Mechanism of direct electricity trading among renewable energy generators (DPPA): Trends, benefits and typical models being applied in the world

19/02/2021, Array

Mechanism of direct electricity trading among renewable energy generators (DPPA): Trends, benefits and typical models being applied in the world

What is the DPPA mechanism? What are the benefits of the DPPA mechanism? Are DPPA Mechanism models being applied in the world? Direct Power Purchase Agreement (DPPA), international experience also known as physical PPA (physical PPA), or direct power purchase agreement between electricity consumers and renewable energy generators (DPPA). Financial PPA (financial PPA), corporate PPA or retail PPA (retail PPA), first applied in the United States since 2008 on the basis of proposals and promotion of some large corporations such as Google, Microsoft, Apple, T&T… are committed to increasing the use of renewable energy sources. By the end of 2018, the total power trading capacity under the DPPA scheme in the United States reached 18,141 MW (compared to 650MW in 2008), accounting for about 71% of the total capacity of DPPA projects in the world in 2018 ( 25,800 MW). Europe, the Middle East, Africa (EMEA) and the Asia-Pacific region (APAC) now account for about a quarter of the remaining DPPA market, of which emerging is an increase in countries such as Australia and Singapore. and Taiwan. The DPPA mechanism is a mechanism that allows electricity users with a commitment or goal to use clean energy, with sustainable development (typically industrial or commercial customers, hereinafter abbreviated as "Customer") accessing and purchasing directly the amount of electricity generated from a renewable energy generating unit (hereinafter referred to as “the generating unit”) through a long-term bilateral contract with a price and contract term agreed and agreed upon by both parties. The effective design and implementation of the DPPA mechanism will benefit all specific stakeholders such as: - Customers (corporations, companies wishing to use a large amount of electricity for production and business activities) participate in the DPPA mechanism because through this mechanism, on the one hand, they meet full commitments. demand for renewable energy and sustainable development (eg RE100, REBA); on the other hand, they also ensure energy supply in the long term and reduce the risk of future energy costs by negotiating and fixing the purchase price of electricity. - The project developer participates in the DPPA mechanism because it can achieve stable / predictable revenue in the long term because a large part or all of the electricity produced will inevitably be purchased by a customer. has a high reputation with electricity prices fixed in the long term. By reaching long-term agreements with a highly reputable client (often Large Corporations / Companies with strong financial potential), project developers can mitigate risks. Project financing and easier access to finite financial resources to undertake project development. Although currently in many markets project developers can choose to sign long-term contracts with power units, however, the DPPA mechanism is still being applied more and more widely. since it can offer more diversified benefits / agreements. DPPA contracts, for example, offer a better fixed / floor price for a project than the current market price. - For the economy, the DPPA mechanism brings a number of specific benefits to the economy such as (i) Attracting foreign direct investment (FDI) from international corporations with commitments to spending on sustainable development and using renewable energy (businesses participating in RE-100, REBA,… such as: Apple, Google, Nike, Heineken, H&M,…); (ii) Strengthening renewable energy generation capacity through creating strong incentives to encourage investors to participate in the development of renewable energy sources; (iii) Reduce financial pressures on the Government / State Corporations to invest in the development of new renewable energy sources or to provide subsidies through the FIT pricing mechanism; (iv) and enable more equitable electricity distribution for economic growth purposes. There are two typical types of DPPA mechanisms: physical DPPA (physical PPAs) and financial DPPA (Financial PPAs). In which, the physical DPPA is known with 2 structures: PPA with private line (Private Wired PPA) and the brokerage PPA (Sleeved PPA); Financial DPPA is commonly known as Synthetic PPA or Virtual PPA (Virtual PPA). Where the customer can physically connect to the Generating Unit's properties or plants (with or near a geographic location), parties typically join a physical PPA using a transmission line. Direct connection (privately invested) to provide a specified amount of electricity to the electricity customer site. This contract is also known as the Direct Private Wire PPA or the Behind The Meter PPA (Behind The Meter PPA). While private direct line PPAs are a fairly simple form of contract, the regional power regulator will have to make a decision about whether the Generating Unit can sell excess electricity to the grid. Likewise, because the Customer's demand or the load chart doesn't match GENCO's production scale, the Customer will need to maintain a connection with the Power Retailer. The basic points of this structure are shown in Figure 1.

Figure 1. Financial, power and contract flows in the DPPA have its own line

In case passengers are unable to physically connect to the Generating Unit's assets or plants, the parties can execute transactions under the Sleeved PPA structure or synthetic / virtual PPA (Synthetic / Virtual PPA), as follows: - Sleeved PPA is a model that gives Generators the ability to sell electricity securely through a purchase agreement with a reputable Customer and both parties must rely on a Retailer and provide corresponding grid services to transmit and distribute electricity, and at the same time compensate for electricity retailers through a "service charge". There are many ways to implement this structure, but one of the most common is the "back-to-back PPA" method. In which, the Customer first participates in a PPA with the Generating Unit to buy a specified amount of electricity at a fixed price; In exchange for that fixed price in the long term, the Generating Unit sells electricity to the grid via SMO at a competitive market price and the Generating Unit immediately transfers that price or revenue to the Customer. . The customer will then join a Back-to-back PPA with an Electricity Retailer (the actual electricity supplier to the Customer) at the electricity selling price specified at the load point of customer plus costs for electricity transmission, distribution and system balancing services (service charges). The basic transactions of this model are shown in Figure 2.

Figure 2. Financial flows, electricity and contracts in DPPA brokerage (Sleeved PPA)

Financial DPPA (Synthetic / Virtual PPA), like physical DPPA, is traded directly between the Generator and the Customer, but the important difference is that there is no physical power delivery in the structure. this bamboo. Under this model, the Generating Unit will sell electricity directly to the grid at the price of the spot electricity market, and at the same time sign directly with the Customer a Contract for Differences. with production and contractual price agreed by both parties, pre-determined for a certain period of time. This bilateral financial contract acts as a tool to help parties manage financial risks, in particular, if the electricity price of the generating unit on the spot electricity market at the time of transaction is greater than the electricity price. In the committed contract, the Generating Unit will pay the Customer the excess amount due to the price difference corresponding to the committed output of the contract and vice versa. In addition, the Customer will still sign with the electricity retailer to buy electricity for their actual consumption at a price equal to the price of electricity purchased on the spot electricity market plus the costs of providing the transaction. service (transmission, distribution, ancillary services and power system operation). Transactions in the financial DPPA model are shown in Figure 3 below.

Figure 3. Financial flows, electricity and contracts in financial DPPA

Among the typical DPPA structures mentioned above, the financial DPPA structure is more flexible than the other structures, so it attracts more groups and companies to join, because: the client can fix the long-term contract price below the market price; customers with multiple load points across the grid that can meet their renewables demand with fewer transactions; customers participating in the DPPA can reduce their influence on utilities and trade only on the wholesale electricity market or conduct direct financial transactions with Generators. However, the choice of model to apply depends on assessing the suitability of each model to the context, objectives, development situation and specific legal framework of each country. In the next article, we will introduce more details about the experience of implementing the DPPA mechanism in some countries and lessons learned for Vietnam. EPCSOLARVN

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