Last year, OMIP - The Iberian Energy Derivatives Exchange, made an important announcement regarding the launch of Power Purchase Agreement (PPA) electricity contracts. This new product offers market participants the opportunity to close Futures with 5 and 10-year maturities.
The Futures structure of the OMIP PPA commits sellers to deliver a fixed amount of electricity per hour for the respective maturities on Baseload or Solar PV Profile production-based curves. This exposes sellers to significant production volume risks, which are not born in pay-as-produced structures that are more commonly seen in the PPA market. Each party participating in these Futures contracts is required to submit a security in order to eliminate counterparty risk. Additionally, there are admission and operating fees associated with participating in the PPA contracts, which entities need to consider when evaluating their cost-benefit.
In comparison to the traditional Futures with long-term durations, the 10-year OMIP PPA product offers more liquidity and predictability, which facilitates renewable energy asset holders to secure debt financing.
OMIP presented these PPAs to its 70 member entities, which include utilities and corporates. The PPA product is currently available for the Spanish and Portuguese electricity markets.
It has been designed to provide transparency in the electricity markets, which is currently not being given in the traditional over-the-counter market, where most PPA transactions take place.
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