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Chart of the Week

2019

Sizing up: Flexible versus Renewable PPA markets

As a result of the publication of our new Flexible Power Purchase Agreement (PPA) Market Report, we have been able to compare and contrast the different markets for PPAs between renewables and flexible assets. This Chart of the Week highlights the primary differences in the market sizes of each sector. The total size of the flexible asset market is an order of magnitude smaller than that for renewables, with total capacity for flexible assets estimated at 4.5GW in 2019, compared with renewables’ 40.6GW. Flexible assets in our review, used in turn to size the flexibility PPA market, are those that focus on peaking and optimisation. These include gas peakers, OCGT plant, diesel engines and batteries. The proportion of each market which can be deemed as “contestable” for third-party PPAs also differs significantly. Where up to 65% of the renewables market will be looking for a third-party PPA, just 40% of flexible assets will seek this. This stems from the higher proportion of utilities and large developer-trader organisations which will trade and optimise their flexible assets independently. In contrast, the renewables market has seen a higher level of independent developers, often without trading capabilities or relevant industry licences, that have required third-party PPAs for the offtake of their power. Flexibility assets also see greater levels of equity ownership which can reduce the requirement for long-term third-party PPAs. But despite the smaller size of the contestable flexible asset PPA market and the reportedly narrow margins available, the sector is still highly competitive. &...

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