
00:22:10.240 --> 00:22:15.279
And you're really making a difference because you'll bring a new renewable power onto the system, which is going to displace gas.
00:22:15.519 --> 00:22:21.279
And it's it's funny to see how kinda sad to see actually how some customers kind of step back from their position a little bit.
00:22:21.440 --> 00:22:28.559
So we've been involved in tenders and customers have said to us, yeah, you know, additionality is so important to us.
00:22:28.720 --> 00:22:40.079
We lose out, and then we read in the press a few months later, or maybe a year later, that a corporate PPA has been signed with a CFD-backed um offshore wind farm, which was already generating anyway.
00:22:40.160 --> 00:22:50.000
So there's, you know, there's no additionality, but again, sympathizing with the customer, I think they've seen a price differential there, because obviously they're going to have to pay the price to bring the new project on.
00:22:50.160 --> 00:22:57.440
And they've obviously chosen that, and maybe the financial director has got involved and chosen the cheaper and and more kind of cost-effective option.
00:22:57.680 --> 00:22:59.119
And that that's where the challenge lies, really.
00:22:59.440 --> 00:22:59.599
Yes.
00:23:00.240 --> 00:23:03.920
What are some of the key elements of CFDs and CFD PPPAs?
00:23:04.079 --> 00:23:07.519
And what does EDF do for CFD PPPAs, Tom?
00:23:08.000 --> 00:23:12.799
Yeah, so um as Andy said, the they're relatively standard in some ways.
00:23:12.960 --> 00:23:22.880
And we have a standard CFT PPA, which we believe meets the needs of developers like Andy at Innova, um, who have a CFD and need to sell their power through a PPA.
00:23:23.119 --> 00:23:28.319
A couple of the key features in an AVUA, um, in the main these are these are index link PPAs.
00:23:28.400 --> 00:23:31.599
They're linked to a market index, the intermittent market reference price.
00:23:31.759 --> 00:23:44.400
So as you mentioned earlier, the developer needs to be paid for their power, the intermittent market reference price, um, to then when they get their difference payment from government to the CFD, it adds up to just about their CFD strike price.
00:23:44.480 --> 00:23:46.319
That gives them that fixed price that they really need.
00:23:46.480 --> 00:23:50.720
Um that's probably the key feature, really, of the CFD PPA.
00:23:50.880 --> 00:23:54.240
Paying the developer the intermittent market reference price.
00:23:54.400 --> 00:23:56.160
Some some other important bits as well.
00:23:56.319 --> 00:23:59.440
I think negative price protection is important.
00:23:59.599 --> 00:24:13.119
So um under the current terms of the current CFDs, a project doesn't get paid that difference payment between the intermittent market reference price and its fixed CFD strike price if those day-a-head prices go negative.
00:24:13.440 --> 00:24:29.039
So a generator needs to know when that happens, because if they didn't know and didn't switch off or curtail, then they would be basically paying to generate, because they would still get paid the intermittent market reference price, but that would be a negative number.
00:24:29.119 --> 00:24:30.640
So it'd actually be paying to generate.
00:24:30.799 --> 00:24:39.759
So um a k a a key term in um CFT PPAs is to let the developer know, because we you know EDF and other odd takers, we'll monitor the market very carefully.
00:24:39.920 --> 00:24:45.279
Let them know when prices go negative, such that they can decide to curtail, to stop generating.
00:24:45.519 --> 00:24:53.920
Um actually we can as EDF, we actually also offer to carry out that switching off or curtailment service ourselves for the for the generator.
00:24:54.079 --> 00:25:00.400
We can offer to control the site through trade point and control point services in addition to CFT PPA.
00:25:00.799 --> 00:25:05.279
Yeah, and I I think that negative price point that Tom picked up on there is is really pertinent.
00:25:05.440 --> 00:25:08.000
We've seen a lot of negative prices this year.
00:25:08.079 --> 00:25:16.000
Um I think there was one on a Tuesday during the day last week, like you know, midweek, um daytime negative prices, which I don't think anybody foresaw.
00:25:16.160 --> 00:25:18.880
There were some weekends in early April.
00:25:19.039 --> 00:25:22.799
We probably all remember it was it was sunny but also windy outside, a little bit cold.
00:25:22.880 --> 00:25:34.720
Um, but it meant there was a lot of wind on the system, a lot of solar on the system at weekends, and we saw you know a a day where you know you know all the all the hours of sunlight were were negative, and it was really important to us as a generator.
00:25:34.799 --> 00:25:41.599
You know, we worked out how much we could have lost across our three sites if we'd have continued to generate, and you know, the numbers were relatively large actually.
00:25:41.759 --> 00:25:45.759
So having that service from somebody like EDF um is is really important.
00:25:45.839 --> 00:25:52.799
So having that notification and whether we choose to do it ourselves or whether it's done by the supplier is is really, really important.
00:25:53.279 --> 00:25:56.559
I think in terms of the structure, um Tom's absolutely right.
00:25:56.640 --> 00:26:02.640
Um, you know, we want to get paid the day ahead index so that it matches perfectly with our CFD.
00:26:02.880 --> 00:26:07.519
I guess the other nuance commercially is the way um balancing is charged.
00:26:07.599 --> 00:26:18.240
So, you know, suppliers naturally will charge for balancing because what actually turns up in a particular settlement period is not necessarily what's been forecast and is, you know, is very hard to forecast that with great accuracy.
00:26:18.400 --> 00:26:26.559
So there is an imbalance price, and that imbalance price can either be charged as a percentage of the market, which is the traditional way of doing it, or as a fixed price.
00:26:26.720 --> 00:26:34.640
Now, if it's a percentage of the market, it means that if the market's particularly high, as a generator, we're going to be paying more for balancing.
00:26:34.880 --> 00:26:41.119
And it means actually our CFD kind of price, if you like, is eroded a little bit more than it would have been.
00:26:41.359 --> 00:26:59.519
So what we've seen over the last few years is more and more utilities offering fixed price, so fixed price balancing for a long period, which then if we get a fixed price balancing, then we can lock in, we know exactly what we're going to get for every megawatt we generate, because it's going to be the CFD price less that fixed price balancing.
00:26:59.920 --> 00:27:01.599
What sort of long-term price are we talking?
00:27:02.000 --> 00:27:03.200
What sort of how long term?
00:27:03.519 --> 00:27:04.720
Oh, um up to 15 years.
00:27:04.960 --> 00:27:05.039
Yeah.
00:27:05.279 --> 00:27:05.440
Yeah.
00:27:05.519 --> 00:27:16.480
So we have seen, I mean, not you know, I wouldn't say there's there's loads of 15-year offers out there, because again, I recognise having worked for a supplier in the past, I recognise there's a lot of risk that um they're taking on.
00:27:16.559 --> 00:27:19.200
But yeah, it's fair to say there are they do exist.
00:27:19.359 --> 00:27:22.400
They do exist to match with the um the length of the CFD.
00:27:22.480 --> 00:27:24.000
And and obviously they're attractive.
00:27:24.160 --> 00:27:26.079
You know, and then there's a payoff for us as a developer.
00:27:26.240 --> 00:27:35.759
Okay, we can fix it longer, but the price might be slightly higher because the supplier's taking on more risk, or we can go shorter and then hope that when we come to renew the the price is going to be there again.
00:27:36.240 --> 00:27:40.000
And I completely agree with what Andy said there about the uh the balancing discount.
00:27:40.160 --> 00:27:51.759
Um from a supplier or off-taker perspective, um what you tend to see is that the cost of that, those balancing actions kind of actually correlate quite well with wholesale market prices.
00:27:51.920 --> 00:27:54.000
If prices are higher, it tends to cost a bit more.
00:27:54.160 --> 00:27:55.920
Prices are lower, it tends to cost a bit less.
00:27:56.160 --> 00:27:58.079
Also correlates with volatility as well.
00:27:58.240 --> 00:28:07.759
Um so from a from a supplier perspective, an off-taker perspective, um a percentage link works really well because it more directly correlates with the costs we incur to do that balancing.
00:28:08.000 --> 00:28:18.319
But we absolutely understand the need of the developer to have as much, let's call it, um, bankability, fixed price certainty as possible for that for that investment case.
00:28:18.400 --> 00:28:27.200
So um so yeah, we can we can offer different types of um a balancing discount, but then of course, um when it is a a fixed pounds per megawatt hour discount, there's a little bit of extra risk.
00:28:27.359 --> 00:28:30.079
So um, yeah, a little bit more built in there.
00:28:30.319 --> 00:28:38.160
But um another to pick up on another point, um the negative price periods we're seeing, really seeing them increase.
00:28:38.240 --> 00:28:49.519
I think we had, you know, it's 2025, we've had a a very sunny kind of March, April, early May period, which has been lovely from a like a personal perspective to get out in the sun.
00:28:49.759 --> 00:28:54.720
But what it has meant is um we've seen the real power of solar cannibalization.
00:28:54.799 --> 00:29:14.160
It's and that's manifested in um, you know, suppressing the power prices, negative prices, um peak prices being higher than uh sorry, being lower than baseload prices, basically meaning, you know, the hours in the middle of the day um costing, you know, or being worth less than the hours overnight, even though that's not when you have a lot of consumption, is it?
00:29:14.319 --> 00:29:16.799
And that's the power of solar cannibalization, basically.
00:29:16.960 --> 00:29:21.599
Um and it's not just the GB rollout of solar that's led to that.
00:29:21.759 --> 00:29:23.599
It's also the interconnection with Europe.
00:29:23.759 --> 00:29:28.880
So there's a lot of rooftop solar being built in Europe, particularly the Netherlands, places like this.
00:29:29.039 --> 00:29:36.319
And when there's a lot of sun in the Netherlands, you'll get you'll get a lot of solar coming across the interconnector, further cannibalizing prices in GB.
00:29:36.400 --> 00:29:38.400
So like um we've been seeing this over the last few years.
00:29:38.480 --> 00:29:40.640
We've been seeing that cannibalization really increase.
