The Blog - Wind energy market analysis

Posted 23/04/2019

Ilaria Valtimora

   

Interview: Miguel Prado, CEO, EDP Renewables North America

Miguel Prado is CEO of EDP Renewables North America, heading up a significant regional presence for the world’s fourth-largest wind energy producer. We spoke with him to discuss EDPR’s priorities as the PTC cliff approaches, evolving PPA structures and technological innovations in wind energy. 

Miguel spoke at our Financing Wind North America conference in Denver, Colorado, in April. You can now register your interest for Financing Wind North America 2020 in New York on 13th-14th May 2020. 

Miguel Prado

EDPR is a familiar name in the North American wind market, but for those who aren’t acquainted with your offering, could you give us a brief overview? 

EDPR has focused on wind and solar power and, since our inception, we have grown in these technologies, becoming the fourth largest wind energy company in the world in terms of capacity. EDPR has 11.7GW installed capacity worldwide, with 50 percent in North America and the remaining capacity in Europe and Brazil. Our primary markets are currently the US, Spain, Portugal and we are increasingly exploring Brazil.

We are on a journey of growing the business in a sustainable and repeatable way, and EDPR is now set to construct an additional ~2GW per year from now until 2022. 

Could you tell us a little bit about your own background in renewables? 

I’ve been in renewables for 16 years and have been at EDPR since the beginning as one of the founder employees, back in 2003 when there were only 50 employees on the team. Prior to moving to the US, where I am now CEO for EDPR North America, I had been involved in investment and M&A for more than 14 years. During this period, I oversaw more than 80 transactions around the world – buying assets, building EDPR’s portfolio and attracting wind and solar investors.

As an operator of a multi-gigawatt North American wind portfolio, what are your current priorities as the PTC cliff approaches? Where do you see the greatest opportunities?

The PTC has been an important source of support for the industry’s growth in North America, and through this, the US government has positioned renewables as a competitive and leading source of energy in the US and globally. For renewables businesses, the PTC has been fantastic in supporting development, with significant technological advancements that have made the industry more efficient and prepared to compete with other energy sources. 

Despite the phase out of the PTC, the future is promising. The way wind and solar power technologies will evolve in the coming years will close the gap in terms of levelized cost of energy. The opportunities are huge, with up to 100GW of coal and more than 20GW of nuclear power being decommissioned and a significant part of that being replaced by clean energy technologies.

Looking at the Renew100, some of the biggest companies in the world have a committed to be 100% powered by renewables. Aside from the efficiency and financial cases for renewables, there is a huge motivation toward sustainable business. All of this makes our future bright, and we are prepared to face the shutdown of the PTC.

EDPR has signed a number of high-profile PPAs over the past 12 months – most recently with Microsoft in Ohio. What are the key factors that have contributed to this recent success?

The key driver of successful PPAs is the strength of the product we’re offering. A ‘good product’ means cost-efficient projects, close proximity to customers, and in locations which are close to load and therefore have sustainable interconnection costs. Another key element of a good product is to be efficient in power generation terms; the kind of projects we are developing are very productive and therefore efficient from a capital expenditure point of view.

Another key driver of a successful PPA is the development of long-term relationships with customers. Being adaptable and flexible to the buyer’s needs is important. Over the past several years, EDPR NA has executed more than 3.8GW in new PPAs with the likes of Nestle, Facebook, Salesforce, Microsoft, Walmart, as well as with other tier-1 companies, utilities, and entities. 

Aggregation of PPAs is also important. EDPR is one of the first in the US to aggregate PPAs in our projects, which has allowed us to capture demand from smaller buyers. This has also been a key factor in our PPA success.

To what extent are you seeing the buyer profile shifting in the US wind market? Are we starting to see the anticipated influx of smaller corporate and industrial players?

We are certainly seeing this shift, and this is important as the commercial and industrial (C&I) market continues to grow. We don’t see many C&I customers buying 100+ MW PPAs, and there are only a few big players that can do that. Last year, C&I demand increased by 77% (BNEF), and 8.9GW of PPAs were signed. It is likely that more buyers will enter into the market, but demand per customer will decrease. In order to benefit and capitalise on this, aggregation is key. 

What are the key innovations that are going to be required on the seller side to meet the needs of these changing buyers? 

The most important considerations are price, credit, safety and operational risk.

Positioning of risk is arguably the most important area for innovation in PPAs. In sophisticated and complex contracts such as those which involve aggregation, the risk needs to be handled carefully.

This is especially important for PPA aggregation. If you combine several buyers in one project you also need to combine the support, and we have seen cases of PPAs being signed by companies that are smaller than ever before.

How does project siting impact basis risk?

We’re seeing a lot of hub-settled deals being signed in the market – we deliver energy at one point of interconnection, and we sell in a different hub to our customer. Price fluctuations are having a big influence here. Essentially, each state is its own market, and price variations between states lead to high basis risk, which is largely unavoidable.

At the end of the day, renewable energy buyers want their projects close by so their prices are stable. As a developer, if you are close to the load, you can sell directly, and there is less price risk for all parties.

How will PPAs signed in 5 years’ time differ from those signed now?

What we expect is more aggregation. From the sellers’ side, there is a need to continue to explore complex agreements – whether aggregated PPAs or proxy generation PPAs – that can offer new C&I customers simpler access to renewable energy.

There is also huge variety in the longevity of agreements. We have seen an increased demand for shortened tenors. For example, some markets have seen companies move away from 15-20-year contracts to 10-year periods, which also contrasts the primarily 25- to 30-year agreements that were executed in recent years.

However, there are also some companies which still want secure, low, fixed, longer-term prices, such as industrials or big tech firms. Even as smaller players enter the market, we are still seeing demand from big tech firms such as Amazon, which signed on to a Californian project earlier this month.

It all depends on the individual markets. In some markets PPAs are shortening, and in others, customers continue to look for long-term products.

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