Not long ago, energy was a commodity that we all knew was essential, but we didn’t have to think about very much. Someone else delivered it and we paid the bill. Today, as we proceed through an energy revolution, how we source our energy is of interest to many people.
For owners of houses or housing co-operatives, this might be in the form of residential solar panels and storage systems. However, for corporations driven by ESG considerations in their energy sourcing, the vehicle for defining energy purchasing transactions is the Power Purchase Agreement or PPA.
Power Purchase Agreements have been around for a while – and are becoming more complex as the industry develops. Drivers for complexity include increasing expectations and sophistication in corporate purchasers and financiers, ongoing developments in our markets and innovative new ideas from all stakeholders.
Many PPAs have a standard structure – such as some form of swap based on volumes determined by the purchaser or the generator. Beyond this there are all sorts of complexities that we are seeing and supporting for our customers in Australian and UK/EU energy markets. We are also observing that ‘PPA’ is now a generic term for all sorts of complex B2B energy transactions. Hence some of the more complex features of PPAs we are seeing include clauses requiring:
- validation that flexible plant operates within certain operational constraints based on various market and external conditions
- payments which might vary during the development lifecycle of the asset
- complex penalty / damages payments
- risk management charges based on environmental conditions
In addition, many stakeholders are seeking greater real-time visibility on the operation and performance of their energy asset or purchase. For corporate purchasers of PPAs, this makes perfect sense as their drive to enter a PPA with a renewable asset is often to demonstrate a commitment to sustainability. Being able to showcase how their energy is being sourced in real-time is therefore of real value.
Complex problems can often be broken down into manageable parts. For a PPA, these parts include:
- Various sources of inputs volumes and sometimes input prices, including meter data, information from control/SCADA/Plant Historian systems or calls to business systems via APIs
- Bespoke calculations for the various legs of the agreement
- Business rules that might be unique to the PPA
- A need to visualise, socialise and possibly even interact with energy and value flows associated with the PPA
Traditionally, energy transactions are managed by Energy Trading and Risk Management (ETRM) systems. These systems have evolved to support management of large volumes of transactions with fairly similar structure. Instead, with PPAs there are a usually a smaller number of highly custom and complex deals to be managed.
When a customer comes to us with complex PPA agreements, our ‘go-to’ solution is to use our process automation tool for the energy industry. This product is called enFlow and is perfect for retrieving data from various sources – APIs, databases, files – and then performing arbitrary calculations on time series to manage operation and settlement of the customer’s PPA portfolio.
Where the customer has a portfolio of PPAs and other trades, we can consolidate the PPA settlement outputs back into our enTrader, EOT and Sim Energy ETRM products. This provides for broader risk management, including analysis of portfolio MtM P&L and VaR. These ETRM systems also interacts directly with accounts payable/receivable and other financial systems as required by the customer.
enFlow also has a configurable dashboard, which is ideal for customers seeking greater visibility on the operation of their PPAs – for themselves or their customers. In some cases, these dashboards might allow the customer to trigger optionality within the agreement. enFlow is a highly flexible automation engine purpose-built for the energy industry. It is built around a time series database, with a powerful calculation engine and a large library of input and output adapters. It includes a flexible dashboard builder and is the ideal tool for managing Power Purchase Agreements of any level of complexity.
Talk to us about PPAs
If you’d like to discuss your PPA requirements with us or find out more about PPAs, simply fill in our contact form using the button below and we will get in touch.