00:29:40.799 --> 00:29:50.480
And this is where it's so important to be doing our analysis correctly to factor those kind of effects into balancing discounts and the like in PPAs.
00:29:50.799 --> 00:29:51.759
Yeah, no, I agree with that.
00:29:51.839 --> 00:30:09.359
And it's quite fascinating actually to watch the change of um the price shape, basically, because uh, you know, I've been knocking around for a few years and I remember when you know prices just followed demand, you know, and and like you say, to see daytime prices in a in a weekday be well below nighttime prices is is a real change.
00:30:09.519 --> 00:30:17.839
And these are the kind of things that you know five or ten years ago, you know, traders said, you know, this will be coming in the future, and I don't think anybody quite believed it, and we're actually seeing it now.
00:30:18.079 --> 00:30:33.279
But I think what the in the next phase is quite interesting because you're gonna see um obviously demand's gonna be made up more and more of flexible kind of demands, like electric vehicles, for example, and also um we're seeing a lot of BES deployment, so battery energy storage deployment.
00:30:33.359 --> 00:30:38.480
And that's if you look at a lot of the um predictions, that's gonna go up exponentially over the next few years.
00:30:38.640 --> 00:30:40.160
So it's gonna be interesting.
00:30:40.240 --> 00:30:49.279
There's gonna be this kind of, you know, you might get more cannibalization one year, but then there might be um more deployment of BES assets, and it might kind of, you know, might smooth that out a little bit.
00:30:49.519 --> 00:30:58.160
And um, you know, I think it's I think that what's what's certain is the future is quite unpredictable, and I think it's very hard to uh to to know what's gonna happen next.
00:30:58.799 --> 00:31:04.400
I believe there are some changes planned and some uncertainty around the latest CFD allocation round.
00:31:04.640 --> 00:31:08.559
I mean, as of today, what's the latest news on the CFD allocation round?
00:31:08.640 --> 00:31:13.920
And do CFD delays risk the UK missing its uh clean power 2030 targets?
00:31:14.400 --> 00:31:28.400
Yeah, um maybe if I start on that um from a sort of developer's perspective, um yeah, it's been quite frustrating this year because we're so used to over the last couple of rounds that they've um since they made the manual three years ago, um they'll be coming every January.
00:31:28.480 --> 00:31:36.000
We've had the opportunity to to apply, and then what tends to happen is the process runs, and then by the summer you know whether you've got a CFD or not.
00:31:36.160 --> 00:31:40.000
And obviously there's been quite a delay this year, and and part of that is due to REMA.
00:31:40.240 --> 00:31:45.359
Um, and and you know, they wanted to make some decisions on REMA before they they launch the latest auction.
00:31:45.680 --> 00:31:48.400
So we do know the timing now, which is fantastic.
00:31:48.480 --> 00:31:59.680
Um we know that the um the application window, so um, that's the time that as a developer we need to make sure that we've got all our planning permissions, all our grid permissions, and all our land options.
00:31:59.839 --> 00:32:03.359
They need to be ready, they need to be signed, but they also need to be evidenced.
00:32:03.680 --> 00:32:10.319
So August is when we're gonna have to apply um as a developer for our uh new CFDs, and then there's a process that's run.
00:32:10.400 --> 00:32:31.359
And you know, I was talking before about the fact that there's certain budgets that the government um put forward, and you may get a situation where the the number of applicants and the value of those um applications uh under the budget, and therefore everybody who's applied gets a CFD, and that then the process is over very, very quickly.
00:32:31.759 --> 00:32:43.920
I don't think we're gonna see that this time round because you know we've we've we've looked at the data and there are a lot of um qualifying um onshore wind and and solar assets and offshore wind assets actually.
00:32:44.079 --> 00:32:52.799
So what tends to happen is that the um the amount of applicants or the value of those applicants will exceed the budget and therefore they'll have to they'll um run an auction.
00:32:52.880 --> 00:32:54.480
It's called a seal bid auction.
00:32:55.039 --> 00:33:09.519
But actually before you get to that stage, there's um you know, we're talking hundreds, if not thousands, of projects applying and the paperwork that you have to put forward is is I'd say quite immense, because you know, uh yeah, I oversee it within my team.
00:33:09.680 --> 00:33:17.920
And occasionally you get situations where the government or the the EMR body who's who's looking at those applications haven't seen everything they like about a project.
00:33:18.079 --> 00:33:24.799
For example, there might be some um there might be some planning application missing, and so they might say to a particular project, okay, you don't qualify this year.
00:33:25.039 --> 00:33:31.680
Because the CFD is so important, the um likelihood is that the developer would look at that and appeal against the decision.
00:33:31.839 --> 00:33:38.640
And so what you actually get, if you look at the timeline that's been published for AR7, I think there's about six or seven versions of that timeline.
00:33:38.799 --> 00:33:50.960
And we tend to always, in my experience, over the last two or three auctions, we've always tended to end up at the what they call the longest timeline, which means that there's been a first set of appeals against non-qualification.
00:33:51.440 --> 00:34:00.319
Those have haven't always been upheld, and therefore you get a second wave of appeals to off-gem, and that slows down the process, and then you get the sealed bid window.
00:34:00.480 --> 00:34:11.599
And I think if we're if we go to that timeline, then we're looking at sealed bids um being put forward in December, late December, and and the um auction results coming out in January.
00:34:11.679 --> 00:34:13.360
So that's quite a long time to wait.
00:34:13.519 --> 00:34:19.679
Um, but you know, again, the value of the CFD is there such that we're um, you know, we're we're happy to wait.
00:34:19.840 --> 00:34:25.119
But it is, I think it from our point of view, it has been a little bit frustrating because we've had lots of projects ready.
00:34:25.280 --> 00:34:30.559
We've been waiting for that application window, and uh it just it just hasn't happened in the to the timing that we'd have preferred.
00:34:31.039 --> 00:34:37.360
And to meet Clean Power 2030, allocation round seven is so crucial, it's so important.
00:34:37.599 --> 00:34:41.599
It needs to support as many renewable megawatts, new renewable megawatts as possible.
00:34:41.840 --> 00:34:45.920
So, you know, government needs to make it the most successful allocation round of all time.
00:34:46.000 --> 00:34:56.480
You know, AR7 and AR8, which will be a year after AR7, are absolutely crucial for Clean Power 2030 to deliver the huge renewable growth that we need.
00:34:56.559 --> 00:35:04.639
You know, it's like a a doubling of onshore wind, a tripling of solar, a tripling of offshore wind um compared to like the levels we have we have today.
00:35:04.719 --> 00:35:07.280
So that's a huge amount of build-out by the end of the decade.
00:35:07.519 --> 00:35:16.800
So um a key question will be around the capacity ambitions and the budget the government is willing to spend on the different pots within the CFD to make that happen.
00:35:17.039 --> 00:35:29.920
And you know, when we're seeing delays like we have been this year to to the CFD allocation rounds, this is where it's so important for there to still be a really strong corporate PPA market as well for clean power 2030 to be achieved.
00:35:30.000 --> 00:35:31.519
Aaron Ross Powell So that it ticks along in between.
00:35:32.000 --> 00:35:32.559
Trevor Burrus, Jr.: Absolutely.
00:35:32.719 --> 00:35:33.199
We need that.
00:35:33.440 --> 00:35:41.599
We need developers to be incentivized to come and invest in new renewal projects in Britain, and that can't just be dependent on the CFD.
00:35:41.679 --> 00:35:45.519
You know, corporate PPAs are a really crucial route to market for new projects as well.
00:35:45.599 --> 00:35:45.840
Trevor Burrus, Jr.
00:35:46.000 --> 00:35:46.480
Yeah, I agree.
00:35:46.639 --> 00:35:50.960
And and there is potential uh potentially a bit of responsibility on big consumers.
00:35:51.039 --> 00:35:59.840
You know, I'm thinking consumers who are going to start consuming more over the next few years, because you know they're they're obviously adding um some pressure onto the grid.
00:36:00.000 --> 00:36:20.559
And you know, I think those that are kind of come with um you know environmental pledges, it kind of fits quite nicely if they're able to kind of, let's say, they're expanding their operations because of EV or because of electric heating by you know 30 gigawatt hours over a particular period, then you know, to bring on a say 30 gigawatt hour um wind farm or solar farm at the same time kind of fits quite nicely.
00:36:20.639 --> 00:36:25.280
And so we're seeing we're talking to some customers at the moment and we're seeing that as a as a story.
00:36:25.519 --> 00:36:35.440
Um, you know, it is difficult to say the consumption that I'm consuming at the moment, it's really hard to lock in that price because I don't know if the price is going to be higher or lower than I could have otherwise bought it for.
00:36:35.599 --> 00:36:40.880
But if I've got new demand coming on, then matching that off with a new renewable development works quite night neatly.
00:36:41.039 --> 00:36:54.000
So I think one of the other features of the UK market over the next few years is as well as this kind of displacement of gas that we're seeing at the moment with new renewables coming on, you know, when we get beyond 2030, then we're seeing that push, that increase in demand.
00:36:54.079 --> 00:36:57.760
And, you know, those stats that um Tom just reeled off there.
00:36:57.840 --> 00:37:03.199
The other thing that people often miss is that demand's gonna double between 2030 and 2050.
00:37:03.440 --> 00:37:06.960
So, you know, we've got this big kind of gate, if you like, at 2030.
00:37:07.119 --> 00:37:09.760
It's not like we can just say, okay, 2030, we're done now.
00:37:09.920 --> 00:37:15.679
It's like then when then there's another push to keep that kind of renew renewable kind of growth at pace with demand.
00:37:15.760 --> 00:37:24.960
And I think that's where maybe corporates have got a real um or customers have got a real kind of role to play in, you know, matching that new demand with with new products.
00:37:25.280 --> 00:37:28.239
And this demands through electric vehicles, heat pumps, that sort of thing.
00:37:28.480 --> 00:37:30.880
Yeah, and some new industries like data centers as well.
