GREEN TECH MEDIA | Since the dawn of grid-connected wind and solar, long-term power purchase agreements were the financial glue that held projects together. Developers could rely on relatively simple multi-decade contracts, thanks in large part to policy that encouraged or mandated utilities to enter those agreements.
Today, things are a lot more complicated. It’s much harder to secure a long-term PPA, so more wind and solar projects are getting exposed to the risks of the market.
Contract terms are being cut down to 10 years or less. And that means a vast majority of the electricity produced by those wind and solar projects must get sold on the competitive market.
Wind and solar face “covariance risk” — a negative relationship between electricity output and price. These resources must sell their electricity during the time of day when lots of other solar and wind farms are also generating, thus depressing wholesale prices.
In a not-so-distant future with high amounts of renewable energy, will developers be able to make money from their projects on the open market?
In this episode, we explore the risks of merchant wind and solar. We’ll talk about why contract terms are changing, what kind of hedging strategies have emerged, and why this trend matters.
By Stephen Lacey