inenco re renewable energy management

understanding energy

Inenco RERenewable energy management

John Dodds

Business Development Manager


Inenco RE

• Over 40 years experience

• 15 tW of Energy delivered 2007/08

• Over £1 Billion in management

• FSA Accreditation

• Blue chip client base


The need for renewable energy

• Government target is 20% of its total energy from renewable sources by 2020

• Currently this figure stands at less than 1.5%

• This target is driven by the need for energy security as much as climate change

• In total it is estimated that delivering the target represents £100 billion of revenue


The scale of the challenge

Major increases are required for all three applications

Electricity Heat Transport 2008

2020

0

5

10

15

20

25

30

35

40

2008

2020

Percentage renewable contribution to total energy consumption

%


The solution

• Distributed Generation

• Merchant plant

• Farm Diversification on a major scale


Distributed Generation

• Renewable energy projects require:– Land

– A secure feedstock source

– Customers for the energy

• Renewable projects can provide security for:– Heat

– Electricity

– Income


So what is required?

• A wind turbine can take up just the space needed to park four cars

• A power plant fired by Biogas or Biomass requires approximately two acres

• Expertise to develop the project

• Effective project managment and finance


How is income earned?

• Electricity is either sold locally, used on site or sold to energy supply companies over the National Grid

• Heat produced can be used on site or sold locally

• “Gate fees” for plants that deal with waste

• Government subsidies in the form of ROCs


Government support

• Renewable Obligation Certificates (ROCs) are the mechanism to provide financial support to renewable electricity, they are currently worth £50 per mWh. The amount of ROCs you receive depends on what type of generator is being used.

• Levy Exemption Certificates (LECs) are for the Climate Change Levy charged to all commercial users of electricity, generators of renewable electricity are paid this as a benefit, approximately 0.45p per kWh.

• Renewable Energy Guarantee of Origin (REGO) certificates have no cash value, they provide an audit trail for the energy generated.

• All of these are administered by Ofgem.


An example income model• The types of income streams for electricity are common

to all renewable energy generators

• The ROC payments will vary for different types of technology

Income stream Pence per kWh

ROCs 0.25 – 10

LECs 0.5

Wholesale elec 5-9

Gate fees (if applicable) 0-5

Heat 2-5

Total 7.75 - 29.5


Three ways to export

• Private wire

• End user PPA

• Wholesale energy markets


Private Wire

• Hard wire to Neighbour or self use

• Increased value

• No transmission charges

• Could reduce grid connection charges


End User PPA

• Guaranteed price for between 1 & 5 years

• Income security

• Bankable offering


Wholesale Energy Market

• Maximise income

• Managed trading

• Virtual floor


What is Virtual Floor?

• A robust procurement strategy to reduce downside risk and benefit from market increases

• The Virtual Floor strategy is managed using the ‘unlock’ and ‘relock’ tool contained in flexible supply agreements offered by the leading energy retailers.

• Dependant on your attitude to risk, we can unlock your fixed energy price to get higher export prices for your generated energy

• The share of increased profit gives more than any fixed price deal


45.00

50.00

55.00

60.00

65.00

70.00

75.00

Time

Pri

ce

……Relock when market rise triggers ‘lock in'

Unlock

Lower lock trigger once desired gain has been

achieved – OR….

Market Fundamental and Technical analysis used to make informed unlock and relock decisions, incl.:-

Unlock/Relock – Technical Expertise

•Analysis of Oil, Coal Carbon, Currencies etc

•Relative Strength Indicators

•Value at Risk analysis

•Supply margin status


Virtual Floor

• Optimises risk management in a PPA contract

• Controlled decisions born out of a robust and defendable process

• Provides a price floor

• Budget income set

• Maximum income achieved from unlock and relock is unlimited


Overview

• Your position is 100% contracted at the initial reference price – ‘Actual’ (£70)

• Virtual Floor set (£69) using agreed ‘buffer’ value (£1)

• Use ‘unlock’ ‘relock’ to improve ‘Net price’ + return of ‘buffer’ (£72)

Initial Contract (£70)

‘Benefit’ (£1) Energy sold using Virtual Floor period

Timeline

Final Net Price (£71 +£1)

Virtual Floor (£69)

£

Buffer £1


Sell, Buy & Re-Sell

£50.00

£55.00

£60.00

£65.00

£70.00

£75.00

£/M

W

‘Initial net Sell’:

“profit/loss”: £ 0/MW

£ 54/MW‘Final net Sell’:

Re-Sell: £65/MW

£ 6/MW

£ 0/MW£ 0/MW

£ 5/MW

£ 65/MW£59/MW

Sell ‘Actual’: £54/MW

Buy: £60/MW


What’s the catch?

• The development of a renewable energy project is complex and lengthy:– Extensive feasibility work

– Arranging finance

– Supplier selection

– Project management

– Electrical and heat network connections

– Power purchasing agreements

– Feed or fuel input management

– Ofgem requirements to claim ROCs LECs and REGOs

– In life support


Inenco RE can help you

• With 40 years experience in the energy market we can help you by:– Producing commercial and technical feasibility

studies

– Producing the specification of the plant

– Project managing the installation, connection and commissioning of your equipment

– Providing a favourable power purchasing agreement and managing the sale of ROCs and LECs

– Delivering up to date management information


Find out more

• John Dodds 07970 069054

• Visit our website

www.inenco.com01253 785000

inenco re renewable energy management

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