00:37:31.199 --> 00:37:37.679
So, yeah, it's that general kind of data-driven world that's kind of creating this and electric vehicles and electric heating.
00:37:38.000 --> 00:37:38.159
Yeah.
00:37:38.559 --> 00:37:46.960
And just flicking back to the CFD again, so I think there are some things that are gonna change in this in this uh in this iteration, this allocation around the of the CFT.
00:37:47.199 --> 00:37:50.559
So I think um I think so repowering of wind projects are now included.
00:37:50.719 --> 00:37:53.599
I think um there's a change to the budget methodology.
00:37:53.760 --> 00:38:04.639
So instead of setting a pound budget out out front, I think government's instead gonna set a capacity ambition um and then finalise the budget when they know what actual bids have been submitted.
00:38:05.119 --> 00:38:13.760
Which I think is positive because I think um it shows that they have ambition to bring on enough real megawatts to you know keep us on the keeping power.
00:38:14.159 --> 00:38:15.039
Explain repowering.
00:38:15.599 --> 00:38:21.679
Yeah, it's um it's when um a um a wind site, for example, has um uh come to end of life.
00:38:21.840 --> 00:38:28.239
You need to take off the old kit, because it's no longer any good, and then potentially build again on the same site.
00:38:28.400 --> 00:38:32.239
Um so that's yeah, repowering of of of of wind there, for example.
00:38:32.480 --> 00:38:37.920
Because um quite a few older sites will be reaching that end of life now, where they're no longer operable.
00:38:38.159 --> 00:38:41.840
You can't keep maintaining them, you know, for flogging a bit of a dead asset.
00:38:42.159 --> 00:38:46.000
But then there are some other changes as well that um are still being considered, I think.
00:38:46.159 --> 00:38:52.719
So I think um government's considering still relaxing some of the eligibility criteria for fixed bottom offshore wind.
00:38:52.880 --> 00:38:57.679
Um that could um, you know, particularly for projects that haven't obtained full consent, full planning consent.
00:38:57.760 --> 00:39:05.519
So that could potentially open up a load of extra projects and gigawatts that could be um that could be entering the auction.
00:39:05.920 --> 00:39:18.159
And I think they're also considering an extension of contracts from 15 years to potentially longer um the the CFD contract that is, which could be really beneficial to developers um in making the investment case work for for more assets.
00:39:18.719 --> 00:39:18.960
Yeah.
00:39:19.119 --> 00:39:21.360
Yeah, and I I was uh yeah gonna bring that one up.
00:39:21.519 --> 00:39:27.679
I think yeah, 20 years I think is um is is you know has been consulted on and is still under consideration.
00:39:27.840 --> 00:39:29.440
Not for this auction round, it has to be said.
00:39:29.519 --> 00:39:31.360
I think it's for for future auction rounds.
00:39:31.679 --> 00:39:43.679
But I think in in terms of um looking again at our sort of central topic today and the attractiveness of CPPAs versus CFDs, I think often it's quite a stretch for a customer to kind of commit to 15 years.
00:39:43.840 --> 00:39:45.679
And again, completely understand it.
00:39:45.760 --> 00:39:51.840
A lot of you know businesses don't know what they're doing in the next five years, let alone 15 years, to commit to that um length of time.
00:39:52.079 --> 00:40:00.960
I think the CFD if the CFD is extended to 20 years, obviously great for um great for investors, potentially great for consumers as well, because it might bring the price down.
00:40:01.360 --> 00:40:05.840
Um but again that that's something that customers potentially have got to compete against.
00:40:05.920 --> 00:40:09.840
Um so I think it's just something to put on customers and and suppliers' radars.
00:40:10.159 --> 00:40:16.000
I think the other um reform that's potentially coming down the tracks as well is um protection against negative prices.
00:40:16.400 --> 00:40:23.760
So one of the risks for us as a as a developer with a CFD, as we've already talked about a little bit, is there's gonna be negative prices.
00:40:24.000 --> 00:40:32.079
So if we so for example, if we build a 20 megawatt solar farm, we would expect that to generate roughly 20 gigawatt hours in a normal year.
00:40:32.320 --> 00:40:46.400
But if we see a high prevalence of negative prices where we're not um supported under the CFD and we'd actually have to pay to generate, so we'll get cartelment, then potentially that reduces the volume and the value of that um particular asset.
00:40:46.559 --> 00:40:48.159
So that's something that's at risk.
00:40:48.320 --> 00:40:55.360
The government are acutely aware of that risk and therefore are looking at ways that they can perhaps take that risk away from generators.
00:40:55.440 --> 00:41:05.039
And one of the ways would be, for example, to say, okay, during those negative prices, we still want you to switch off, but we'll pay you as sort of a deemed rate as if you had generated.
00:41:05.199 --> 00:41:07.519
Um so that those are things that are being explored.
00:41:07.599 --> 00:41:11.360
And again, I think the CPPA market just needs to be conscious of those as well.
00:41:11.440 --> 00:41:21.840
Because if going into a CPPA and negative prices are a okay, you've got to curtail and you're not going to get paid, then that potentially is a is is a risk for the attractiveness of CPPAs.
00:41:23.039 --> 00:41:25.920
So I'd like to thank you both today for such an interesting discussion.
00:41:26.079 --> 00:41:26.880
Thank you, Andy.
00:41:27.119 --> 00:41:27.760
Thank you, Tim.
00:41:27.920 --> 00:41:28.960
And thank you, Tom.
00:41:29.119 --> 00:41:32.480
And for the latest news and views, go to theenergist.com.
00:41:32.639 --> 00:41:35.199
And Tom, where should people go to find out more about EDF?
00:41:35.440 --> 00:41:38.960
Yeah, to hear more about EDF and get in contact about PPAs or corporate PPAs.
00:41:39.039 --> 00:41:44.320
You can find us on LinkedIn, so EDF Wholesale Market Services or on our website, EDF Energy.com.
00:41:44.559 --> 00:41:45.440
Thank you.
00:00:03.919 --> 00:00:07.360
The purpose really is to help Britain achieve net zero.
00:00:07.440 --> 00:00:14.880
We've got a Clean Power Action Plan 2030, and the Contract for Difference is one of the ways that can help get new renewable projects built.
00:00:15.119 --> 00:00:19.280
When that customer signs that PPA, it allows the project then to go and build.
00:00:19.359 --> 00:00:24.559
And you're really making a difference because you'll bring in new renewable power onto the system, which is going to displace gas.
00:00:25.760 --> 00:00:29.519
Welcome to the Talking Power podcast by the Energist and EDF.
00:00:29.679 --> 00:00:36.079
Today we're going to be looking at navigating the PPA landscape, CFDs versus corporate PPAs.
00:00:36.399 --> 00:00:39.039
I'm joined today by Tom Abbott from EDF.
00:00:39.439 --> 00:00:41.840
Hi Tim, I'm Tom Abbott, PPA Director at EDF.
00:00:41.920 --> 00:00:49.280
So we're the largest buyer of renewable power in Great Britain through power purchase agreements, or PPAs for sure, buying from all sorts of renewable generators.
00:00:49.439 --> 00:00:56.320
And within that we do a lot of work on corporate PPAs as well, facilitating corporates buying renewable power directly from renewable developers.
00:00:56.719 --> 00:00:58.640
And Andy Payman from Innova.
00:00:59.039 --> 00:00:59.679
Yeah, hi Tim.
00:00:59.759 --> 00:01:00.880
I'm Andy from Innova.
00:01:01.039 --> 00:01:02.479
I'm head of energy sales there.
00:01:02.719 --> 00:01:07.120
We're a renewable developer, so we have a number of solar sites and battery storage sites.
00:01:07.200 --> 00:01:16.480
And so we work with people like EDF and other suppliers to find routes to market through various means, and one of which is PPAs, another is CFDs.
00:01:16.799 --> 00:01:26.079
And so we've heard a lot about corporate power purchase agreements as a route to corporates to support renewable development, build, and new renewable projects.
00:01:26.159 --> 00:01:28.079
But what's the alternative options for development?
00:01:28.319 --> 00:01:29.200
The contract for difference.
00:01:29.359 --> 00:01:31.920
How does a CFD work in this in this context?
00:01:32.480 --> 00:01:34.640
In terms of what is the contract for difference?
00:01:34.879 --> 00:01:40.640
It's basically the latest iteration of um renewable subsidy or support mechanisms from the um from the government.
00:01:40.799 --> 00:01:44.640
And it's the purpose really is to help Britain achieve net zero.
00:01:44.719 --> 00:01:52.159
We've got a Clean Power Action Plan 2030, and the contract for difference is one of the ways that can help get new renewable projects built.
00:01:52.319 --> 00:02:00.640
And it can help renewable developers because it can guarantee them, in some ways, a fixed price, which is what they need to get um investment approval for those new projects.
00:02:00.799 --> 00:02:02.239
The government runs auction rounds.
00:02:02.319 --> 00:02:10.639
They tend to be once a year at the moment, where it invites renewable developers such as Innova to submit their renewable projects, kind of bidding a strike price.
00:02:10.800 --> 00:02:17.280
And then based on government's ambitions and budget, they award those contracts for difference to the winning projects.
00:02:17.599 --> 00:02:22.080
And it's only recently the CFDs really sort of come back on the agenda, I think, for SolarSites.
00:02:22.240 --> 00:02:27.439
So if you look back sort of two or three years, um the CFDs weren't really that strong.
00:02:27.520 --> 00:02:29.840
Um price was relatively low compared with costs.
00:02:29.919 --> 00:02:35.759
And so we as a developer and and independent generators were relying a lot on other markets.
00:02:36.000 --> 00:02:38.560
And so the corporate PPA market was pretty attractive.
00:02:38.719 --> 00:02:48.240
Corporates were offering long-term fixed prices that we couldn't get elsewhere, and that's why you know companies like us put a lot of effort into corporate PPAs.
00:02:48.400 --> 00:02:58.879
What we found last year with um auction round six, AR6, as it's often referred to, is it was a really strong um auction for SolarFarm and onshore wind as well.
