PPAs aren’t as easy as they used to be!

In May this year Jonathon Dyson and I presented a webinar on ‘Maximising Value in the NEM’ for Solar Farms to the Clean Energy Council’s Large-Scale Solar Forum webinar series.  We followed this up with a similar presentation on ‘Maximising profitability in the NEM’ for Wind Farms at the CEC’s Wind Industry Forum webinar series in September.

Three central points of discussion in the webinars

In these two seminars, we explored for a Semi-Scheduled Generator:

  1. what you must do – which we covered with the first 2 snippets:
  2. what you want to do to maximise returns:
  3. and how to adapt as the market and power system changes.


Snippets about what Semi-Scheduled generators want to do

On Wednesday, I included a snippet in which I discuss how Semi-Scheduled Generators make money.

In this follow-on snippet, I discuss how Power Purchase Agreements (PPAs) are much more complex now than they used to be, covering the critical questions you will need to consider in optimising your operations.

If the movie above does not appear, you can find it on Vimeo here.

In the presentation on 17th September, I made reference to a rule change the AER was consulting on at the time.  This is now at Draft Determination stage with the AEMC – given we’ve been following this closely, we posted this summary here (19th November) when the draft rule was published.


Other excerpts from the 2020 webinars

I posted articles before each webinar:

– each providing a sneak peek into some of the other content from the webinars.

Clean Energy Council events Next Year (2021)

The Clean Energy Council has scheduled the 2021 Large-Scale Solar Forum for Brisbane on 11 March 2021, and the Wind Industry Forum for Melbourne on 25 May 2021.

Check out the CEC’s events page here for further details.

About the Author

Marcelle Gannon
Marcelle is a software engineer and market analyst keen on the transition to renewable energy. She has energy sector experience working at the AEMO and for a renewables developer.

5 Comments on "PPAs aren’t as easy as they used to be!"

  1. Is there a public source for the terms of PPAs?
    I’m especially interested about the connection point: is it usually the node or do some use the generator connection point as in the ACT reverse auctions?

    • Hi Dan, good question. There isn’t a public source for the terms of most PPAs as they tend to be closely-held commercial deals. I assume by the connection point you mean the generation figure used for the fixed price payment of the PPA? I’ve seen PPAs that pay the fixed price on generation at the node (the regional reference node RRN) and others at the generator connection point (sometimes referred to as “at the gate”, which isn’t always physically where it is). The difference between the two is on who takes the risk of the MLF (marginal loss factor) changing in subsequent years, which can be a key point of negotiation between the parties.

      • Thanks a lot for your reply, I do have a follow-up. I have understood from M O’Neil’s article that MLFs scale the spot price that the generators receive, not the output they sell. But what about the actual loss of output between the gate and the node? In a PPA, is the MLF-scaled price applied to the output at the gate or the output minus the physical transmission losses at the node? If it is the latter then it would amount to double counting the impact of transmission losses.

        • Hi Dan, the settlement generators receive from AEMO is calculated as RRP * MLF * metered generation (at the gate). This is typically referred to as the “floating” leg of a PPA (i.e. the money the generator is swapping with the off-taker). The “fixed” leg (what the off-taker pays to the generator) could be calculated in two ways (typically, but every PPA is different):
          – “at the gate” – the off-taker takes the risk of variability in the (RRP * MLF) part, and settles at a fixed price on the metered generation.
          – “at the node” – the off-taker takes only the risk of variability in the RRP but not the MLF, so settles at a fixed price on the metered generation * MLF. This isn’t the generation adjusted for physical losses to the node but an allocation of who’s taking the risk on the financial impact of loss factors between the gate and node.
          In theory (the theory of marginal pricing) the MLF scales the spot price – but in practice the AEMO settlement calculation is to multiply the three terms together (RRP * MLF * metered generation), and PPAs often split this (when “at the node”) into RRP and (MLF * metered generation). The actual physical loss to the node is irrelevant – all that matters is who’s taking the risk on which components of the AEMO settlement.

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