Onshore wind has caused much debate in the last decade. The glut of development approvals in the late noughties – fueled by the promise of ROCs and, at times generous, FIT subsidies – saw them pop up prolifically across the UK.
Vocal opposition in some communities led local authorities to slow or stop wind development: with limited development currently expected to come online in the next decade. Over the past five years, the Conservative Government has given little or no encouragement to onshore wind and instead moved forward with big industry supported offshore installations, and the huge energy opportunity it offers. However, the winds are changing direction in favour of onshore wind and with the right asset assessment combined with market trading access, the time is right for revenue opportunities.
With the technology evolving past the point of subsidy and removal of many of these government incentives, together with an increased push to embrace distributed generation sources in the UK, onshore wind is in the spotlight again.
A recent Department for Business, Energy and Industrial Strategy’s (BEIS) public attitude survey showed a serious shift in public opinion towards onshore wind. Amid mounting concern for climate change, public support has hit a record high with 79% of people indicating clear approval. The technological ability to stability harness this generation type mixed with market commercial trading acceptance have driven a new future for this asset and the revenue that can be derived from multiple market wind trading access.
The Renaissance of Onshore Wind
This swing in public opinion is paving the way for gutsy new policy stances. In recent weeks Scotland’s First Minister, Nicola Sturgeon, has vowed to continue the growth of onshore wind power. She has gone as far as to say that she will be ruling out a public veto for such projects and called out the Conservative public veto policy in England as “short-sighted” while vocalising what many in the industry have felt for some time – that the situation should not be viewed as “developers versus communities”.
The Rural Community Energy Fund’s (RCEF) new £140,000 war chest, created to help rural community groups in England develop renewable energy projects hints at the same feeling south of the border. And it’s not just about new turbines. A RenewbleUK report in April proclaimed that the UK will need to replace its old onshore turbines if it is to ensure enough low-cost power capacity to achieve its carbon targets. Currently, over 8GW of onshore wind is set to be retired in the next ten years, amounting to almost a fifth of the UK’s renewable energy output.
Power Purchase Agreements for New World Wind
The rising reputation of onshore wind and deeper commitments to carbon footprint reduction is causing more companies and individuals to seek out power contracts that tap into the UK’s increasing renewable generation zeitgeist. Power Purchase Agreements (PPAs) are the cornerstone of these contracts and provide prospective and current developers and operators confidence of a return on asset investment.
However, the energy market has moved on a lot from the early days of commercial wind farms in the 1990s and early 2000. Once a point of concern, price volatility is now standard and swings from one day to the next are the norm. Last year is a clear example of the importance of embracing market volatility. We saw power prices spike in Summer 2018, reaching values of £75/MWh while dropping in winter to lows of £60/MWh in December followed by £45/MWh in March this year. Those price spikes in 2018 were created by a combination of low gas supplies and high carbon prices, while record LNG deliveries through winter, a mild climate throughout the normally colder period and significant increases in carbon price drove the pound per MW down. We observed this first hand when in one day, last April, we witnessed a drop of £5 of value between morning and afternoon power trading.
The value of smart, flexible, PPAs is that these are not the type of contracts that lock in a price for a lengthy period with the hope that the market will increase in value, ignoring other elements at play – they are intelligent dynamic agreements. These contracts take into account the flexible ability of the wind asset, the performance it can provide and optimise the assets trading ability within market volatility, taking advantage of market fluctuations.
For some, a fixed PPA is the best approach – especially for the more risk-averse, but the savvy asset manager and trading team can work this volatility to their advantage. At Limejump, we have developed a flexible Wind PPA that tracks the market and makes use of Artificial Intelligence (AI) and Machine Learning forecast technologies to deliver optimal revenue return at all stages of the contract – much like an advanced tracker mortgage. This harnesses volatility and makes it work for the operator, rather than against. For those who wish to reduce risk exposure a trading methodology sometimes referred to as Clip Trading is a flexible PPA which can provide extra advantage for specific customers.
A Three-step approach
The most crucial element of this is our tranched contractual process designed to reduce risk exposure.
Step 1 – pre-contract: Step one happens before we even come to the contract start date for any new (or renewing) PPA client. For Track n Trade PPA signed contracts, we begin the market tacking process six months in advance and analyse the market and wind data to identify and patterns that guide our approach. We then use this data to sit down with clients and agree what the price floors and ceilings will be.
Step 2 – contract kick-off: After tracking the market to capture the price spikes in advance of the contract start date we lock in the specific time frames of the agreement such as three or six months’ worth. This allows us to work with, not against, market fluctuation and safeguards against clients being locked into contracts that are lower than current market value.
Step 3 – ongoing: as the contract develops, this process is repeated with careful analysis and support at each step to ensure the best possible asset value is realised.
This three-step process sets Limejump apart from other contractual agreements. It is more akin to the trading of physical commodities and is especially popular with our Anaerobic Digestion, Wind and battery clients, as well as those whose generation asset, is not their core business such as agriculture. These customers, who already trade their crops in a commoditised methodology, together with smaller, independent developers who are especially cautious when it comes to risk exposure appreciate the transparency and strategy that goes into the Limejump PPA and the multi-market exposure provided to assets.
Bright and balanced future?
With public perception and climate concerns causing much-needed policy rethinks, onshore wind is the generation vector to watch. Its key participation in the recent coal-free periods are proving that the bold analysts who said decades ago that the UK’s natural wind assets could be harnessed for meaningful generation were right.
In addition, as wind is seen as a more stable power source, our AI and Machine Learning forecasting specialism means we are ready to enter wind assets into direct trade competition with large scale power plants in ancillary services, with an example being Balancing Mechanism.
This Balancing Mechanism market, along with other ancillary trading markets, safeguard the U.K. energy network against power failure or infrastructure damaged caused but electricity going dangerously out of frequency parameters. With public demand playing a pivotal role in the types of price bids and offers accepted, the smart trading strategy, coupled with advanced forecasting provides a potential to deliver higher asset revenues.
For operators, marrying wind with trading methods that harness extra value in volatility is rapidly becoming the industry standard and Limejump’s technology-driven approach allows us to smoothly manage this industry shift. Combining trading expertise and market knowledge means that we can place onshore wind customers and their assets at the core of this energy revolution. Get in touch to see how your wind generation asset can play a part in this new energy world.
Watch this space…