The Department of Energy and Climate Change (DECC) is seeking views on the key design features of the Offtaker of Last Resort, which will provide eligible renewable electricity generators with a guaranteed 'backstop' route-to-market at a specified discount to the market price.
The Offtaker of Last Resort (OLR) is a key concept in providing much-needed liquidity in the Power Purchase Agreement (PPA) market. Government acknowledges that investment from independent generators will play a key role in meeting the Government's decarbonisation and security of supply goals. Many of these independent generators rely on PPAs to participate in the market and sell their power, but recently many have struggled to find a route to market at prices that justify the investment needed. An increasing number of commentators have suggested that the reduced liquidity in the PPA market, combined with the introduction of competitive bidding for subsidies through the new Contracts for Difference, seriously threatens the renewables industry, and therefore the achievement of our low-carbon targets.
The OLR is intended to address the liquidity issue by guaranteeing the availability of a PPA where generators cannot otherwise find a route to market (Backstop PPA)
Under the Government proposals, generators will be able to access a Backstop PPA throughout their CfD, with the terms grandfathered from the point of CfD signature. In order for these Backstop PPAs to be a genuine 'backstop' for generators, power will be purchased at a significant discount to market value.
Backstop PPAs will each be one year in length (with the possibility of reallocation on expiry) and designed to reflect terms and conditions in open-market PPAs as far as possible.
The larger suppliers will be forced to bid to provide Backstop PPAs.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
