LCP Delta Report: Understanding the real costs of solar PPAs
At EDF, we’ve been looking carefully at our PPAs and the costs and risks we price as an offtaker. As part of this activity, we asked LCP Delta to independently analyse the historical costs of shaping fixed-price solar PPAs and what a sustainable risk pricing approach might be. You can find the full report here.
What are the key findings of the report?
Recent low costs of operating solar PPA have not been representative of risks that offtakers should consider when pricing future PPAs. This is due to a fortunate combination of weather and market price conditions.
Seasonal generation volumes and price movements have been unexpectedly aligned over the last 7 seasons, meaning offtakers have had extra volume to sell at high prices and have been buying back hedges during low prices.
The analysis shows that price movements were driven by the energy crisis and were mostly independent of solar generation levels. This means there is no reason to expect this fortunate alignment to continue in future.
This alignment could easily have been unfortunate if generation volumes or price movements had been different, which could have led to large losses for offtakers.
It is also noted that short-run shaping revenues, sometimes referred to as "solar cannibalisation" have become more volatile over recent years. This may persist as more solar generation is added to the system requiring larger shaping premia.
What’s our view?
It’s really interesting to see this analysis presented from an offtaker’s perspective and the analysis aligns with what we have observed. There is a lot of volatility in the costs of managing fixed-price solar PPAs. The report does a good job highlighting how offtakers could have experienced losses over this period, and the risks they are exposed to going forwards.
The underlying fundamentals of increased solar generation suggest we should expect to see higher and growing costs to manage the shape of solar generation in future years. We, along with other offtakers, cannot depend on favourable conditions indefinitely and must remain mindful of the potential costs associated with a less favourable season. Nevertheless, we remain committed to providing generators with the most competitive PPA prices for their power.
What does this mean for generators looking to secure a PPA?
While we remain highly competitive in every solar PPA tender, our focus is on sustainable pricing that ensures long-term reliability. Our approach is built on robust analysis and long-term stability; we price our PPAs responsibly ensuring we remain a reliable counterparty - one that won’t be caught out by volatility or forced into unsustainable positions. In an evolving and volatile market, that stability will only become more important.
Talk to the experts
Interested in a solar PPA? Reach out by contacting ppa@edfenergy.com to discuss how we can help.
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