Figure 1 A visual representation of a typical set up of a merchant PPA
A merchant PPA is one of the more traditional styles of PPA, whereby a licenced energy supplier acts as the off-taker of energy from the generator.
In a merchant PPA, the generator might be paid either a fixed price for the energy over a set period of time or a flexible price, which is indexed to the wholesale price. This flexible pricing can vary on a seasonal, monthly, daily, or real-time basis. It is also possible to have a combined fixed/flexible PPA, where some amount of energy is fixed in price while another portion of the energy supplied fluctuates with market prices.
These PPAs are straightforward to obtain, but the ability to dictate the terms of the agreement for the generator can sometimes vary since typically a licenced supplier offers a set term and price for energy sold.⁶
Non-commodity relief: Per The Electricity (Class Exemptions from the Requirement for a Licence) Order 2001, if a generator is under 5MW at which point no more than 2.5MW is sold to domestic consumers, it qualifies for an exemption from environmental and policy costs, which equates to approximately 5.07p/kWh by summer 2024 prices.
⁶ Llywodraeth Cymru Gwasanaeth Ynni, 2022. Power offtaker options.
