The Power Purchase Agreement (PPA) market for flexible assets in the last six months has both grown in size and seen increased levels of competition as new offtakers and optimisers make themselves known in the market.
What do we mean by the PPA market for flexible assets? We mean the agreements between flexible generators and offtakers (and optimisers) to trade and optimise the asset(s) across available revenue streams, such as wholesale and balancing markets. And by flexible assets, we broadly refer to front-of-the-meter gas and diesel engines, battery storage, open cycle gas turbines and combined heat and power plants.
Our latest report in this market, The Flexible Asset PPA Report, was published earlier this April and details the size of the flexibility market (including capacity under third party PPAs), all active offtakers and optimisers, PPA types and pricing levels and wider market trends.
In this week’s blog, we detail several key findings from the report.
Flexible asset PPAs tops 4GW amid a growing market
Based on Capacity Market (CM) agreements, there is ~4.8GW of flexible capacity operational at present. However, we estimate the true amount is closer to 7GW if we include operational plant that failed to secure CM agreements and future CM units that have come online sooner than their delivery year.
It is important to note that not all this will be under third party PPAs, with many developers able to self-trade assets. Our survey of the market shows that ~4GW is under some form of third party PPA. This amount is set to rise significantly, in line with plant that have secured future CM agreements and with the need to complement a growing number of intermittent renewables generators. Recent CM auctions in particular have highlighted the large amount of gas and battery storage plant in development, many of which will be seeking third party PPAs.
20 offtakers are competing for these contracts
Our research shows that 20 offtakers are active in the flexible PPA market, with at least a further five optimisers/ independent flexibility providers also providing some form of service.
The number of offtakers and optimisers has grown since our previous report issued six months ago. However, less than half of the active offtakers have >50MW under management via PPAs, with many new entrants still developing/refining their service offerings to attract generators. As part of refining service offerings, we note a growing number of participants capable of taking assets into the Balancing Mechanism, as more volumes are being accepted by National Grid Electricity System Operator from such assets.
The rising number of offtakers and optimisers in the market has also led to more competitive pricing levels in PPAs. The preferred PPA type in this market is a profit share arrangement, where the generator is passed through a percentage of the profits made from the optimisation of its asset. The percentage retained by flexible generators has been rising as more players compete for the electricity and our benchmark views on values retention in the report reflect this.
Activity in the market is rising
As the capacity of flexible assets and the number of offtakers has risen, activity in the market has picked up.
Multiple PPA deals have been struck in the last six months that have been publicly announced, totalling 343MW of capacity. Gresham House Energy Storage Fund has been a particularly active developer of late, with the company signing 133MW of deals spanning four different offtakers. Some partnerships have also been announced between offtakers and optimisers, such as Erova and Open Energi, illustrating the intent to make an impact on the market.
Our figure below highlights some of the activity we’ve observed in this increasingly competitive and dynamic market.
Flexible asset ppa market report