00:02:58.960 --> 00:03:07.520
Um and the price that we got was um really attractive, and so that's where kind of the focus is now for developers.
00:03:07.680 --> 00:03:12.159
And I think what the other thing that's happened in the meantime is market price has has fallen.
00:03:12.319 --> 00:03:15.840
So it means the price that the corporate is willing to pay is slightly lower.
00:03:16.000 --> 00:03:22.800
And so it's just created this um I think this position we're in at the moment where PPAs just aren't getting away to the extent that they used to.
00:03:23.280 --> 00:03:30.080
So why does a renewable developer need one of these two options, the CPPA or the CFD, to develop a new renewable project?
00:03:30.240 --> 00:03:30.560
Andy.
00:03:30.879 --> 00:03:34.639
Yeah, um, that's a really good question, Tim, and and we're often asked that by off-takers.
00:03:34.719 --> 00:03:37.280
You know, why do you need such a long-term agreement?
00:03:37.520 --> 00:03:43.120
The simple reason or the simple answer is it costs a lot of money to build um renewable projects up front.
00:03:43.280 --> 00:03:55.599
So unlike, say, traditional thermal assets where maybe there was a lower build cost, but there was a cost to run the site as you as you move through the um site's life, with a renewable project, most of the cost is up front.
00:03:55.680 --> 00:04:00.080
And so you're asking investors to invest multi-million pounds in an asset.
00:04:00.240 --> 00:04:04.960
And to do that and not have any certainty over income is is quite a challenge.
00:04:05.039 --> 00:04:12.719
And and most funders of projects aren't aren't willing to do that, or if they do, they're going to charge quite a lot for their capital.
00:04:13.039 --> 00:04:23.759
So a fixed price really is gives that kind of certainty to investors, and investors are often funds like pension funds, for example, who are after a steady and known return.
00:04:23.920 --> 00:04:25.279
So that's what a PPA does.
00:04:25.439 --> 00:04:30.959
And you know, these these assets um when when we build them, they they have a 40-year life.
00:04:31.120 --> 00:04:34.480
So we don't need a fixed price to cover the full life of the asset.
00:04:34.639 --> 00:04:43.360
But something like 10 to 15 years, even 20 years, gives that um initial investor that solid return so they're willing to put that money up front and risk it in terms of the build.
00:04:43.839 --> 00:04:48.639
And thinking about the fixed price that um a CFD can deliver.
00:04:48.879 --> 00:04:51.360
The CFD itself isn't all that you need.
00:04:51.519 --> 00:04:54.720
What you also need is a CFD PPA, as we would term it.
00:04:54.879 --> 00:05:03.839
So the CFD has settled through a difference payment between a wholesale market reference price and the renewable project's fixed CFD strike price.
00:05:04.000 --> 00:05:22.319
So for the developer to actually achieve their fixed CFD strike price as their revenues for their power, they need to sell their power into the market at a price as close as possible to that reference price, which is called the intermittent market reference price, or IMRP for short, which is built up from two kind of day-a-head wholesale market um indices.
00:05:22.480 --> 00:05:40.000
So therefore, a developer will seek what we call a CFD PPA, where an off-taker such as EDF or others pays the developer a price linked to the IMRP, subtracting certain balancing costs from that, to allow the generator to achieve close to their CFD strike price for the power they produce, and then it can deliver all that Andy's just said.
00:05:40.399 --> 00:05:43.360
Yeah, and and I'd just like to add to that, um, to what Tom's saying.
00:05:43.680 --> 00:05:47.680
We've really seen utilities and suppliers step up to the plate over the last couple of years.
00:05:47.839 --> 00:05:52.560
So we went to market recently for some we've we've got some AR4 sites, actually.
00:05:52.639 --> 00:05:54.720
The CFD started 1st of April this year.
00:05:54.879 --> 00:06:05.920
So we went out to market in Q1 and and we were staggered by not only the amount of off-takers there were out there willing to offer CFD PPAs in the way that Tom describes, but also the competitiveness.
00:06:06.240 --> 00:06:14.879
Um and it was really interesting to see there were a lot of off-takers offering 15-year agreements, which is ideal because it it fits with a 15-year CFD.
00:06:15.040 --> 00:06:20.160
Um the structures were also there to kind of fit much better with the CFD than they would have done two or three years ago.
00:06:20.319 --> 00:06:29.279
So I think the market's kind of adapting to that kind of position in supporting um in supporting renewable developers alongside the government with the CFD.
00:06:29.759 --> 00:06:34.319
I mean, how does the CFD, CFD with a PPA, compare with a C PPA?
00:06:34.800 --> 00:06:41.839
Yeah, and that's the um that that's the interesting question, and I think that the one we're all grappling as developers, it's the one we're grappling over.
00:06:42.079 --> 00:06:43.759
So I'll give you an example.
00:06:43.920 --> 00:06:57.120
We've got um we've got 10 Innova have got 10 sites um which could apply for the upcoming CFD auction round, so AR7, which last week it was announced the timing for that um will be applications in August this year.
00:06:57.279 --> 00:06:59.839
But the process is quite um long and arduous.
00:06:59.920 --> 00:07:09.040
So although the application opens in August this year, potentially depending on timing of appeals and things like that, the results might not come out until Q1 next year.
00:07:09.199 --> 00:07:10.800
So that's quite a long time for us to wait.
00:07:11.040 --> 00:07:15.199
So the direct answer to your question is, you know, what's what's the difference?
00:07:15.279 --> 00:07:17.199
What's the difference in attractiveness?
00:07:17.519 --> 00:07:28.560
The CFD, as is often pointed out, does give us a government-backed um, you know, uh security for our um our price alongside the the PPA from the off-taker.
00:07:28.720 --> 00:07:29.519
So that's really good.
00:07:29.600 --> 00:07:31.600
It's government-backed, so that's high credit.
00:07:31.680 --> 00:07:35.839
Um, is CPI index linked, which again is something that's really important for investors.
00:07:36.000 --> 00:07:46.160
However, it does only come around once a year, and actually it's been 18 months since the last one, so it does only come out come out around once a year or once every 18 months, by which time we have a whole load of sites.
00:07:46.240 --> 00:07:50.160
You know, we're not we're not developing our sites to time with the auction, the auction happens.
00:07:50.319 --> 00:07:55.360
So we've got all these sites that are ready to build, they've got their planning consents, they've got their grid consents, they've got their land options.
00:07:55.439 --> 00:07:58.000
They've just been sitting there waiting for the CFD auction.
00:07:58.160 --> 00:08:04.240
So the CFD auction's brilliant, the price is great, but also it's not necessarily that flexible in terms of timing.
00:08:04.480 --> 00:08:11.199
Now, CPPAs, on the other hand, we can go to market and say at any point in time, okay, this project's ready, we're ready for a CPPA.
00:08:11.519 --> 00:08:16.160
Now, the the the challenge with the CPPA is they can take a long time to negotiate.
00:08:16.319 --> 00:08:18.000
So you often got three parties in the room.
00:08:18.079 --> 00:08:25.680
You've got the developer, you've got the off-taker, the the final off-taker, the company, but you've also got a supplier sitting in the middle as well.
00:08:26.079 --> 00:08:38.559
And so that is the challenge around getting to a point where you can agree price, but then getting the the contract negotiated in good time, such that you're not then sitting across a CFD round.
00:08:38.879 --> 00:08:41.039
I think that's the challenge that is sitting the market at the moment.
00:08:41.120 --> 00:08:48.240
Aaron Powell And to pick up on a couple of points Andy was making there, I think price is a key point of difference between a CFD and a C PPA.
00:08:48.320 --> 00:08:55.360
So a developer such as Innova will need to choose between these two different routes to market for their project ultimately and pick what they think is best.
00:08:55.440 --> 00:09:07.840
But um when a corporate would normally look at what do I want to pay for a corporate PPA, they would normally look at Ford power prices, future power price curve, determine the price they'd be willing to pay.
00:09:07.919 --> 00:09:09.360
Um, because that's the comparator.
00:09:09.440 --> 00:09:15.440
And recently Ford power prices have, in the main, stayed broadly flat looking over the long term.
00:09:15.519 --> 00:09:20.480
However, on the other hand, the price developers are willing to sell at um is the other part of the equation here.
00:09:20.639 --> 00:09:29.840
Um and in a corporate PPA it's driven by costs, supply chain, um and these have risen, supply chain, cost of capital, inflation, etc., so we're hearing.
00:09:30.000 --> 00:09:45.759
Um and this is we we believe leading to a bit of a growing bid offer spread on corporate PPAs, where corporates are willing to only pay at one price, perhaps developers need a higher price to be able to um, you know, build the prop the the project profitably.
00:09:45.840 --> 00:09:47.440
Um so that's become a bit of a challenge.
00:09:47.519 --> 00:10:01.120
Whereas in the CFD, um the prices that um that we've seen in recent allocation rounds, auction rounds, have been a bit higher than the prices that we're more frequently seeing from corporates at the moment when bidding for a CPPA.
00:10:01.360 --> 00:10:08.000
So um there's that that that's a that's a a key point of difference between a CFD and a CPPA.
00:10:08.240 --> 00:10:18.799
Um another factor is what Andy also said about um with a with a CPPA, there's often a third party at the table, um, what we'd refer to as a firming partner.
00:10:19.120 --> 00:10:40.320
Um this is where if the corporate PPA is a is a physical corporate PPA, then someone like EDF will need to take the intermittent power that comes from the renewable project, shape it into a baseload block of power through doing some buys and sales in the market, and then sleeve it into the corporate's supply agreement to make that make that structure work.
00:10:40.480 --> 00:10:45.440
And that, of course, does lead to an extra set of agreements that need to be negotiated.
00:10:45.919 --> 00:10:49.360
So it is that needed for the s both for the CFDs and the CPPAs?
00:10:49.440 --> 00:10:49.600
Aaron Ross Powell, Jr.
00:10:49.679 --> 00:10:51.600
So it's not needed for the CFD, indeed.
