Potential Impact on PPA Contracts IWFA Workshop 24th January 2014

PPA Solutions Established in Aug 2012: Hugh Mullany and Rory Mullan - Mullany Engineering Consultancy and Mullan Grid What we have been doing? Restructuring Supplier Lite Registrations Reviewing PPA Options Negotiating PPAs for Merchant, REFIT II and REFIT III Review Terms & Conditions of PPAs Audit and review of REFIT I PPAs Setting up Supplier Lite Structures Due Diligence Review SEM prices for Generators Registering Generators for LECs Supporting REFIT audited year-end submissions

Today Current PPA Position of Generators Questions to consider to understand impact of European Target Model on Existing PPAs

The Power Purchase Agreement Supply Co. BILL PPA Fixed: A fixed rate per MWh, without or without indexation Pass through: All SEM/REFIT/LEC/GO revenues, less a flat administration fee or price per MWh traded Floor with upside, or price guarantee

Types of Generator PPAs Support Scheme PPAs AER Electric Ireland REFIT I & II Any 3rd Party Irish Supplier Supplier Lite Outside Support Scheme PPAs Merchant - market pass through 3rd Party Suppliers Fixed price with 3rd party supplier Hybrid with 3rd party supplier Terms of PPAs AER PPAs to conclude up to 2019 - handfull of AER III end of 2014 REFIT I – conclude 2021 onwards REFIT II - conclude 2027 onwards

Current Market Structure - SEM GENERATION SUPPLY MONEY POWER Single Electricity Market PPA Supply Co. BILL Supply Co. BILL Wind > 10MW Intermediary What is changing is the market – so what does the current market delivery to wind generators Wind <10 MW Outside SEM/ Negative Demand PPA

Single Electricity Market SEM Payments & Charges GENERATION SUPPLY PPA Supply Co. BILL Single Electricity Market POWER MONEY Intermediary Charges - Energy (SMP) - Capacity - Imperfection - Market Operators Payments - Energy (SMP) - Capacity Wind > 10MW The payments are made to suppliers – generator share of these payment depends on the PPAs Wind <10 MW Outside SEM/ Negative Demand PPA

SEM 2012/13 Wind Weighted Average (€/MWh) 2012/13 SEM Prices   SEM 2012/13 Average (€/MWh) SEM 2012/13 Wind Weighted Average (€/MWh) Energy - SMP 66.1 63.5 Capacity Payment 6.9 5.8 Capacity Charge 14.6 15.0 Imperfection Charge 4.7 Wind Generator > 10 MW 69.3 Wind Generator < 10 MW 83.2 Difference (€/MWh) 13.9 % Difference 20% Difference €14/MWh – 20%

Benefits of Current SEM Structure Identical generators producing the same power at the same time receive the same revenues Shared SMP and Capacity Payment Transparency of prices Wind prices are relatively close to average prices Generators < 10 MW can register as negative demand Relatively low cost to operate in SEM Difference €14/MWh – 20% Good for wind You can clearly see what value the supplier for your energy

New Market Changes New prices: Day Ahead Within-Day Balancing Supplier who has bought your power under a PPA can choose how to trade-on your power That choice impacts how much money your windfarm makes Choice may be restricted by lack of available counterparty Identical generators producing the same power at the same time receive revenues based on their trading skill Market starting around Nov 2016 The requirement for the three prices are laid down in the EU target model – not up for debate Who, how and when you participate in each of these markets is main issue in the consultations Available courterparties in the day ahead and within day markets

Impact of new Market on Existing PPAs Support Scheme PPAs - REFIT I & II Relevant differences in REFIT I & II The REFIT II reference and technology rate (not including balancing payment) is guaranteed and has to be passed on to the generator Less potential for market upside in REFIT II Market Change Clauses in PPAs Two general types of Market Change Clauses: Allow mechanical changes, for examples changes in payment timelines Reopening of price negotiations to allow both parties to maintain commercial positions If the supplier is making less money trading your power, they may – PPA permitting – seek to change the price under the PPA Relying on

Impact of new Market on Existing PPAs Support Scheme PPAs - REFIT I & II - continued What market prices will be utilised by CER for REFIT? For forecasts (Day Ahead, Within Day, Balancing) For reconciliation (REFIT currently tops up any supplier to the guaranteed rates, irrespective of how much or little money the supplier has made selling on your power) Impact on potential for upside if allowed under the PPA Impact of changes in PPA on loan agreements Should also consider impact of new market on project revenues post REFIT term Could be a lot of complexity on how forecasting, reconciliation and subsequent auditing will be done for REFIT Question; What will happen if there is a big difference between the average market revenue from different generators being submitted for REFIT calculations Will an auditors be able How muchh transparency will there be to calculate upside

Impact of new Market on Existing PPAs Outside Support Scheme PPAs Merchant - market pass through Term of current PPAs generally end in 2016 or earlier Availability, structure and price of new PPAs post 2016?? Fixed price with 3rd party supplier Depends on Market Change Clauses in PPA Need to also consider new market’s impact on future project revenues PPA structure required for repowering? Who knows At least a moderate risk to revenue streams for projects outside PPAs

Impact of new Market on Existing PPAs General Will there be Capacity Payments & Capacity Charges? What will market revenues be like in the European Target Model? Will the choice of when to trade make much of a difference on revenues? Will <10MW generators still see the benefits of offsetting demand? Cost of forecasting and trading in the new Market? Implementing of priority dispatch? And of course the detail …. Having current capacity payment has been good for wind – not too volatile What charges will be levied on demand – not clear Will there be additional charges on demand customers vs generator customers Negative demand will not protect your from balancing risk What the political impact be on the PSO pot.

Conclusions Know Your Own Position Too early to fully understand potential impact Need to stay informed Ensure this sector has a strong voice, individually and collectively

Rory Mullan rory@ppasolutions.ie Thank You Rory Mullan rory@ppasolutions.ie 087 3287213