Power Purchase Agreement scheme: Offtaker of Last Resort
The key aim of the Offtaker of Last Resort is to encourage competition in the Power Purchase Agreement market.
The key aim of the Offtaker of Last Resort (OLR) is to encourage competition in the Power Purchase Agreement (PPA) market. It does this by providing eligible CfD-holding generators with a guaranteed ‘backstop’ route-to-market at a specified discount to the market price. The discount is set to be larger than discounts expected to be available in the market, ensuring that it is a genuine ‘last resort’.
The OLR is 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 OLR (in conjunction with the CfD top-up payments) provides 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. This reduces the cost of investment in renewable electricity, boosting competition amongst both generators and offtakers, and lowering costs to consumers.
Announcements by the Secretary of State
Policy background
Market Readiness Working Groups
In April 2013, DECC initiated a CfD market readiness project to help independent developers understand and prepare for the introduction of CfDs. This consisted of 2 working groups reporting to a steering board: Working Group 1 considered sample contracts, Working Group 2 a code of practice. The groups included large and small suppliers, independent generators, legal firms, lenders, and others active in the market. Their work complemented the rest of Electricity Market Reform Package, particularly the Offtaker of Last Resort mechanism which supports independent developers in finding a route to market under CfDs.
Offtaker of Last Resort Advisory Group
To ensure that the Offtaker of Last Resort mechanism was workable and supported by industry, DECC established an advisory group. This group consisted 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:
Offtaker of Last Resort Advisory Group
Consultations
Last updated 24 April 2020 + show all updates
-
Secretary of State review of Offtaker of Last Resort for 2020 added.
-
Secretary of State review of Offtaker of Last Resort for 2019 added.
-
First published.