00:10:51.759 --> 00:10:53.840
So there's in a in a CFD PPA.
00:10:54.240 --> 00:11:03.759
I guess you could say there's still multiple parties, there's the government who's putting in place a a CFD with the developer, but that is the document, you have to just sign it or not.
00:11:03.919 --> 00:11:11.840
Um but then there's only one other document, which is um between the the developer and their project and the um and an off-taker of a CFD PPA.
00:11:12.000 --> 00:11:37.600
Whereas in a corporate PPA, you have um the agreement between the developer to sell the power to the corporate, then the corporate on-sells that power to someone such as EDF, a firming partner, who can do that firming from intermittent variable output to base load, and then an agreement where you where that firming partner sleeves the power of that base load blocker power into the supply agreement.
00:11:37.759 --> 00:11:40.639
So there's there's an extra agreement there, if you see what I mean.
00:11:40.879 --> 00:11:42.480
An extra agreement to negotiate.
00:11:42.720 --> 00:11:44.080
So it adds a little complexity.
00:11:44.240 --> 00:11:48.240
Aaron Ross Powell But from an EDF point of view, it's no real problem if they go down either route.
00:11:49.120 --> 00:11:49.519
Absolutely.
00:11:49.679 --> 00:12:04.960
We're you know very happy to to work with developers whichever route they're um they're going down, be it um working on a CFD PPA for a new asset where it has a has a CFD, or um or working to facilitate a corporate PPA where a developer and a corporate have agreed a price that they're both happy with.
00:12:05.440 --> 00:12:10.159
Yeah, and I I'd say on the on the same note, we're really happy to do either as well.
00:12:10.320 --> 00:12:20.320
And I think from a sort of funder risk point of view, at the moment we're in a position where you know I've mentioned we've got these 10 sites and there'll be other developers with more sites and others with less.
00:12:20.559 --> 00:12:23.120
To put all our eggs in one basket is quite a risk.
00:12:23.360 --> 00:12:27.919
Because one thing we haven't mentioned about the CFD is there's no guarantee of the price of the CFD.
00:12:28.000 --> 00:12:31.200
So the CFD is very much um budgets are set every year.
00:12:31.360 --> 00:12:37.200
We don't know what the budgets are yet for this year, even though the auctions um or the application window is coming up in July.
00:12:37.360 --> 00:12:49.279
Um and so it's a function of the budgets that are set, the administrative strike price, which is the maximum price that can be achieved, and that's set again by the government and hasn't been released yet, and also the competition.
00:12:49.519 --> 00:13:08.879
So if there's, you know, if we're up against um thousands of megawatts or multiple gigawatts of other solar and onshore wind farm, because we'll be in a pot with our solar sites with onshore wind as well, and the budget's lower than last year, then the outturn's likely to be lower, and maybe we'll end up with with you know some of our sites not even achieving a CFD.
00:13:09.120 --> 00:13:15.519
So, you know, like uh Tom said, from EDF's point of view, they're fairly um agnostic, I guess, towards the route.
00:13:15.759 --> 00:13:23.039
I think we are as well, and for us, having all our eggs in that CFD basket is not a position we'd we'd like to be in.
00:13:23.200 --> 00:13:27.679
So, you know, we're doing what we can to encourage customers to the table.
00:13:27.759 --> 00:13:35.039
Um, and we recognise the challenges for customers, and it's something I think you know we'll also work with suppliers with to try and sort of bridge that gap if we can.
00:13:35.519 --> 00:13:42.080
With the recent increase in the frequency of CFDs and prices, how will that affect the CPPA market?
00:13:42.320 --> 00:13:52.080
And if developers, after leaning towards CFDs, how can they corporate still secure a renewable project in the CPPA and to arrive at an effective procurement strategy?
00:13:52.399 --> 00:13:54.960
Yeah, maybe maybe I'll it's okay if I start with that one.
00:13:55.279 --> 00:14:18.000
So I think the challenge at the moment, um and again sort of coming back to looking at things, and it sounds very developer-centric what I'm saying, but the challenge for us at the moment when we do have, you know, a known auction, a known CFD auction, that we, given the kind of the drive towards net zero, I think we're fairly confident, and I think most people are, that this CFD auction should be a good one in terms of the number of projects that get awarded a CFD.
00:14:18.159 --> 00:14:33.039
So I think when we're when we're faced with that, um it's very difficult for us then as investors to then sink a lot of time and effort into a corporate um who's potentially not willing to sort of pay the price that the CFD is going to outturn at.
00:14:33.279 --> 00:14:44.799
Um but I think it's not just a price thing, because I think we would, as I said before, we we cannot really um determine the price of the CFD with with um with you know um ultimate certainty.
00:14:44.960 --> 00:14:46.960
Um but it's also the the process.
00:14:47.039 --> 00:14:59.440
And I think you know Tom will admit that you know we've been involved in CPPAs together, the process can take a very long time, partly because of the the number of contracts that um Tom alluded to earlier, but also none of those contracts are standard.
00:14:59.600 --> 00:15:10.320
So if we do a CFD, for example, you know, we've done CFDs before, so we know the terms that are coming out, they vary a little bit each year, um, but that's all sort of slightly small variations, and it's very much take it or leave it.
00:15:10.559 --> 00:15:15.200
And again, with the utility PPAs that go alongside the CFD, they're relatively straightforward.
00:15:15.279 --> 00:15:18.639
You know, they're they're gonna pay us the day-ahead price, they're gonna charge a bit of a fee.
00:15:18.799 --> 00:15:20.879
The terms are pretty well known in the industry.
00:15:21.120 --> 00:15:32.639
The corporate PPAs where you're working with a corporate, again, who I've got a lot of sympathy with because energy contracts isn't their core business, so they're gonna employ a really good lawyer and there's some great lawyers out there.
00:15:32.799 --> 00:15:34.799
We're talking about a 15-year energy deal.
00:15:35.039 --> 00:15:38.000
And then you've also got the the firming counterparty.
00:15:38.159 --> 00:15:40.159
Again, you know, EDF offer that service.
00:15:40.240 --> 00:15:43.919
There's, you know, numerous other um off takers who do that as well.
00:15:44.159 --> 00:15:47.200
We're happy with complexity, you know, there's val value there.
00:15:47.519 --> 00:15:52.799
The normal typical CPPA, I think, from start to finish, takes something between nine and twelve months.
00:15:53.039 --> 00:16:06.240
That's a lot of effort for a business um to sink in, pay lawyers, and and also time to wait when we've got a project that's ready to build, but we can't actually reach financial close until we've secured that contract.
00:16:06.480 --> 00:16:15.360
So I think as well as the price that we've mentioned earlier, and and obviously the forward curve is relatively flat at the moment, so maybe the price that corporates are willing to pay is not what it was.
00:16:15.679 --> 00:16:33.120
I think if we can, between us within the industry, achieve a kind of a greater speed to market so that we can get CPPAs wrapped up in say two to three months, I think they could be quite attractive for a developer who's got a project ready to go, but he knows he's gonna have to wait nine to twelve months for the next CFD auction.
00:16:33.279 --> 00:16:35.919
Would you know we'd happily go out and do very much?
00:16:36.080 --> 00:16:42.320
Are things becoming slightly more less bespoke, slightly more off the peg to make that, you know, contractually.
00:16:42.399 --> 00:16:43.200
I mean, maybe more.
00:16:43.600 --> 00:16:44.559
That that would that would be great.
00:16:44.639 --> 00:16:46.960
But I think that's uh I think we'd all like to do that.
00:16:47.039 --> 00:16:51.440
Um but uh there there's a there's a lot of willingness out there, but I I it's just not been done yet.
00:16:51.919 --> 00:16:54.720
I think um I agree with what Andy said there.
00:16:54.799 --> 00:17:00.799
Um no question, um CPPAs are more complex to get negotiated.
00:17:00.879 --> 00:17:07.759
Um, particularly, as you say, Andy, um when a corporate hasn't n some corporates haven't done many corporate PPAs before.
00:17:07.920 --> 00:17:10.319
So um it can be a bit new and a bit a bit different.
00:17:10.559 --> 00:17:25.440
Um we've um on the standardization of terms, we've um we try to standardize ours that we use as much as possible, starting from what we think is like a really you know fair position to try to make things as quick and fair and easy as possible.
00:17:25.680 --> 00:17:33.359
It's not always simple though, because um there are risks involved and um we have to be really transparent and open with those risks, where they're sitting and that kind of thing.
00:17:33.519 --> 00:17:36.559
Um so that that that can lead to um things being a bit more tricky.
00:17:36.720 --> 00:17:46.480
But we um we try as much as possible to start from a fair position um and a standard position, such that if we do more business with with certain corporates or developers, um we're kind of starting from the same place.
00:17:46.880 --> 00:17:56.960
In terms of um what can a corporate do, in in in our opinion, to um to give themselves as good a chance as possible of securing a CPPA, I think I think there's probably a few things.
00:17:57.119 --> 00:18:03.359
I think um uh I think uh knowing what you ideally want is uh is important.
00:18:03.440 --> 00:18:06.960
So is it do you do you particularly want wind or solar, for example?
00:18:07.200 --> 00:18:09.039
Do you know when you want this to start?
00:18:09.200 --> 00:18:11.119
Do you know how long you want it to be?
00:18:11.359 --> 00:18:13.519
Um the duration.
00:18:13.680 --> 00:18:21.359
Um with that kind of um knowledge of what was what would suit your business best, I think's um really useful right up front.
00:18:21.599 --> 00:18:38.319
I think, like Andy said, getting the right support as well is is really valuable, be it the right advisors to help with uh an RFP or a tender process, the right law firms with the right experience in corporate PPAs in the past, who'll have a good feeling for what kind of like market standard terms and positions are.
00:18:38.480 --> 00:18:39.920
I think that can be really helpful.
00:18:40.160 --> 00:18:51.279
I also think what's really useful is getting like the board on board early, such that um you know what your approval and governance route is to get a corporate PPA done.
