04.04.2018 | Making wind projects possible with know-how and market proximity
Wind farms are popular investment vehicles. In 2017, some Euros 22.3 billion were invested in the construction of new wind power plants in Europe. Procurement contracts play an important role here. Michel Maiorano, Program Manager Strategic Initiatives at Axpo Trading & Sales, explains why these agreements are important and why Axpo is successful in this area.
First things first: What does a procurement contract (PPA: Power purchase agreement) have to do with wind farms?
A wind farm owner ensures the marketing of the generated electricity with a power purchase agreement. As the name already indicates, the marketer and the owner conclude a contract for the purchase of electricity. With the contract, Axpo puts the last puzzle piece in place for the construction of wind power or renewable energy plants.
Can't owners do their own marketing?
Managing a power plant and marketing electricity requires a great deal of experience and expertise. Investors from other industries, for example pension funds, are increasingly investing in wind farm construction and are dependent on specialist know-how. An independent marketer like Axpo is often preferred, last but not least in order to diversify the portfolio. Furthermore, because all power plants need market access, and market access, for example to the spot market exchange, involves regulatory requirements, Axpo also offers access to the OTC markets in addition to the exchanges.
In other words: Investors participate in the construction of a wind farm, for example with a fund or with equity capital, banks take over debt financing and the builder constructs the wind farm. Before the banks make the financial resources available, the issues of marketing and expected cash flow must be clarified - and this is where Axpo comes in.
What does Axpo offer?
Axpo offers risk management and individual customer solutions that are aligned with market conditions and provide flexibility or more security depending on the customer’s needs. As already mentioned, this includes power purchase agreements for generation from wind, as well as biomass, hydropower and photovoltaic plants. Services include market access to the spot market exchange and management of the wind park portfolio, as well as long-term fixed price or long-term minimum price contracts where Axpo guarantees the power plant owner a certain return per MWh.
Axpo currently markets renewable energies from plants with an installed capacity of over 14,000 MW or 40 TWh per year for its customers. In doing so, Axpo is a leading marketer of renewable energies in Europe. In Spain we manage the largest customer-specific portfolio with some 7,700 MW and also handle the technical management of customer plants.
What’s more: Axpo experts are present in over 39 energy markets and can address individual customer needs. In addition, Axpo has great expertise in risk management.
Axpo's engagement in the European business with wind power
Axpo's engagement int the European business with renewable energy
Can you give us an example of a power procurement agreement?
At the beginning of December 2016, a long-term power procurement agreement between the Scandinavian subsidiary Axpo Nordic AS and LUXCARA, a leading asset manager for renewable energy investments in Europe, was concluded for an onshore wind farm in Egersund, Norway. The agreement with LUXCARA states that Axpo Nordic AS will pay a fixed price for 100 per cent of the power to be produced at the plant that was still under construction at the time of signature. The contract went into effect when construction was completed in the second half-year of 2017. The plant in Egersund is located directly on the Norwegian west coast and will reach a capacity of 111.2 MW with its 33 wind turbines. Owing to its location, Egersund offers exceptionally good production conditions for wind power throughout the year.
And what happens when there's no wind?
Not much, in so far as the right marketing strategy was decided on. However, the risk of too little wind can be reduced with a "wind volume hedge" that guarantees the customers a fixed price independent of how much power is actually produced. The wind data of the plant location is the basis for all calculations. Axpo focuses on customer requirements and works out the right solutions in close cooperation with the customer.
Where is Axpo's wind marketing headed?
Primarily, we want to work in markets with low subsidies and high market liquidity. In this context we see that in Europe, for example Scandinavia or the UK, renewable energies are increasingly aligning with the market. The most recent example is Spain or Italy where no new subsidies are available for the construction of wind plants. These developments represent new opportunities for Axpo's marketing business in the area of new, innovative customer solutions.
Wind is your career and your passion. You’re a passionate kite surfer. A coincidence?
In my environmental science studies at the ETH Zürich I learned to better appreciate and respect nature. Kite surfing intensified the connection to nature and offers me an ideal balance to my work life. I support the Axpo sales reps and technical experts in developing diverse customer solutions and ensure transparency and the basis for a detailed analysis and a successful deal. Wind is exciting in every sense.
Michel Maiorano, the kite surfer...
...and on the Axpo Campus in Baden
Market Access: The customer has access to all the relevant power markets (term and spot markets) without an exchange membership and own infrastructure.
OTC: Is the abbreviation for over-the-counter. OTC trading refers to power trading outside the exchanges. The purchase and sale of electricity does not take place via the exchange.
Spot market: In contrast to the term market, short-term power volumes and purchase agreements (term contracts or futures) are traded on the spot market. The power volumes traded in the short term are sold a day before, meaning a day before the physical delivery of the power from the producer or trader to the consumer, in day-ahead trading, or even on the day of the physical delivery in intra-day trading.
Risk Management: Is the management is the methodical, future-oriented handling of risks. This can involve general business risks or special financial risks. Risk management includes the following tasks: Identification of risks (exposure), establishing a strategy for handling risks, assessment/measurement of risks, reporting, monitoring and controlling, as well as allocating risks.