Making a market for PPAs

Jason Tundermann, vice president for business development at Level Ten Energy, discusses the company’s efforts to create a transparent market for power purchase agreements in Europe with the expansion of its online platform from North America.

Tundermann joined the Seattle-based tech start-up Level Ten Energy after himself listing one his projects on its online marketplace for power purchase agreements (PPAs) as a renewable energy developer.

He was obviously impressed with what he saw as he now works as the company’s vice president for business development. Last year, he moved to Paris for six months to oversee the launch of the platform in Europe.

Level Ten has been operating the market in the US and Canada for several years, facilitating deals with major companies such as Starbucks and Bloomberg.

Tundermann says its move into Europe was partly at the behest of its existing customers, who were also looking to secure PPAs on the other side of the Atlantic: “One of the reasons our North American clients were asking us to expand coverage to Europe was that they felt there was a lack of transparency.”

As companies used to working across fewer different electricity systems and borders, he says it can sometimes be “overwhelming to look across the Atlantic and view 28 separate countries, each of which has their own grid and subsidy regime and supply and demand dynamics.”

Level Ten has so far launched two tenders in Europe. The first was issued on behalf on a “traditional corporate buyer” in March and has now reached the point of contract negotiations. The second was launched in June and is seeking between 50MW and 500MW of generation capacity to meet the needs of a financial investor.

Tundermann says there are plenty more on the way: “We’ve been very pleased with the number of North American buyers that have really followed through and are expressing strong interest.”

Level Ten is aiming to streamline the procurement process by creating “one-stop shop” for PPAs that allows buyers to make “apples-to-apples” comparisons between different offers.

“In order to compare offers in Spain with offers in the UK, we need to tell developers what to price to and so we’ve established a couple of standard terms and conditions – pricing plans, if you will – and then we ask all of those develops to price to those standards,” he explains.

Tundermann says the standardisation of contract terms, including the amount of credit cover and the penalties for failing to deliver, as well as procurement process itself, removes a lot of the “guesswork and risk” currently faced by buyers.

He says their platform can be used to arrange the cross-border trading of both “virtual” PPAs, covering the purchase of certificates to meet renewable energy targets, and “physical” PPAs, covering the purchase of the actual energy – the latter being significantly more complicated due to the requirements to secure interconnector capacity and deal with balancing responsible parties such as retailers.

But, he qualifies: “It’s worth noting that a lot buyers want to be able make local claims. If they have load in Germany, they want to be able to point to a German asset.”

Nevertheless, Tundermann says they will at least be clear about the decision they are making: “If you’re that German corporate and the effective price of procuring in Germany is €5 higher than if I were to sign an identical contract in Spain, then it leaves you that choice.

“Those options are in front of you and then you decide is it worth a €5/MWh premium to have a local project versus one across borders.”

To give them further visibility over the state of the market, Level Ten has also launched a price index based on offers posted by sellers: “In a particular market, we’ll receive thirty or forty different offers according to a pricing plan and our index is the P25 of that price – so the boundary between 25^th and 26^th percentile if you were to stack all of the prices up in order.”

Tundermann says this presents a more accurate picture than the average which is more sensitive to the outliers than can emerge as a result of subsidy regimes in some countries.

“We also think that reporting the P25 as opposed to the P50 – the median – is important because it gives a better sense of where the actual market is,” he adds. “The bulk of trades are going to occur with more attractively priced offers so we’ve intentionally created an index to capture the most attractive tier.”

He says the measure of success will be a market that is both broad and deep: “We really see ourselves as being a centralised hub for renewable energy PPA procurement across the continent.”

The company is looking to work with all types of buyers, including corporate consumers, utilities and traders: “We try to serve as many slices of the market as possible and it’s been encouraging to get traction and see activity from multiple sectors.”

They have previously arranged contracts for as little as 5MW of capacity in the US: “Sometimes we accomplish that by aggregating multiple small buyers together to create a larger purchasing block and get economies of scale.

“We offer a matching engine on our platform where on the supply side we solicit standardised offers from sellers, and for the most attractive projects, we also ask them to provide separate offers for smaller and smaller volumes – asking them how low can you go.

“It doesn’t help that buyer to be looking at prices for a volume ten times what they’re looking for and so we actively solicit smaller chunks from a supply perspective so we can make a match when we encounter that from a demand perspective.”

On the supply side, Tundermann says there are already 350 sellers registered on the platform, with assets listed in around 20 European countries.

He says many of the staff at Level Ten also used to work at renewable developers, allowing them to offer valuable advice: “We spend a lot of time developing tailored feedback reports that help project sellers understand their offers and how those offers position in the market and gain insights into how to improve their offer for the next tender.”

“It’s a bit of an education for developers who are used to selling into a feed-in tariff,” he remarks; “Getting used to signing a ten-year agreement with a corporate and thinking about credit risk and different PPA settlement terms and conditions.”

He believes the creation of a thriving PPA market will be key to deploying large volumes of renewables in the coming years: “We’ve seen a lot of European markets start to come off subsidy programmes, which have been traditional mechanism for renewable energy development in Europe, and as the subsidies burn off, corporate PPAs are there to fill the gap.”