00:18:51.440 --> 00:19:01.200
Because we have seen challenges in the past where um, for example, the procurement, the energy procurement team's done an amazing job pushing forward with a corporate PPA, gets to the uh the CFO and they go, hang about, what's this?
00:19:01.359 --> 00:19:03.039
Um not a chance for this reason.
00:19:03.200 --> 00:19:08.880
So um getting those key stakeholders internally on board really early is a really great way of being able to move at speed.
00:19:08.960 --> 00:19:29.359
Um if you've got the agreements in place and you're you know you've got the right advisors there and you've got your board ready to sign up to these, I think it gives the best possible chance of um of getting a CPPA done with a developer, especially bearing in mind that the s the developer is probably also going to be looking at potentially when's that next CFD round coming up for for the reasons we discussed earlier.
00:19:29.440 --> 00:19:38.240
Aaron Ross Powell I mean, from the point of view of uh corporate itself, you said obviously price is important, but are some prepared to pay a premium for certainty?
00:19:38.799 --> 00:19:45.359
Is that Yeah, I think I think there's a few reasons beyond just price that a corporate would um would choose a corporate PPA.
00:19:45.519 --> 00:19:58.160
Because uh a few years ago there was a strong price argument because the price a corporate could agree a corporate PPA with a developer at was a bit below long-term projections of price when prices were very high energy crisis times.
00:19:58.400 --> 00:20:04.160
That isn't the case quite so much anymore, but there are other-there are some other really strong reasons to still want to do a corporate PPA.
00:20:04.400 --> 00:20:22.880
For a start, like our uh energy market in GB is moving away from having lots of long-term forward liquidity that you know that currently, you know, and particularly in the past, a corporate could forward-hedge their purchases of power, um, and they could gain that budget certainty by by purchasing into the future.
00:20:23.119 --> 00:20:36.480
That forward liquidity is decreasing as more coal and gas come off the system and renewables aren't necessarily selling forward so much, and instead there's more more generation, more power going through the day-ahead market.
00:20:36.720 --> 00:20:49.519
So um actually being able to lock in the liquidity, the con you know, the confirmed power from a renewable project into the future is really valuable because you're guaranteeing yourself that liquidity and you know you're guaranteeing yourself some some price certainty.
00:20:49.759 --> 00:20:55.599
So that's a really important um uh factor as well, considering a corporate PPA.
00:20:55.759 --> 00:21:00.079
Also, of course, you've got the green credentials, the renewable credentials that it brings.
00:21:00.240 --> 00:21:04.000
You've you know, if it's a new project, you've got that you know that that additionality.
00:21:04.079 --> 00:21:05.680
You know, it's marketing gold dust, isn't it?
00:21:05.839 --> 00:21:09.279
You've actually helped this new renewable project get built.
00:21:09.440 --> 00:21:10.960
If it wasn't for you, it wouldn't have happened, kind of thing.
00:21:11.119 --> 00:21:21.519
So you've been truly instrumental in helping that developer bring new renewable megawatts onto the grid in GB and taking us that one step closer to like, you know, the the government's ambitions of Clean Power 2030.
00:21:21.920 --> 00:21:35.039
Yeah, and I think that's the it's the additionality piece, I think, that has driven a lot of corporates where we've seen successful corporate PPAs is because that corporate or that customer has made a lot of statements about you know wanting to do the right thing for the environment.
00:21:35.279 --> 00:21:41.680
And and obviously, you know, I d and and I don't really want to trash green tariffs here, but if you're buying a green tariff, it's it's good.
00:21:41.759 --> 00:21:46.400
You're getting the you are getting the megawatts and they've been certified from the um from the generator.
00:21:46.640 --> 00:21:48.720
However, that generator would have been generating anyway.
00:21:48.960 --> 00:22:02.799
What you're getting with the corporate BPA is you're you're buying into something that without your help, and this is genuine, because as I was saying earlier, you know, we're not gonna we can't develop, our investors aren't gonna invest until We sign something, whether that's a C F D or a C PPA.
00:22:02.960 --> 00:22:10.079
So it's is genuine to say that when that um customer signs that PPA, it allows the project then to go and build.
00:22:10.240 --> 00:22:15.279
And you're really making a difference because you'll bring a new renewable power onto the system, which is going to displace gas.
00:22:15.519 --> 00:22:21.279
And it's it's funny to see how kinda sad to see actually how some customers kind of step back from their position a little bit.
00:22:21.440 --> 00:22:28.559
So we've been involved in tenders and customers have said to us, yeah, you know, additionality is so important to us.
00:22:28.720 --> 00:22:40.079
We lose out, and then we read in the press a few months later, or maybe a year later, that a corporate PPA has been signed with a CFD-backed um offshore wind farm, which was already generating anyway.
00:22:40.160 --> 00:22:50.000
So there's, you know, there's no additionality, but again, sympathizing with the customer, I think they've seen a price differential there, because obviously they're going to have to pay the price to bring the new project on.
00:22:50.160 --> 00:22:57.440
And they've obviously chosen that, and maybe the financial director has got involved and chosen the cheaper and and more kind of cost-effective option.
00:22:57.680 --> 00:22:59.119
And that that's where the challenge lies, really.
00:22:59.440 --> 00:22:59.599
Yes.
00:23:00.240 --> 00:23:03.920
What are some of the key elements of CFDs and CFD PPPAs?
00:23:04.079 --> 00:23:07.519
And what does EDF do for CFD PPPAs, Tom?
00:23:08.000 --> 00:23:12.799
Yeah, so um as Andy said, the they're relatively standard in some ways.
00:23:12.960 --> 00:23:22.880
And we have a standard CFT PPA, which we believe meets the needs of developers like Andy at Innova, um, who have a CFD and need to sell their power through a PPA.
00:23:23.119 --> 00:23:28.319
A couple of the key features in an AVUA, um, in the main these are these are index link PPAs.
00:23:28.400 --> 00:23:31.599
They're linked to a market index, the intermittent market reference price.
00:23:31.759 --> 00:23:44.400
So as you mentioned earlier, the developer needs to be paid for their power, the intermittent market reference price, um, to then when they get their difference payment from government to the CFD, it adds up to just about their CFD strike price.
00:23:44.480 --> 00:23:46.319
That gives them that fixed price that they really need.
00:23:46.480 --> 00:23:50.720
Um that's probably the key feature, really, of the CFD PPA.
00:23:50.880 --> 00:23:54.240
Paying the developer the intermittent market reference price.
00:23:54.400 --> 00:23:56.160
Some some other important bits as well.
00:23:56.319 --> 00:23:59.440
I think negative price protection is important.
00:23:59.599 --> 00:24:13.119
So um under the current terms of the current CFDs, a project doesn't get paid that difference payment between the intermittent market reference price and its fixed CFD strike price if those day-a-head prices go negative.
00:24:13.440 --> 00:24:29.039
So a generator needs to know when that happens, because if they didn't know and didn't switch off or curtail, then they would be basically paying to generate, because they would still get paid the intermittent market reference price, but that would be a negative number.
00:24:29.119 --> 00:24:30.640
So it'd actually be paying to generate.
00:24:30.799 --> 00:24:39.759
So um a k a a key term in um CFT PPAs is to let the developer know, because we you know EDF and other odd takers, we'll monitor the market very carefully.
00:24:39.920 --> 00:24:45.279
Let them know when prices go negative, such that they can decide to curtail, to stop generating.
00:24:45.519 --> 00:24:53.920
Um actually we can as EDF, we actually also offer to carry out that switching off or curtailment service ourselves for the for the generator.
00:24:54.079 --> 00:25:00.400
We can offer to control the site through trade point and control point services in addition to CFT PPA.
00:25:00.799 --> 00:25:05.279
Yeah, and I I think that negative price point that Tom picked up on there is is really pertinent.
00:25:05.440 --> 00:25:08.000
We've seen a lot of negative prices this year.
00:25:08.079 --> 00:25:16.000
Um I think there was one on a Tuesday during the day last week, like you know, midweek, um daytime negative prices, which I don't think anybody foresaw.
00:25:16.160 --> 00:25:18.880
There were some weekends in early April.
00:25:19.039 --> 00:25:22.799
We probably all remember it was it was sunny but also windy outside, a little bit cold.
00:25:22.880 --> 00:25:34.720
Um, but it meant there was a lot of wind on the system, a lot of solar on the system at weekends, and we saw you know a a day where you know you know all the all the hours of sunlight were were negative, and it was really important to us as a generator.
00:25:34.799 --> 00:25:41.599
You know, we worked out how much we could have lost across our three sites if we'd have continued to generate, and you know, the numbers were relatively large actually.
00:25:41.759 --> 00:25:45.759
So having that service from somebody like EDF um is is really important.
00:25:45.839 --> 00:25:52.799
So having that notification and whether we choose to do it ourselves or whether it's done by the supplier is is really, really important.
00:25:53.279 --> 00:25:56.559
I think in terms of the structure, um Tom's absolutely right.
00:25:56.640 --> 00:26:02.640
Um, you know, we want to get paid the day ahead index so that it matches perfectly with our CFD.
00:26:02.880 --> 00:26:07.519
I guess the other nuance commercially is the way um balancing is charged.
00:26:07.599 --> 00:26:18.240
So, you know, suppliers naturally will charge for balancing because what actually turns up in a particular settlement period is not necessarily what's been forecast and is, you know, is very hard to forecast that with great accuracy.
00:26:18.400 --> 00:26:26.559
So there is an imbalance price, and that imbalance price can either be charged as a percentage of the market, which is the traditional way of doing it, or as a fixed price.
00:26:26.720 --> 00:26:34.640
Now, if it's a percentage of the market, it means that if the market's particularly high, as a generator, we're going to be paying more for balancing.
00:26:34.880 --> 00:26:41.119
And it means actually our CFD kind of price, if you like, is eroded a little bit more than it would have been.
