Developers seek PPAs when they are building wind farms and other projects so that they have a guarantee that the power they produce will find a market, but also so the buyer will manage the fluctuations in generation – often by aggregating with other power plants. But recently developers have complained that fewer PPAs are available, that the number of counterparties offering them has fallen, and where PPAs are available that the terms – which generally include a discount on the power price in return for assuming the risk – are less favourable.
In its call for evidence Decc said its analysis “does suggest there has been a decline” in PPA counterparties and market activity in 2011 and 2012, and it suggested among the reasons the UK power market’s frequently discussed liquidity problems and credit issues for counterparties. Commentators have also suggested that uncertainty over the government’s electricity market reform is a major factor.
In its call for evidence Decc suggested that intervention “could be appropriate” to stimulate the PPA market. It put forward a suite of suggestions including improving liquidity, obliging suppliers to offer PPAs designating a PPA supplier “of last report”. But it said there were “significant challenges” with all these approaches and asked for further proposals.