Electricity produced by a generator can be sold to a specific customer or customers using a dedicated private wire physically linking these customers to the generator.
How does it work?
A physical connection is created between the generator and end user, this can be installed as a retrofit to existing projects. Depending on the length of connection this process can potentially be costly. Table 4 details an estimated cost associated with a private wire connection.
This cost can be equal to or higher than a standard grid connection, the costs can be potentially shared between the generator and user.
Table 4: Costs of Private Wire Connection
| Private Wire Connection Requirements | Typical Cost | |
| Switchgear | Customer side switch, at the voltage produced by the generator | Estimate £5k |
| Transformer | Estimate £12k | |
| Connection | Connection is cost dependent on distance as well as civils works. Simple costs are:
|
Assume by way of illustration 1000m *£120/m = £120k |
| Switchroom | A commercial site may already have an existing switchroom. Whilst many configurations are possible, the most likely option is two ring main units, one at each end of the connection. RMUs can easily be controlled by SCADA to integrate with generator operation. | Each Ring Main Unit (RMU) is around £15k, so total £24-30k. |
| Exporting | Export Meter | Estimate £15k |
| Ancillary connection requirements | Potential costs include design fees (£5k), surveys (including routes and earthing studies) (£5k), mobilisation (£5k), documentations (£1k) and project management (£5k). | Estimate £21k |
| Contingency | Contingency is difficult to estimate. There are lots of causes of uncertainty for a conventional grid connection that also apply here such as difficult ground conditions. Additional forms of uncertainty include cost of Wayleaves if the route crosses land not owned by one of the parties to the project; and reconfiguring the customers grid connection to allow export | Estimate 20% |
| Legals | A PPA needs to be agreed over a long period of time, and which includes access to export to the grid if the site does not take power, and a mechanism to inflate prices compared to Electricity price inflation. | Estimate £25k |
| Total in this instance around £250k, but this is dependent on-site specifics including voltages, distance to connect to site, arrangements within the site, legal costs and any network reinforcement needed. | ||
The customer will then pay an agreed tariff direct to the community groups for the electricity supplied by the scheme.
The community group will need to raise (or share the cost of) the additional finance required to pay for a private wire network to be installed, the potential costs can potentially be offset against the value of the increased revenues that will result.
How this is implemented
To be most advantageous for the community group, private wire power purchase agreements should normally be for the same length of time as the planning consent of the project.
If the contract is shorter, then the lenders or investors should discount any benefit beyond the length of the contract, and in this case, any additional costs must be repaid over a shorter period.
The savings between the retail price and the generation price can be shared between the generator and the consumer in whatever form is agreed upon within the PPA.
Over the longer period covered by a private wire PPA, electricity retail price inflation is likely to be significantly above general inflation, and the contract will thus require an arrangement to index-link power prices in some way. Using CPI or RPI would benefit the consuming site across a long-term agreement. To make this fairer for the generator pegging the contract price to the price of power in other electricity supply agreements to the site.
The customer should be a sound counter party to a long-term agreement, otherwise, if a lender doubts the security of the agreement, future benefits may be significantly discounted back to the wholesale price of power (making sure that, in extremis, power could still be exported to the network). Water companies, public sector organisations, or companies in a large commercial group make good counter parties. On the other hand, such companies often have a significant purchasing power and can pay less for power than smaller companies. There is some evidence that lenders generally require an offtaker to have a BBB credit rating2.
A development which is located nearby to potential industrial users, or near to an identified user will potentially benefit the development both in reducing the private wire costs and by influencing other development factors and thus should be a consideration in site selection from the start.
Other factors that could be influenced are:
- Workers at the site served could form a community of employees to work with a community of residents (though such sites can also be near to communities which, if not directly involved can become a source of organised opposition).
- Planning consent is often easier in a landscape which is already heavily influenced by human activity, both in terms of landscape and impacts on amenity. Industrial and commercial sites also tend to have good existing road access for construction.
2 Something to be considered in the initial design process is the voltage at which customers are supplied, relative to the voltage at which the electricity is generated. The cost of additional transformer technologies must be assessed on a site-by-site basis, and an estimated cost for this is provided in Table 4.
Where there are existing developments, or a development which is already approved but not yet finalised, there is a potential high electricity user nearby, retrofitting private wire might be a viable option to bolster existing revenues. When considering private wire as a local energy supply option, it is important to liaise with potential financial providers to ensure the commercial model will meet with lending criteria. It may be that for new developments, the option of private wire is integral to the financial and physical design of the scheme and may influence site selection from the beginning of the design process.
Sale of electricity by private wire: case study
Whilst not a community scheme, the Michelin tyre factory in Dundee has two wind turbines owned by Ecotricity and installed in 20063. The turbines are 2MW each (around £4m investment) and have a hub height of 85m and a rotor diameter of 71m (overall height 120.5m). Power is sold by Ecotricity to Michelin in a private wire PPA.
3 Wind turbines at Michelin, Dundee pass milestone – Ecotricity