00:26:41.359 --> 00:26:59.519
So what we've seen over the last few years is more and more utilities offering fixed price, so fixed price balancing for a long period, which then if we get a fixed price balancing, then we can lock in, we know exactly what we're going to get for every megawatt we generate, because it's going to be the CFD price less that fixed price balancing.
00:26:59.920 --> 00:27:01.599
What sort of long-term price are we talking?
00:27:02.000 --> 00:27:03.200
What sort of how long term?
00:27:03.519 --> 00:27:04.720
Oh, um up to 15 years.
00:27:04.960 --> 00:27:05.039
Yeah.
00:27:05.279 --> 00:27:05.440
Yeah.
00:27:05.519 --> 00:27:16.480
So we have seen, I mean, not you know, I wouldn't say there's there's loads of 15-year offers out there, because again, I recognise having worked for a supplier in the past, I recognise there's a lot of risk that um they're taking on.
00:27:16.559 --> 00:27:19.200
But yeah, it's fair to say there are they do exist.
00:27:19.359 --> 00:27:22.400
They do exist to match with the um the length of the CFD.
00:27:22.480 --> 00:27:24.000
And and obviously they're attractive.
00:27:24.160 --> 00:27:26.079
You know, and then there's a payoff for us as a developer.
00:27:26.240 --> 00:27:35.759
Okay, we can fix it longer, but the price might be slightly higher because the supplier's taking on more risk, or we can go shorter and then hope that when we come to renew the the price is going to be there again.
00:27:36.240 --> 00:27:40.000
And I completely agree with what Andy said there about the uh the balancing discount.
00:27:40.160 --> 00:27:51.759
Um from a supplier or off-taker perspective, um what you tend to see is that the cost of that, those balancing actions kind of actually correlate quite well with wholesale market prices.
00:27:51.920 --> 00:27:54.000
If prices are higher, it tends to cost a bit more.
00:27:54.160 --> 00:27:55.920
Prices are lower, it tends to cost a bit less.
00:27:56.160 --> 00:27:58.079
Also correlates with volatility as well.
00:27:58.240 --> 00:28:07.759
Um so from a from a supplier perspective, an off-taker perspective, um a percentage link works really well because it more directly correlates with the costs we incur to do that balancing.
00:28:08.000 --> 00:28:18.319
But we absolutely understand the need of the developer to have as much, let's call it, um, bankability, fixed price certainty as possible for that for that investment case.
00:28:18.400 --> 00:28:27.200
So um so yeah, we can we can offer different types of um a balancing discount, but then of course, um when it is a a fixed pounds per megawatt hour discount, there's a little bit of extra risk.
00:28:27.359 --> 00:28:30.079
So um, yeah, a little bit more built in there.
00:28:30.319 --> 00:28:38.160
But um another to pick up on another point, um the negative price periods we're seeing, really seeing them increase.
00:28:38.240 --> 00:28:49.519
I think we had, you know, it's 2025, we've had a a very sunny kind of March, April, early May period, which has been lovely from a like a personal perspective to get out in the sun.
00:28:49.759 --> 00:28:54.720
But what it has meant is um we've seen the real power of solar cannibalization.
00:28:54.799 --> 00:29:14.160
It's and that's manifested in um, you know, suppressing the power prices, negative prices, um peak prices being higher than uh sorry, being lower than baseload prices, basically meaning, you know, the hours in the middle of the day um costing, you know, or being worth less than the hours overnight, even though that's not when you have a lot of consumption, is it?
00:29:14.319 --> 00:29:16.799
And that's the power of solar cannibalization, basically.
00:29:16.960 --> 00:29:21.599
Um and it's not just the GB rollout of solar that's led to that.
00:29:21.759 --> 00:29:23.599
It's also the interconnection with Europe.
00:29:23.759 --> 00:29:28.880
So there's a lot of rooftop solar being built in Europe, particularly the Netherlands, places like this.
00:29:29.039 --> 00:29:36.319
And when there's a lot of sun in the Netherlands, you'll get you'll get a lot of solar coming across the interconnector, further cannibalizing prices in GB.
00:29:36.400 --> 00:29:38.400
So like um we've been seeing this over the last few years.
00:29:38.480 --> 00:29:40.640
We've been seeing that cannibalization really increase.
00:29:40.799 --> 00:29:50.480
And this is where it's so important to be doing our analysis correctly to factor those kind of effects into balancing discounts and the like in PPAs.
00:29:50.799 --> 00:29:51.759
Yeah, no, I agree with that.
00:29:51.839 --> 00:30:09.359
And it's quite fascinating actually to watch the change of um the price shape, basically, because uh, you know, I've been knocking around for a few years and I remember when you know prices just followed demand, you know, and and like you say, to see daytime prices in a in a weekday be well below nighttime prices is is a real change.
00:30:09.519 --> 00:30:17.839
And these are the kind of things that you know five or ten years ago, you know, traders said, you know, this will be coming in the future, and I don't think anybody quite believed it, and we're actually seeing it now.
00:30:18.079 --> 00:30:33.279
But I think what the in the next phase is quite interesting because you're gonna see um obviously demand's gonna be made up more and more of flexible kind of demands, like electric vehicles, for example, and also um we're seeing a lot of BES deployment, so battery energy storage deployment.
00:30:33.359 --> 00:30:38.480
And that's if you look at a lot of the um predictions, that's gonna go up exponentially over the next few years.
00:30:38.640 --> 00:30:40.160
So it's gonna be interesting.
00:30:40.240 --> 00:30:49.279
There's gonna be this kind of, you know, you might get more cannibalization one year, but then there might be um more deployment of BES assets, and it might kind of, you know, might smooth that out a little bit.
00:30:49.519 --> 00:30:58.160
And um, you know, I think it's I think that what's what's certain is the future is quite unpredictable, and I think it's very hard to uh to to know what's gonna happen next.
00:30:58.799 --> 00:31:04.400
I believe there are some changes planned and some uncertainty around the latest CFD allocation round.
00:31:04.640 --> 00:31:08.559
I mean, as of today, what's the latest news on the CFD allocation round?
00:31:08.640 --> 00:31:13.920
And do CFD delays risk the UK missing its uh clean power 2030 targets?
00:31:14.400 --> 00:31:28.400
Yeah, um maybe if I start on that um from a sort of developer's perspective, um yeah, it's been quite frustrating this year because we're so used to over the last couple of rounds that they've um since they made the manual three years ago, um they'll be coming every January.
00:31:28.480 --> 00:31:36.000
We've had the opportunity to to apply, and then what tends to happen is the process runs, and then by the summer you know whether you've got a CFD or not.
00:31:36.160 --> 00:31:40.000
And obviously there's been quite a delay this year, and and part of that is due to REMA.
00:31:40.240 --> 00:31:45.359
Um, and and you know, they wanted to make some decisions on REMA before they they launch the latest auction.
00:31:45.680 --> 00:31:48.400
So we do know the timing now, which is fantastic.
00:31:48.480 --> 00:31:59.680
Um we know that the um the application window, so um, that's the time that as a developer we need to make sure that we've got all our planning permissions, all our grid permissions, and all our land options.
00:31:59.839 --> 00:32:03.359
They need to be ready, they need to be signed, but they also need to be evidenced.
00:32:03.680 --> 00:32:10.319
So August is when we're gonna have to apply um as a developer for our uh new CFDs, and then there's a process that's run.
00:32:10.400 --> 00:32:31.359
And you know, I was talking before about the fact that there's certain budgets that the government um put forward, and you may get a situation where the the number of applicants and the value of those um applications uh under the budget, and therefore everybody who's applied gets a CFD, and that then the process is over very, very quickly.
00:32:31.759 --> 00:32:43.920
I don't think we're gonna see that this time round because you know we've we've we've looked at the data and there are a lot of um qualifying um onshore wind and and solar assets and offshore wind assets actually.
00:32:44.079 --> 00:32:52.799
So what tends to happen is that the um the amount of applicants or the value of those applicants will exceed the budget and therefore they'll have to they'll um run an auction.
00:32:52.880 --> 00:32:54.480
It's called a seal bid auction.
00:32:55.039 --> 00:33:09.519
But actually before you get to that stage, there's um you know, we're talking hundreds, if not thousands, of projects applying and the paperwork that you have to put forward is is I'd say quite immense, because you know, uh yeah, I oversee it within my team.
00:33:09.680 --> 00:33:17.920
And occasionally you get situations where the government or the the EMR body who's who's looking at those applications haven't seen everything they like about a project.
00:33:18.079 --> 00:33:24.799
For example, there might be some um there might be some planning application missing, and so they might say to a particular project, okay, you don't qualify this year.
00:33:25.039 --> 00:33:31.680
Because the CFD is so important, the um likelihood is that the developer would look at that and appeal against the decision.
00:33:31.839 --> 00:33:38.640
And so what you actually get, if you look at the timeline that's been published for AR7, I think there's about six or seven versions of that timeline.
00:33:38.799 --> 00:33:50.960
And we tend to always, in my experience, over the last two or three auctions, we've always tended to end up at the what they call the longest timeline, which means that there's been a first set of appeals against non-qualification.
00:33:51.440 --> 00:34:00.319
Those have haven't always been upheld, and therefore you get a second wave of appeals to off-gem, and that slows down the process, and then you get the sealed bid window.
00:34:00.480 --> 00:34:11.599
And I think if we're if we go to that timeline, then we're looking at sealed bids um being put forward in December, late December, and and the um auction results coming out in January.
00:34:11.679 --> 00:34:13.360
So that's quite a long time to wait.
00:34:13.519 --> 00:34:19.679
Um, but you know, again, the value of the CFD is there such that we're um, you know, we're we're happy to wait.
00:34:19.840 --> 00:34:25.119
But it is, I think it from our point of view, it has been a little bit frustrating because we've had lots of projects ready.
00:34:25.280 --> 00:34:30.559
We've been waiting for that application window, and uh it just it just hasn't happened in the to the timing that we'd have preferred.
00:34:31.039 --> 00:34:37.360
And to meet Clean Power 2030, allocation round seven is so crucial, it's so important.
