Electricity Market Reform: Offtaker of Last Resort Advisory Group
Provides advice on the design of the Offtaker of Last Resort (OLR) proposal, to ensure that it is workable and supported by industry.
Background
The Offtaker of Last Resort has been developed in response to feedback and evidence highlighting that independent renewable generators are finding it difficult to secure Power Purchase Agreements (PPAs), particularly those that have a long enough tenor and favorable enough terms to provide reassurance to lenders (see the Barriers to long-term contracts for independent renewable generation investment call for evidence). To inform this work, DECC commissioned external consultants to analyse the state of the PPA market and commercial and technical options for mitigating imbalance risk. The findings from this analysis are available in the presentations and publications section.
The key aim of the Offtaker of Last Resort is to encourage competition in the PPA market. It would do this by providing eligible generators with a guaranteed ‘backstop’ route-to-market at a specified discount to the market price. The discount would be set to be larger than discounts expected to be available in the market, ensuring that it is a genuine ‘last resort’.
The Offtaker of Last Resort would be implemented by placing an obligation on certain suppliers (and a right on all other licensed suppliers meeting the minimum credit requirement) to bid to enter into a one-year Backstop PPA with an eligible independent renewable energy generator, when requested. The costs (or profits) incurred by the winning bidder on taking on the generator’s power would then be levelised across all licensed suppliers.
By guaranteeing access to the market at a specified price, the Offtaker of Last Resort would (in conjunction with the CfD top-up payments) provide comfort to lenders and investors over the worst-case price that the generator will receive for its power. This should enable lenders and investors to become comfortable with a generator accessing a wider range of counterparties and contracting arrangements, including shorter term PPAs or PPAs with new entrant counterparties.
For more information on the background to and details of the Off-taker of Last Resort proposal, please go to the Route To Market Under CfDs section of the Electricity Market Reform page. The work of the Off-taker of Last Resort Advisory Group also complements that of the Market Readiness Working Group, which similarly aims to support independent developers in finding a route to market under CfDs.
Advisory Group
To ensure that the Offtaker of Last Resort mechanism is workable and supported by industry, DECC has established an advisory group. This group consists of 15 members from a cross-section of industry, including generators from a mix of renewable technologies, large and small suppliers, aggregators, lenders and equity providers.
The advisory group meets every 2-3 weeks from the middle of September 2013, with each meeting focusing on particular design issues. The forward look for future meetings is given in the agenda for each meeting.
The papers for each of the advisory group’s meetings to date will be published on this page. These include discussion papers prepared by the department, and supporting analytical papers prepared by Baringa LLP for DECC. Please note that these papers are for discussion purposes only and are not a statement of government policy or intent.
Meeting papers
The papers for each of the advisory group’s meetings to date will be published here. These include discussion papers prepared by the Department, and supporting analytical papers prepared by Baringa LLP for DECC. Please note that these papers are for discussion purposes only and are not a statement of Government policy or intent.
These include discussion papers prepared by the department, and supporting analytical papers prepared by Baringa LLP for DECC.
Please note that these papers are for discussion purposes only and are not a statement of government policy or intent.
Presentations and publications
This section contains some presentations given by DECC at various events on route to market, as well as relevant publications and analytical work commissioned by DECC to inform our understanding of route to market issues and imbalance risk.
Please note that these do not represent government policy or intent.
DECC presentations
Publications
Next steps
We continue to work to deliver the Offtaker of Last Resort policy by Autumn 2014.