PPA Prices

[linga]

Apparently PPA prices are currently at an 8 year high.
It has been suggested that we consider locking in to these high prices for an extended period as markets are likely to continue to be volatile.
Does it make sense to lock in?
Are PPA prices likely to continue to rise and if so for how long ?
Might they fall?

 

[akaPABLO01]

Apparently PPA prices are currently at an 8 year high.
It has been suggested that we consider locking in to these high prices for an extended period as markets are likely to continue to be volatile.
Does it make sense to lock in?
Are PPA prices likely to continue to rise and if so for how long ?
Might they fall?

I would think they would continue to rise alongside electricity consumer price but not in line. We saw a 20% increase in consumer electrical price over 2 years not the same as export.

Renewable electricity installation has ground to a crawl and suppliers need this on their books as an obligation meaning there should be market increase to attract new generators. As always the market is expensive during autumn winter months.

I’ve advised my customers to lock into 3 year consumer prices. I would not lock into export.

 

[Feldspar]

I take no view on trends in electricity markets. I simply see agreeing PPA prices as a sampling of the market every so often in a dollar cost averaging type model. Had a 3 year contract, then a 1 year and have now signed up for a 29 month one. Biggest reason is it's one less thing to think about each year and I don't believe that sampling every 29 months is going to be too infrequent. Price is quite a lot higher than last year for sure.

 

[wd40]

This is an interesting question at the moment given the uncertainty around Brexit. The rise in power prices this year has been driven by the two main inputs, wholesale gas prices (which have risen by ~30% ytd) & carbon emissions prices (which have risen by a factor of ~2.5x). This has taken wholesale power from ~£50/MWh to ~£70/MWh, equivalent to PPA prices rising from 5p/Kwh to 7p/kWh. The development of power prices is therefore linked to where carbon emissions & gas prices go from here.

The main one at risk in the short term is the carbon price, which is comprised of the UK carbon tax (~£7/MWh) + European Emissions allowance (~£7/MWh). The UK government has signalled (two weeks ago) that in the event of ‘no deal’ Brexit we would leave the EU Emissions Trading scheme from Apr 2019, removing this component from the power price from this point onwards. Instead the Government will publish an updated UK carbon tax, the level of which will be clarified in the budget on the 29th Oct (might stay the same at ~£7/might be increased). In the event the carbon tax remains unchanged & we have a 'no deal' scenario, wholesale power prices have the potential to fall ~£7/MWh or 0.7p/kWh on your PPA.

So the questions comes down to Brexit… if you think there is a ‘no deal’ scenario/don't want exposure to volatility over the next two weeks then lock in now, otherwise wait until after the budget to see the new carbon tax level & corresponding impact on PPA prices.

NB, I fixed on a 1 year PPA back in Mar so you should not listen to me

Charts of wholesale gas, emissions & power below for interest.

https://www.theice.com/products/910/UK-Natural-Gas-Futures/data?marketId=5253325&span=3
https://www.theice.com/products/197/EUA-Futures/data?marketId=400186&span=3
https://www.theice.com/products/207...Future-Gregorian/data?marketId=5032673&span=3