The European regulation on wholesale energy market integrity and transparency (Remit) came into force in December 2011. While the vast majority of energy traders and generators were aware of the market abuse prohibitions introduced by Remit, the transparency and reporting obligations brought in by the Remit Implementing Act in 2015 seem to have taken some by surprise.
Many firms whose business consists of generating or transporting relatively small amounts of electricity or natural gas have little if any familiarity with registration and reporting requirements which firms in the financial services sector have grown accustomed to in recent years. To the extent these firms were aware of the registration and reporting obligations, the conventional wisdom was they were unlikely to be caught by such requirements.
For example, many would think the sale of intermittent renewable energy to a licensed electricity supplier under a bespoke power purchase agreement (PPA) would not be directly relevant to wholesale market trading. However, the scope of Remit has been cast widely in relation to “wholesale energy products”. These are defined as: contracts for the supply of electricity or natural gas where delivery is in the EU; derivatives relating to electricity or natural gas produced, traded or delivered in the EU; and contracts or derivatives relating to the transportation of electricity or natural gas in the EU, irrespective of where and how they are traded.
Most PPAs generators have entered into (or may in the future) will fall within the concept of a “non-standard supply contract” under Remit. The scope of the Implementing Act is such that a PPA entered into by a generator for more than 10MW of capacity will be a non-standard supply contract. Although there are some exemptions, these are unlikely to apply in most cases.
The classification of a PPA as a non-standard supply contract is relevant for when Remit’s registration and reporting regime applies. To date, Remit’s focus has been on standard contracts entered into on trading venues (or organised marketplaces). However, as of 7 April 2016, the reporting obligations under Remit also apply in respect of entering into a non-standard supply or transportation contract. Furthermore, the reporting obligations apply to wholesale energy contracts that were concluded before 7 April and remain outstanding on that date. These are required to be reported within 90 days after the reporting obligation becomes applicable. So, for continuing PPAs put in place prior to 7 April, details will need to be reported by 6 July 2016.
Because most renewable generators will not otherwise participate in wholesale energy markets, the practical impact is that the generator will need to register with the national regulatory authority (Ofgem in the UK) prior to the relevant reporting obligation commencing.
Registration should not be challenging for most generators. However, care needs to be taken in relation to compliance with the obligation to disclose details of the ultimate controller of the project company that is party to the relevant PPA.
Market participants are required to report to the Agency for the Co-operation of Energy Regulators (Acer) through a registered reporting mechanism (RRM). For true market participants this has been assisted by the requirement on trading venues where orders were placed and trades executed to offer a data-reporting agreement to market participants in respect of those orders and trades. Although the obligation to report remains with market participants, in practice the trading venues will report the details of orders and contracts to an RRM on behalf of market participants.
Because most UK renewable generators do no participate more widely in trading venues, they may not have an existing relationship with an organised marketplace for the purposes of reporting. A question to be considered will therefore be the simplest means to access an RRM. Market participants can contract directly with an RRM that offers reporting of non-standard supply contracts or delegate reporting to a third party.
In the first instance, however, generators should consider contacting their offtaker. As the reporting obligation will apply independently to the buyer under a PPA, they may have already determined their approach to reporting. It may be possible to request the offtaker to report on their behalf via its selected RRM. Any delegation of responsibility for reporting will need to be documented in a legal agreement to ensure the responsibilities of both parties are clearly set out. Where a market participant delegates reporting to a third party, the market participant will not be held responsible for failures in the completeness, accuracy or timely submission of the data which are the fault of the third party.
Because a PPA does not fit easily in the reporting formats developed for standard trading products, there has been some uncertainty in the market as to how the relevant data fields should be populated. That said, the core of the information flows regarding PPAs will be volume and price on an ongoing basis.
There now seems to be an emerging consensus in the market that PPAs with pricing based on a discount to a market index should be reported initially as if it is a framework agreement for trades where the volume and price is not known. There will then need to be monthly reporting of each execution, being the point where the price and volume is known (which is expected to be drawn from monthly invoice data).
Hannah Meakin, partner; Andrew Hedges, consultant; and Mark Chalmers, associate, Norton Rose Fulbright