Management of residual risk Sample Clauses

Management of residual risk. The next question is the magnitude of the residual risk that is left with generators and how independents will be required by banks to manage that risk in terms of their strategy on route-to- market? In answering this question, it is worth noting that some market participants have suggested that the need for a route-to-market is ameliorated in a CfD world for the following reasons: As shown in Table 19 above, a generator is no longer required to market ROCs to a supplier with an obligation who can realise that value and take price risk both on the value of the ROCs and the power. In relation to an intermittent CfD only, liquidity risk on accessing the market is arguably less of an issue where a generator is not required to manage long term price risk as there is no need to access the forward curve, which is historically thinly traded. Instead, generators could in theory submit un-priced (or negative) bids into the day-ahead auction (which has higher levels of liquidity) and receive the market clearing price. Imbalance / volume risk for intermittent CfD indexed to a day-ahead price is arguably less of an issue as there is no need to hedge price exposure by selling uncertain volume forward contracts. Instead, a generator is required to sell all output at the day-ahead stage and manage the forecast risk from day-ahead stage to the actual delivery. However, notwithstanding these improvements above, feedback from discussions with generators and the lender community suggests that independents will still require a 15 year PPA with a creditworthy 12 We note that in this context we are treating the ability of a generator to access the market reference price (“MRP”) as liquidity risk. This could equally be treated as short term price risk for a baseload CfD which is required to sell its output forward to access the season-ahead indices that are proposed to form the basis of the MRP. counterparty in order to access limited recourse debt. The reasons for this are as set out in Table 20 below. Table 20: Reasons why lenders are likely to continue to require a 15 year PPA Issue Description Cost of accessing the market Typically, independent generators do not have the energy trading assets, systems or personnel to allow them to trade their generated electricity. A number of respondents highlight the fact that to do so would require a fixed capital and operational investment which is simply not a viable proposition for all but the largest utility scale installations. For b...
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