A pgPPA, first used in wind projects, manages weather-related risk by billing a facility's energy transfer based on a proxy generation index rather than actual measured generation. The operational risk shifts from the buyer to the seller.
January 8, 2021
A shaky finance deal is the latest evidence that solar is entering the mainstream with large institutional investors.
Lightsource bp, in cooperation with Nephila Climate, has signed a so-called proxy power purchase agreement (pgPPA or Proxy Gen) with the Capital Solutions unit of Allianz Global Corporate & Specialty (AGCS).
The pgPPA covers the electricity generated by Lightsource bp's 153 MW Briar Creek solar farm in Navarro County, Texas.
In simple terms, a pgPPA is a renewable energy contract to manage weather risk. In practice, the energy transfer from a facility is billed based on a proxy generation index rather than the generation being measured. This means that proxy generation is an hourly index that determines the volume of energy a project would have generated if it had been operated as specified by the developer or owner.
The arrangement depends on both the owner and offtaker agreeing on a set of weather metrics to determine the proxy generation component. In the case of Lightsource bp's Briar Creek facility, REsurety Inc. will act as the calculation agent during the term of the contract.
The pgPPA reflects the fact that solar “can stand on its own two feet” and is not bound by a purchasing power contract or public policy, Lee Taylor, founder and CEO of REsurety, said in an interview with pv magazine USA.
Taylor said the pgPPA structure emerged a few years ago in the wind energy sector and that variances are common in the agribusiness as well as ski resorts among other weather risk related markets. One of the first applications of the technology in renewable energy was the 178 MW Bloom Wind turbine in Kansas, which is part of the Southwest Power Pool. US Capital Power operates Bloom Wind under a 10-year fixed price contract with Allianz Risk Transfer, which covers 100% of the project output.
As part of a pgPPA, the manufacturer and the manufacturer agree to a specific weather data set.
Image: light source bp
As part of the contract signed in 2016, Capital Power will exchange the market income from the generation of the wind project for a fixed annual payment over a period of 10 years. The agreement ensures predictable long-term revenues and reduces the uncertainty of generation volume related to the temporary nature of the wind resource.
Taylor said similar structures have been used for wind projects in PJM and ERCOT in the US as well as Australia. The Briar Creek deal is considered the first application of the technology in a US solar project.
“This deal is a great example of the development of renewable energy products here in the US,” said Kevin Smith, CEO of Lightsource bp in America. He said innovative power contract structures such as virtual and pgPPAs “are valuable tools that we can use to meet the needs of our corporate partners, manage risk, and continue to finance and build new solar projects.”
Ariane West, director of structured finance at Nephila Climate, said risk-transfer approaches “are essential to support investments and infrastructure financing to the extent necessary to meet the zero-carbon goals.”
PPAs and related structures
Purchasing power contracts are frequently used structures between the owners of a solar system and an energy supplier, often an energy supplier or a large manufacturer. In a variant known as a virtual PPA, the contractual conditions focus on the amount of energy that the system supplies to the grid. Typically the amount is measured by an electrical meter at the connection point. By billing the energy supply at the connection point “as generated”, the buyer is exposed to a number of operational risks.
A pgPPA focuses on the amount of energy that should have been delivered to the grid if the facility had been operated according to the equipment efficiency factors and operational best practices. The approach shifts the operational risk away from the manufacturer to the seller.
The pgPPA measures the actual wind or solar resource in the system. This measurement is then carried out using an agreed formula, which is used to estimate how many megawatt hours should have been produced in accordance with best practice standards given the size and operation of the plant.
In the case of Briar Creek Solar, REsurety supplies the hourly data on solar radiation, which is managed with the photovoltaic software PVsyst.
The Briar Creek solar farm is located approximately 60 km south of Dallas and is expected to go into commercial operation in late 2021.
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