Independent Power Producers (IPPs), how will the energy transition influence ?

Independent Power Producers (IPPs) or Non-Public Power Producers (NPP) are private entities (under an unbundled market), which own and / or operate power generation facilities, then sell it to utility, to a central government purchaser and end users.

IPPs can be private facilities, cooperatives, or non-energy industrial companies capable of bringing excess energy into the national electricity grid.

Lately, utilities have attempted to delegate the task of power generation to private companies. PPIs are contracted to provide a quantity of electricity at a given time and are protected by power purchase agreements. PPIs invest in generation technologies and recover their costs from the sale of electricity. They can be of great help in the country’s energy transition (especially when the public sector lacks the financial capacity required for investment).

To understand at what level the electricity producer is involved, it is useful to recall the market value chain, as well as its main stakeholders. They are four in number :

• Electricity producers, who produce electricity in a centralized or decentralized manner.
• The transmission system operators (TSOs) who operate, maintain and develop the electricity network.
• Distributors who ensure the delivery of electricity to the end consumer. Across the country, GRD performs several roles: it oversees the maintenance of networks, the quality of the energy supplied, and reads the meters.
• Energy suppliers, who market electricity to the end customer.

If the electricity that arrives at our place is transported and distributed by various companies, it is first produced by producers, in particular using power stations based on renewable energies, thanks to photovoltaic panels or even through the use of wind turbines.

These so-called “independent” power producers ensure the entire construction of the plant, from its development to its financing, and the daily operation of it to guarantee a high level of continuous output.

Currently, these independent producers, and in particular those who use renewable energies, can finance themselves through two distinct economic and energy models:

• The feed-in tariff model :

The state encourages independent producers of renewable electricity to develop projects by implementing a feed-in tariff logic. The principle is as follows: each consumer pays a tax on their electricity bill, which is used to finance the development of renewable energies. Thanks to this tax, the state then entrusts a role to an obligated purchaser who will undertake to buy back the energy produced over a period of 20 years with a guaranteed tariff over that period.

Thanks to this purchase contract, the independent electricity producer will thus have 20 years of guaranteed turnover, if he does produce the promised energy. He will thus be able to successfully finance the construction of his power plant.

• The self-production model :

In contrast to the feed-in tariff, some independent electricity producers may opt for the self-generation regime. This logic consists of producing electricity for yourself and passing it through the national grid to the places of consumption. The producer’s gain is thus made on the avoided invoice throughout the life of the production plant.

Some countries allow self-producers to sell their excess produced energy up to an annual cap on total energy.