12 November 2019


The power purchase agreement market for UK generation and storage continues to evolve rapidly creating new opportunities for market participants. Our briefing explores one of these opportunities, route to market agreements (RTMAs) and highlights some of the key commercial and legal issues for generators and lenders to consider.

The development of route to market agreements

Innovation in the power purchase agreement market is nothing new. Corporate PPAs being a prominent and more recent example.

In the last four to five years however, market developments including:

  • large scale deployment of merchant flexible generation and storage assets;
  • the greater penetration of aggregators in the UK market and their increased/changing market role;
  • the general closure (excluding the CfD regime) of the UK renewable electricity incentive schemes;
  • historically low capacity market clearing prices; and
  • historic wholesale pricing pressure, combined with greater imbalance pricing volatility,

have combined to create a large demand from merchant generators and potential funders for fixed and variable revenues and products that are not just tied to the GB day ahead/spot electricity price.

This has resulted in market leading GB suppliers to start offering through one agreement, an RTMA, various products to flexible, intermittent and baseload generation and storage assets. These products can include sophisticated access to the forward power markets, an ability to generate revenues from the balancing mechanism and ancillary services markets, a dispatch service and in some cases, minimum revenue guarantees that may help to satisfy lenders’ base case and credit risk requirements potentially unlocking the limited recourse financing of subsidy free or subsidy light new GB generation/storage assets.

We explore some of these in more detail below.

Common RTMA revenue streams and related terms

The Forward Electricity Market

The core offering of an RTMA is an ability for a generator to utilise a licensed electricity supplier’s forward electricity market access, and in many instances, expertise. In their simplest form, RTMAs can just be PPAs with execution only trading schedules that allow a generator to call its supplier and fix wholesale prices for volumes of electricity in agreed markets.

The greater departure from traditional PPAs comes where a generator hands over some or all of their assets to be traded at the discretion of the supplier within agreed parameters. The intention behind this is for the generator to obtain higher electricity revenues as a result of the supplier executing trades in the forward market when compared to the generator just receiving a per cent of the day ahead/spot electricity price. This is commonly implemented through RTMAs containing the following principles:

  • Forecasting – the generator provides (typically through a web based portal) seasonal/monthly/weekly/daily/hourly availability forecasts for its asset at specified intervals. These forecasts take into account matters such as anticipated generation, wind speed, load factors, planned maintenance periods etc, but may also in some cases take into account whether the asset will be used to provide services to National Grid, any DSO and/or any aggregators, operational constraints (such as planning permission restrictions and/or warranty/EPC/O&M restrictions) as well as whether the generator actually wants to adopt a forward power position for certain days/settlement periods;
  • Trade Parameters – the generator sets its electricity (and in some instances gas/EUA) buy and sell strike prices which take into account its asset’s production costs (including O&M, carbon and fuel costs (if applicable)), efficiency and target profit margin. RTMAs can permit a generator to set general strike prices for every settlement period during a set period, but also enable it to adopt a more nuanced position to reflect the generator's pricing requirements for each settlement period during a day/period; for example, a generator may decide that it will generate in a settlement period come what may, for different reasons. Alternatively, if the supplier is offering a minimum revenue guarantee or revenue sharing model, it may be left to the supplier’s discretion as to how best to maximise the revenues it and the generator makes from the asset's available electricity output, subject only to broader operational restrictions (such as the maximum cycling limitations within battery warranties, or environmental permit or planning condition restrictions on run-time hours, for example);
  • Trading - the supplier trades the asset’s anticipated output (as set out in the generator’s forecasts) in the forward and/or spot electricity markets as and when wholesale prices hit the relevant strike price triggers. In respect of fuelled generating stations, the supplier may also execute corresponding fuel (typically gas) and carbon trades to fix the generator's anticipated profit. The supplier may also use the generator's asset to participate in other markets such as the balancing mechanism/FFR etc. 
  • Settlement - the supplier charges the generator either a transaction fee or a % of profit made for each trade it executes and, contingent on asset performance, pays the generator the balance.

