Corporate buyers of solar electricity face price risk

According to PV-magazine, Corporations that lock in a fixed purchase price for solar power, offset by sale of the power at varying wholesale rates, could face “significant financial downside,” referring to the Rocky Mountain Institute (RMI). It is due to the more solar on the grid, which could drive down wholesale prices.
About ​three-quarters of corporate off-site renewables procurements involve a long-term power purchase agreement (PPA). It is though offset by the sale of power at varying wholesale rates, i.e. these corporates both buy and sell solar power at different time span. These agreements are known as virtual or financial PPAs, to distinguish them from on-site, behind-the-meter PPAs. The price risk arises from the mismatch between paying a fixed price for solar electricity over 10-20 years, and receiving an offsetting but continually varying wholesale price for the solar electricity sold onto the grid. This arrangement is illustrated in the ​RMI graphic​ above.
Price risk is primarily driven by the dynamics of supply and demand. As more solar is added to the grid, the wholesale market price of electricity will fall during peak solar generation hours, unless there is a corresponding increase in demand during those hours.
Suggested by RMI, price risk could be mitigated by a financial hedge or combining solar power with energy storage systems.
The RMI document mentions four other types of risk beyond price risk: ​Basis risk, Shape risk, Volume risk and Operational risk.
——————–***——————– Source: Photo: RMI, PV-magazine …………………………………….
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Corporate buyers of solar electricity face price risk

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Location: Oslo, Norway

Date: Mar 20, 2019 @ 14:51

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