Centrica keeps up green pivot with 266 MW of Nordic wind PPAs

A British energy services supplier targeting net-zero has agreed to sell more new renewable energy capacity in European markets where renewables are not subsidized.

Centrica Energy Trading — trading not just power but also LNG and natural gas in line with the needs of its subsidiary British Gas — agreed to provide services for Finnish developer Taaleri Energia's two wind farms in Finland and one in Sweden.

Under the agreement, Centrica Energy Trading will not only be an off-taker through 10-year power purchase agreements (PPAs), but will also support the wind farms by balancing variable power with backstop supplies, among other things. The company uses backstop energy generation sources that can include grid, biomass and hydro supplies.

The agreement broadens an existing partnership in Finland and brings the total capacity Centrica manages for Taaleri Energia in Finland, Sweden, and Norway to 735 MW.

Centrica started trading renewable energy in 2007, but started building a portfolio of PPAs in subsidy-free renewable markets in 2019 by agreeing to supply a PPA from a 4-MW zero-subsidy solar installation in Germany for use by energy group Enovos's industrial energy customers.

Over the past two years, Centrica has been active as an off-taker for various Nordic renewable developers. In March, it signed a separate off-take deal, a 10-year solar PPA deal contracted with Danish independent solar energy company Better Energy's two subsidy-free solar farms.

In Norway two years ago, it also agreed to provide commercial services for the off-taker of a 197-MW onshore wind farm, American aluminum producer Alcoa. Finland has seen wind farms built without subsidies since 2018.

Centrica offers services including price risk managment for generators, shaped power delivery and trading of excess renewable energy, and nomination in which the company manages communication between the generating asset, the TSO and the supply point. Centrica also provides green guarantees of origin in all major energy markets, assisting businesses or governments seeking to use these towards GHG Scope 1-3 commitments.

The company has sold PPAs to energy consumer clients in Denmark, Norway, Sweden, the UK and Germany.

Centrica does not usually sell the PPAs across state borders. "Yes and no — it's possible to do so, and we have experience with it, but it's not the case for the vast majority of our deals. It is nearly always to clients in the same price zone as production as the price difference between zones effectively works as a deterrent," Michael Pullan, head of communications for business at Centrica, told IHS Markit.

European renewable PPA boom

Not just Finland, but also Portugal, France, Poland, Ireland, and Italy are currently developing markets for renewable PPAs, according to analysis of Europe's PPA markets by IHS Markit.

Germany and Iberia are solar PPA hotspots, while offshore wind PPA markets are growing in the UK, Benelux, and Germany.

Amid a COVID-19-depressed energy landscape, renewable PPAs thrived in Europe, with 12 GW contracted in 2020, nearly double the 8.2 GW contracted in 2019, IHS Markit said.

What's more, a quarter of the 33.4 GW of completed renewables installations in Europe that year had signed a PPA.

PPA growth in Europe over the past three years has been driven in part by the removal of government subsidies for renewable energy developers and generators, said Henning Bottger, an energy, utilities, and resources partner with London-based Baringa Partners, at Enmacc's Digital Trader Summit earlier this year. In northern European markets, PPAs help generators overcome the cost of financing subsidy-free projects while managing variable renewables on the grid, he said.

"On the generator side there is a need to replace subsidy through the bankable long-term off-take agreements that create price certainty: a hole that has a been filed by traders and utilities," said Bottger.

He added that the renewable generators looking to gain price certainty seek to sign PPAs with traders, utilities, and corporations.

The majority of 2020's PPA deals were taken up by corporate renewable PPAs contracted by companies in the technology and industrial sectors, according to IHS Markit.

The corporate push for renewables dominated PPA markets in the Nordics, where PPAs are appealing due to cheap onshore wind generation, stable regulatory frameworks, lower balancing costs due to high penetration of hydropower and liquidity, and export credit guarantees that reduce transaction risk.

Corporate interest in renewable PPAs is accelerating, as 2020 saw nearly twice the number of corporate renewable PPAs signed in 2018. "The pledges from the corporate scene and end-users for their sustainability agendas, [following] public statements to decarbonize their business over the next 10-20 years by the global corporate renewable energy initiative RE 100 and many others, will obviously drive demand for renewables over the coming years," Bottger said.

Net-zero transition

Centrica committed to advancing the deadline for its net-zero pledge to 2045 from 2050 in February. At the same time, it laid down a goal of "helping its customers be net-zero by 2050."

While Centrica will reach net-zero for its own activities in part by electrifying its 12,000-strong fleet of vehicles from 2030 to 2025 in the UK, the company said it would outline how it will reach its goal in its Climate Transition Plan later this year.

Over the first half of 2021, Centrica saw "volatile and unpredictable" commodity markets that contributed to a £40 million loss in its energy marketing and trading segment, according to its financial results.

"The pandemic created an extraordinary situation in the energy markets, where we saw a high degree of volatility. With national lockdowns put into place, we saw consumption patterns that were far more unpredictable, and market expectations rapidly changed as new energy patterns emerged," said Pullan.

"For us, this meant that, like other energy trading businesses on the market, we had to quickly adjust our trading models. Based on those adjustments we were able to predict the effect of Covid-19 on market prices and volatility. Supported by in-house developed algorthym-platforms, our trading setup performed exceedingly well," he added.

The company's renewable route-to-market capacity under management increased by 3% from 10.7 GW to 11.0 GW in the period. "This continues to be a focus area for growth as more renewable capacity comes online across Europe," said Centrica.

Centrica wants to be an expert in providing route-to-market services that can grow sustainable energy in Europe, managing director of Centrica Energy Marketing and Trading Cassim Mangerah said in the statement on the Nordic PPAs.

As part of "simplifying and modernizing" the company, Centrica also intends to explore alternative options to sell off its 69% stake in its "non-core" E&P joint venture launched in 2017, Spirit Energy. "Our intention remains to exit oil and gas production in line with our strategic shift to simplify the Group, focus on the customer and decarbonize the Group's portfolio," said the company in the results.

Posted 26 August 2021 by Cristina Brooks, Senior Journalist, Climate and Sustainability