by Vish Sharma, Head of Power Purchase Agreements, at npower Business Solutions
Vish Sharma
Independent energy generators – including businesses and other organisations with on-site energy assets – have become a crucial part of the UK’s energy generation mix. They provide a reliable and secure source of power to homes and commercial enterprises across the UK and are largely unaffected by the pressures and volatility of the wholesale energy markets.
In fact, according to our latest report – Clean power 2030: Harnessing the power of the UK’s independent energy generators – which gauged the views of more than 350 independent generators across the country, more and more businesses are choosing to buy their power from independent sources.
Of the generators we surveyed, two-thirds (67%), said they have seen an increase in business demand to buy power from independent sources over the past two years, with 30% saying this was a significant increase.
What are the benefits to businesses in procuring their power this way? The report showed that stable pricing that is not impacted by the wholesale energy market was the top benefit (48%), followed by guaranteed clean energy supply (33%), and greater energy security (14%).
This is just one reason why the government needs to support the development and deployment of more independent assets.
The energy policies announced since the 4 July general election have shown definite ambition. However, our report revealed that, while a third (33%) of independent generators believe government policies will support development of more independent renewable assets, almost one in four (23%) don’t feel they go far enough yet. Nearly half (45%) are undecided.
Key barriers reported by the generators we surveyed included planning restrictions, difficulties securing investment, long timescales to develop projects and addressing community concerns.
Therefore, nearly two thirds (63%) are calling for a reduction in the ‘red tape’ around renewables, more than half (56%) want more finance packages, grants and incentives for investment in energy generation assets, and almost a third (31%) would like to see the development of the Power Purchase Agreement (PPA) market.
Other answers included a stable and predictable tax regime, accelerated grid connection, reinstating or extending the Feed in Tariff (FiT) scheme, ensuring a guaranteed and fair price for energy production, and more support for innovations such as agricultural photovoltaics.
We believe it is important that these views are listened to at the highest level. Independent generators will form a vital part of the clean power mix and need to be supported if the government is to hit its ambitious clean power and net zero targets.
Selling your power to businesses
Our report showed that one in five (21%) are already exporting their power to commercial customers with the majority (58%) doing so through a fixed Power Purchase Agreement (PPA). One in five (20%) said they currently use a flexible PPA.
When asked about the benefits of selling their power via a PPA, the two-thirds said securing regular or additional revenue was the prime benefit, followed by supporting the low-carbon energy transition (16%) and giving long-term investor confidence in a project (12%).
So, for those businesses who have an on-site asset, or are considering investment in one, how do you know which PPA is best for you?
The most appropriate choice of PPA will depend on a number of factors, including the level of your annual output, the nature of your generation source, your risk appetite and ultimately, whether you want a steady and risk-free revenue stream, or wish to optimise profits with a flexible agreement.
The PPA market has evolved considerably over the past few years, and the PPAs currently available have been developed to provide generators with multiple options so more of their energy can be procured by corporate energy buyers. The energy market is constantly changing, which naturally leads to more innovation in the way PPA contracts are developed.
However, for those owners and operators that are new to energy generation – or a new to selling their power – looking at the relative benefits of a fixed or flexible PPA is a good place to start.
Supporting a new wave of independent generation
Our research demonstrates that many generators are already seeing the benefits of selling their power to commercial customers via a PPA, and that they recognise that the development of the PPA market should be a key policy focus.
However, core barriers to developing more independent generation assets mean that the government needs to continue to ensure that its policy matches its ambition.
And, we believe that the only way to do this is by taking the views of independent energy generators into account.
