Wind Energy is often marketed through complex “Power Purchase Agreements” or PPAs. And to guarantee electricity has been produced from renewable energy sources, a Guarantee of Origin (GO) certificate is created. Driven by the push for renewable energy, organizations are increasingly looking to reduce their environmental footprint, which is leading to purchasing directly from renewable energy generators. As a result, PPAs with wind farms is an important growth area and subsequently leads to increased volumes of GOs. Besides, GOs are tradable products, allowing organizations to achieve environmental targets and objectives. With the Trading desks running on all cylinders, their back office is struggling to settle a stream of creative contracts and getting a handle on new and used GOs: Renewable Energy: sustainable for your Back Office?
PPAs are long-term contracts to buy renewable energy in agreed volumes and at prices that meet the needs of the generator and the consumer. Pricing terms could vary from fixed, indexed, or formula based. Moreover, the contract may stipulate additional charge types that need to be calculated individually and taking into actual volumes, taxes, and more. Most energy trading systems can only support standard deal and contract settlement (price * volume), or sometimes can’t even produce an invoice. Companies are deploying a small army of settlement analysts to manually account for their structured trades and imbalance calculations, using standalone spreadsheet-based solutions.
Wind PPAs typically involve the transfer of GOs to the consumer, providing evidence that you have purchased that quantity of renewable energy. The issuance upon production, and cancellation upon consumption, is managed through registries. That introduces a challenge to the back office: getting an overview of the GOs you own across the various registries including their attributes such as technology, location, status, issue/expiration date. Traditional Energy Trading and Risk Management (ETRM) systems only provide the capability to capture GO purchases or sales. Because GOs get cancelled and have expiration dates, there is no single overview of the total current inventory. Apart from the management challenge of tracking GOs, a second challenge is how support the linkage of Wind Farm to the off taker.
Forward thinking energy companies recognize that the back office process and its capabilities are not an after-thought but rather an enabler of front-office activities. Pioneer Solutions is uniquely positioned with its SettlementTracker and RECTracker software applications.
SettlementTracker is an end-to-end, integrated settlement and accounting software package specifically geared toward complex energy contracts, such as Wind PPAs.
- • The platform offers straight-through processing (STP) and built-in workflow management that automates meter data and billing determinants, settlement processes and accounting entries as well as proven integration with other ETRM and General Ledger systems.
- • Streamlines the contract-to-bill process, from capture of all invoice-able trades under master agreements (e.g. EFET, ISDA) and complex contracts (PPA, Intercompany, Generation and Renewables) to creation of accrual entries.
- • It provides unparalleled configurability of contract rules and billing determinants that is template-based and formula driven.
As a result, SettlementTracker enables more complex structured products for market differentiation and cross border operations, while the automation expands team’s processing capability without adding resources.
A key differentiator of SettlementTracker is the notion of Billing Determinants and Charge Types that, along with its formula engine, delivers the necessary functionality for non-standard contract settlement and billing. This functionality is also required if one wants a complete P&L report meaning, SettlementTracker can do shadow settlement to calculate estimates.
RECTracker automates the end-to-end GO/REC tracking and management of processes from generation to assignment and retirement or expiration.
- • Provides robust functionality for inventory planning and management, capture of GO/REC trades (manual and via imports), GO/REC management (import account status from registries), counterparty and contract management, positions reporting, matching (by using inventory across several positions), price curve management, manage client margin calls, calculate Mark-to-Market, FX exposure reporting, and settlement and invoicing.
- • Each GO will be tied to a renewable asset thus technology, fuel, expiration date can be derived. A hierarchical book structure is supported to capture comprehensive assets, purchase and sale trades.
- • Bundled RECs that come with renewable PPAs consist of energy and the certificate. Because both products have completely different life cycles and shelve life, RECTracker provides the ability to unbundle them and create RECs automatically through the settlement process.
- • RECTracker offers a flexible book structure that allows segregation of domestic GOs from foreign GOs. In case of trading EUAs, RECTracker supports regulatory reporting under MiFID2.
Built-for-purposes, RECTracker solves the challenges of managing the increasing volumes of GO cancellations, while mitigating the risks with trading GOs.
As the renewable energy market grows, so will the need for innovative solutions that are designed for progress, increase efficiency and provide a competitive advantage – whether on premise on remotely hosted in the cloud. Pioneer Solutions can help you with that.