PPA settings
This is a comprehensive overview of all available power purchase agreement (PPA) settings on Tensor Cloud.
Contract Terms
Items in this tab contains the most common PPA contract terms that define the revenue, profit, and risk allocation between both counterparties.
Basic Terms
Enter the basic contract terms required for almost any power purchase agreement in this section.
PPA Type
Tensor Cloud is able to accommodate most PPA constructs used in Japan. You can choose between 2 PPA types.
Changing the PPA type will invalidate simulation results for all associated assets. Expect long simulation times if many assets are affected.
Virtual PPA
Often referred to as a contract for difference (CfD). Under a Virtual PPA (VPPA), the offtaker does not own and is not responsible for the physical electricity generation of the underlying assets. The VPPA is nothing more than a financial transaction, exchanging a fixed-price cash flow for a variable-priced cash flow and the environmental value of the generated electricity.
The IPP (or a third-party on behalf of the IPP) sells the electricity generation from all underlying assets on the electricity markets. The terms of the PPA then dictate the amount and direction of a financial settlement between the IPP and the offtaker. You can find more details on the expected cash flows under different pricing schemes in the Pricing Scheme section.
Because the VPPA is purely financial, the offtaker still needs to meet its electricity load through traditional channels. Therefore, the relationship of the offtaker with its electricity retailer remains unchanged.
Off-Site PPA
As opposed to a VPPA, the Off-Site PPA type is a form of physical PPA, where IPPs are transacting the generation output of the underlying assets along with environmental value. This incurs transmission and distribution charges which must be accounted for when deciding on the PPA pricing.
The ownership and operation of the underlying assets is not the responsibility of the offtaker under this PPA construct.
Off-Site PPA constructs can be extremely complex due to the large number of bilateral contracts and involved stakeholders, including IPP, offtaker, electricity retailers, and TSO.
Tensor Cloud currently has only limited support for modeling the offtaker side of complex Off-Site PPAs, due to the wide variety of electricity tariffs and retailer agreements.
Contract Status
Keep track of your PPA pipeline by regularly updating the contract status of your PPAs. Available choices are: Draft, Signed, and Started.
This setting does not affect the simulation results of underlying assets but serves mainly to filter and sort your list of PPAs.
Tensor Cloud currently does not update the Contract Status automatically based on the Contract Start Date.
Contract Start Date
Enter the date on which the power purchase agreement will take effect. Tensor Cloud considers all electricity flows from 0:01 on that day to 23:59 on the last day of the contract.
Contract Term
Specify the length of the contract in years. This is a required field, and while we do not specify a default value, usually PPA contract lengths are closely aligned to the lifetime of the underlying assets.
Tensor Cloud continues to calculate asset cash flows beyond the end of the PPA Contract Term. Those cash flows will not include any PPA settlements but instead be purely based on market revenues.
Offtaker
Enter the name of your Offtaker in this optional field to better sort and filter assets in the asset list view, or PPAs in the PPA list view.
You can manage your list of Offtakers from the Stakeholders tab in the Tensor Cloud settings.
Entering an O&M Provider name will not give this O&M Provider access to any information in your account, nor will it inform the O&M Provider that you have associated them with an asset. This field exists purely to help you better organize your asset portfolio.
Pricing Terms
Specify detailed pricing options for fine-grained control over how contract prices are calculated.
Pricing Scheme
Tensor Cloud supports a wide range of PPA pricing schemes. Given the relatively low maturity level of the Japanese PPA market, we expect the vast majority of contracts in the first few years of the new market regime established in April 2022 to use fixed pricing schemes under pay-as-produced agreements.
We encourage you to experiment with more advanced pricing schemes that allow for various redistribution patterns of risk and reward between IPP and offtaker.
Tensor Cloud currently only supports pay-as-produced arrangements, as these are the de-facto standard for renewable energy assets. Other schemes including volume commitments are exceptionally rare in this space and usually require dispatchable assets as part of the PPA.
Fixed
Fixed price PPAs are most similar to the conventional feed-in-tariff regime. Both parties agree on a fixed strike that will not change over the length of the contract and that is paid for each unit of electricity generated by the underlying assets.
Fixed with escalation
With this pricing scheme, you not only set a PPA strike price, but also an annual percentage escalation rate that will increase the strike price over time.
Fixed with inflation escalation
With this pricing scheme, the PPA strike price will increase annually in line with inflation. The inflation rate is set in the Scenario settings.
Try to avoid assigning assets under different Scenarios to the same PPA. Tensor Cloud simulates each asset individually, potentially leading to a situation where one PPA contains assets with different inflation rates.
Discount with floor
This pricing scheme allows you to set the settlement price as a percentage discount over the reference price defined in the settlement terms instead of a fixed or escalating strike price.
In addition, to protect the IPP from continued low reference prices, this pricing scheme also includes a lower limit for the settlement price.
For example, if your reference price for the time slot in question is 10 Yen, and your Discount to Market is set at 10%, the settlement price would be 9 JPY (10 JPY * 90%).
An example including the Floor Price would be a situation in which your reference price for the time slot in question might be 10 Yen, your Discount to Market 20%, and the Floor Price 9 JPY. In this case, the settlement price would also be 9 JPY, since 10 JPY * 80% is smaller than the Floor Price, which acts as the lower boundary when calculating the settlement price.
Discount with collar
This pricing scheme allows to set not only a lower boundary to the settlement price as protection for the IPP, but also an upper limit that is designed to protect the offtaker in case of sustained high reference prices.
Collar
In the collar pricing scheme, the settlement price equals the reference price within the upper and lower boundaries set by the Cap and Floor Price settings.
Strike Price
The strike price is used to calculate settlements between offtaker and IPP.
For example, under a fixed-price VPPA, for the time periods in which the strike price is above reference price, the IPP will receive settlement payments from the offtaker for the difference (thus, contract-for-difference).
Contrary, when the strike price is below the reference price, the offtaker will receive settlement payments from the IPP for the difference.
Floor Price
This is the lower boundary of the settlement price under PPAs with collar or floor pricing constructs.
Settlement Terms
These settings influence how the PPA reference price is calculated and how cash flows are distributed between offtaker and IPP.
Settlement Market
You can decide which settlement market is used for calculating the reference price. This defaults to day-ahead.
Historical pricing data shows that intraday prices tend to be higher than day-ahead prices, so choosing the intraday market tends to favor the offtaker during PPA financial settlement.
Settlement Pricing Zone
This setting allows you to choose what pricing zone to use as a reference for your settlement price. You can choose between the system price, one of 9 regional pricing zones, or Asset grid area to settle each asset individually against the price of the grid zone it is connected to, which is especially useful to avoid distortions for PPAs that include assets in multiple grid zones. This setting defaults to System Price.
Try to build a deep understand the historical prices and current market dynamics of the different utility zones in Japan first, then decide on a Settlement Pricing Zone. Tensor Energy will provide a Market Intelligence dashboard to Tensor Cloud customers from mid 2022 to help you make an informed decision.
Calculation Interval
This sets the time interval over which the reference price is averaged. Currently, Tensor Cloud only supports 30 minutes, which equals non-averaged prices. In the future, we will expand options to include 6-hours and daily price averages.
FIP Beneficiary
This setting lets you choose how subsidy payments get allocated between offtaker and IPP during cash flow calculation. Defaults to IPP as the beneficiary.
Linked Assets
In this tab, you can see all assets associated with the PPA. You can also add and remove assets by checking and un-checking them in the list.
You won't be able to assign FIT assets or assets that are already assigned to a different PPA. Also, remember to press the 'Save' button after you have made your selection.