00:34:37.599 --> 00:34:41.599
It needs to support as many renewable megawatts, new renewable megawatts as possible.
00:34:41.840 --> 00:34:45.920
So, you know, government needs to make it the most successful allocation round of all time.
00:34:46.000 --> 00:34:56.480
You know, AR7 and AR8, which will be a year after AR7, are absolutely crucial for Clean Power 2030 to deliver the huge renewable growth that we need.
00:34:56.559 --> 00:35:04.639
You know, it's like a a doubling of onshore wind, a tripling of solar, a tripling of offshore wind um compared to like the levels we have we have today.
00:35:04.719 --> 00:35:07.280
So that's a huge amount of build-out by the end of the decade.
00:35:07.519 --> 00:35:16.800
So um a key question will be around the capacity ambitions and the budget the government is willing to spend on the different pots within the CFD to make that happen.
00:35:17.039 --> 00:35:29.920
And you know, when we're seeing delays like we have been this year to to the CFD allocation rounds, this is where it's so important for there to still be a really strong corporate PPA market as well for clean power 2030 to be achieved.
00:35:30.000 --> 00:35:31.519
Aaron Ross Powell So that it ticks along in between.
00:35:32.000 --> 00:35:32.559
Trevor Burrus, Jr.: Absolutely.
00:35:32.719 --> 00:35:33.199
We need that.
00:35:33.440 --> 00:35:41.599
We need developers to be incentivized to come and invest in new renewal projects in Britain, and that can't just be dependent on the CFD.
00:35:41.679 --> 00:35:45.519
You know, corporate PPAs are a really crucial route to market for new projects as well.
00:35:45.599 --> 00:35:45.840
Trevor Burrus, Jr.
00:35:46.000 --> 00:35:46.480
Yeah, I agree.
00:35:46.639 --> 00:35:50.960
And and there is potential uh potentially a bit of responsibility on big consumers.
00:35:51.039 --> 00:35:59.840
You know, I'm thinking consumers who are going to start consuming more over the next few years, because you know they're they're obviously adding um some pressure onto the grid.
00:36:00.000 --> 00:36:20.559
And you know, I think those that are kind of come with um you know environmental pledges, it kind of fits quite nicely if they're able to kind of, let's say, they're expanding their operations because of EV or because of electric heating by you know 30 gigawatt hours over a particular period, then you know, to bring on a say 30 gigawatt hour um wind farm or solar farm at the same time kind of fits quite nicely.
00:36:20.639 --> 00:36:25.280
And so we're seeing we're talking to some customers at the moment and we're seeing that as a as a story.
00:36:25.519 --> 00:36:35.440
Um, you know, it is difficult to say the consumption that I'm consuming at the moment, it's really hard to lock in that price because I don't know if the price is going to be higher or lower than I could have otherwise bought it for.
00:36:35.599 --> 00:36:40.880
But if I've got new demand coming on, then matching that off with a new renewable development works quite night neatly.
00:36:41.039 --> 00:36:54.000
So I think one of the other features of the UK market over the next few years is as well as this kind of displacement of gas that we're seeing at the moment with new renewables coming on, you know, when we get beyond 2030, then we're seeing that push, that increase in demand.
00:36:54.079 --> 00:36:57.760
And, you know, those stats that um Tom just reeled off there.
00:36:57.840 --> 00:37:03.199
The other thing that people often miss is that demand's gonna double between 2030 and 2050.
00:37:03.440 --> 00:37:06.960
So, you know, we've got this big kind of gate, if you like, at 2030.
00:37:07.119 --> 00:37:09.760
It's not like we can just say, okay, 2030, we're done now.
00:37:09.920 --> 00:37:15.679
It's like then when then there's another push to keep that kind of renew renewable kind of growth at pace with demand.
00:37:15.760 --> 00:37:24.960
And I think that's where maybe corporates have got a real um or customers have got a real kind of role to play in, you know, matching that new demand with with new products.
00:37:25.280 --> 00:37:28.239
And this demands through electric vehicles, heat pumps, that sort of thing.
00:37:28.480 --> 00:37:30.880
Yeah, and some new industries like data centers as well.
00:37:31.199 --> 00:37:37.679
So, yeah, it's that general kind of data-driven world that's kind of creating this and electric vehicles and electric heating.
00:37:38.000 --> 00:37:38.159
Yeah.
00:37:38.559 --> 00:37:46.960
And just flicking back to the CFD again, so I think there are some things that are gonna change in this in this uh in this iteration, this allocation around the of the CFT.
00:37:47.199 --> 00:37:50.559
So I think um I think so repowering of wind projects are now included.
00:37:50.719 --> 00:37:53.599
I think um there's a change to the budget methodology.
00:37:53.760 --> 00:38:04.639
So instead of setting a pound budget out out front, I think government's instead gonna set a capacity ambition um and then finalise the budget when they know what actual bids have been submitted.
00:38:05.119 --> 00:38:13.760
Which I think is positive because I think um it shows that they have ambition to bring on enough real megawatts to you know keep us on the keeping power.
00:38:14.159 --> 00:38:15.039
Explain repowering.
00:38:15.599 --> 00:38:21.679
Yeah, it's um it's when um a um a wind site, for example, has um uh come to end of life.
00:38:21.840 --> 00:38:28.239
You need to take off the old kit, because it's no longer any good, and then potentially build again on the same site.
00:38:28.400 --> 00:38:32.239
Um so that's yeah, repowering of of of of wind there, for example.
00:38:32.480 --> 00:38:37.920
Because um quite a few older sites will be reaching that end of life now, where they're no longer operable.
00:38:38.159 --> 00:38:41.840
You can't keep maintaining them, you know, for flogging a bit of a dead asset.
00:38:42.159 --> 00:38:46.000
But then there are some other changes as well that um are still being considered, I think.
00:38:46.159 --> 00:38:52.719
So I think um government's considering still relaxing some of the eligibility criteria for fixed bottom offshore wind.
00:38:52.880 --> 00:38:57.679
Um that could um, you know, particularly for projects that haven't obtained full consent, full planning consent.
00:38:57.760 --> 00:39:05.519
So that could potentially open up a load of extra projects and gigawatts that could be um that could be entering the auction.
00:39:05.920 --> 00:39:18.159
And I think they're also considering an extension of contracts from 15 years to potentially longer um the the CFD contract that is, which could be really beneficial to developers um in making the investment case work for for more assets.
00:39:18.719 --> 00:39:18.960
Yeah.
00:39:19.119 --> 00:39:21.360
Yeah, and I I was uh yeah gonna bring that one up.
00:39:21.519 --> 00:39:27.679
I think yeah, 20 years I think is um is is you know has been consulted on and is still under consideration.
00:39:27.840 --> 00:39:29.440
Not for this auction round, it has to be said.
00:39:29.519 --> 00:39:31.360
I think it's for for future auction rounds.
00:39:31.679 --> 00:39:43.679
But I think in in terms of um looking again at our sort of central topic today and the attractiveness of CPPAs versus CFDs, I think often it's quite a stretch for a customer to kind of commit to 15 years.
00:39:43.840 --> 00:39:45.679
And again, completely understand it.
00:39:45.760 --> 00:39:51.840
A lot of you know businesses don't know what they're doing in the next five years, let alone 15 years, to commit to that um length of time.
00:39:52.079 --> 00:40:00.960
I think the CFD if the CFD is extended to 20 years, obviously great for um great for investors, potentially great for consumers as well, because it might bring the price down.
00:40:01.360 --> 00:40:05.840
Um but again that that's something that customers potentially have got to compete against.
00:40:05.920 --> 00:40:09.840
Um so I think it's just something to put on customers and and suppliers' radars.
00:40:10.159 --> 00:40:16.000
I think the other um reform that's potentially coming down the tracks as well is um protection against negative prices.
00:40:16.400 --> 00:40:23.760
So one of the risks for us as a as a developer with a CFD, as we've already talked about a little bit, is there's gonna be negative prices.
00:40:24.000 --> 00:40:32.079
So if we so for example, if we build a 20 megawatt solar farm, we would expect that to generate roughly 20 gigawatt hours in a normal year.
00:40:32.320 --> 00:40:46.400
But if we see a high prevalence of negative prices where we're not um supported under the CFD and we'd actually have to pay to generate, so we'll get cartelment, then potentially that reduces the volume and the value of that um particular asset.
00:40:46.559 --> 00:40:48.159
So that's something that's at risk.
00:40:48.320 --> 00:40:55.360
The government are acutely aware of that risk and therefore are looking at ways that they can perhaps take that risk away from generators.
00:40:55.440 --> 00:41:05.039
And one of the ways would be, for example, to say, okay, during those negative prices, we still want you to switch off, but we'll pay you as sort of a deemed rate as if you had generated.
00:41:05.199 --> 00:41:07.519
Um so that those are things that are being explored.
00:41:07.599 --> 00:41:11.360
And again, I think the CPPA market just needs to be conscious of those as well.
00:41:11.440 --> 00:41:21.840
Because if going into a CPPA and negative prices are a okay, you've got to curtail and you're not going to get paid, then that potentially is a is is a risk for the attractiveness of CPPAs.
00:41:23.039 --> 00:41:25.920
So I'd like to thank you both today for such an interesting discussion.
00:41:26.079 --> 00:41:26.880
Thank you, Andy.
00:41:27.119 --> 00:41:27.760
Thank you, Tim.
00:41:27.920 --> 00:41:28.960
And thank you, Tom.
00:41:29.119 --> 00:41:32.480
And for the latest news and views, go to theenergist.com.
00:41:32.639 --> 00:41:35.199
And Tom, where should people go to find out more about EDF?
00:41:35.440 --> 00:41:38.960
Yeah, to hear more about EDF and get in contact about PPAs or corporate PPAs.
00:41:39.039 --> 00:41:44.320
You can find us on LinkedIn, so EDF Wholesale Market Services or on our website, EDF Energy.com.
00:41:44.559 --> 00:41:45.440
Thank you.