Different commercial arrangements are likely to apply if a generator and supplier have agreed a revenue guarantee model/tolling arrangement.

The Balancing Mechanism

An important secondary offering of some RTMAs (at least prior to the TERRE go live date/full implementation of P344) is the ability for a generator to access the balancing mechanism and potential balancing mechanism revenues without the generator being required to hold a generation licence / have its asset registered as a BM Unit.

This is commonly achieved by suppliers assigning a generator’s asset (assuming it is registered in SMRS) to an Additional Balancing Mechanism Unit registered by the Supplier (potentially along with assets owned by third parties) and then submitting bids and offers to NGESO based on the forecasts and strike prices submitted by the generator, and, if the generator has agreed to its supplier adopting an aggregated position, the availability (and strike prices) in relation to third party assets.

If NGESO accepts a bid/offer, the supplier will then usually share a percentage of any revenue it makes in relation to the trade (contingent on the asset’s performance) with the generator. 

Ancillary Services

As has been commented before, flexible generation/storage projects typically rely on more complex 'stacked' revenue streams than traditional energy projects, with generators being required to enter into numerous framework contracts and competitions to create the revenue stack.

In certain instances however, RTMAs have been used by generators and suppliers to simplify the revenue stack and contractual structure, as certain suppliers have offered, through their RTMAs, a wrapped ancillary services and Capacity Market solution.

This means that rather than generators having to enter multiple framework and call off contracts with different suppliers, aggregators and/or National Grid in order to accrue ancillary services and/or balancing revenues, the generator enters into just one contract (the RTMA) with its supplier. The supplier is then responsible for:

  • Framework Agreements / Call offs - entering into itself the ancillary services framework agreements with National Grid / DSOs and bidding in (at prices set by the generator or determined by the supplier) and obtaining call-off contracts and/or capacity market agreements in the supplier’s name. The intention is that the supplier will then use the generator’s asset and potentially aggregated third party assets to perform its obligations under the relevant agreements;
  • Dispatch – sending dispatch instructions to the generator's asset when necessary to satisfy the agreement requirements; and
  • Settlement - paying the generator on a monthly basis a per cent of the awarded utilisation and availability fee and/or capacity market payment (typically contingent on the asset’s performance in that month and potentially the aggregated assets’ performance).

This contracting solution is not without its complications, particularly if a generator requires limited recourse finance, as the generator may potentially be exposed to the supplier’s/aggregated assets’ credit and performance risk, in respect of which the generator has very little control.

Revenue Guarantees/Tolling Agreement Model

Contrasting the approach above which provides a generator with a large degree of control over its asset and markets, an alternative commercial structure we have seen utilised for certain merchant, subsidy free or subsidy light generation/storage assets is an RTMA which incorporates a long term revenue guarantee or tolling arrangement.

In these circumstances, typically, the generator has very little control over what markets and trades the supplier carries out in relation to the generator’s asset, and all generated revenues are kept by the supplier. In return however, the generator is entitled to receive, over a longer period, a pre-quantified, fixed payment which some generators and lenders may find attractive as it mitigates, to some extent, merchant risk. Any such commercial model comes at a cost however and typically, the relevant RTMA will contain heavily negotiated asset availability guarantees and efficiency rates etc.

Common RTMA legal issues to consider

The RTMA market and product offering is continually evolving. It is also a truism that generators and lenders typically require suppliers’ standard RTMA terms to be amended to reflect the idiosyncrasies of the relevant assets, financing position and their attitude to performance risk.

Nevertheless, certain key legal issues are typically considered by generators, suppliers and lenders during the course of RTMA negotiations. These include:

  • Term - The term of the RTMA and voluntary break rights; given the significant change the UK electricity market has undergone and will continue to undergo, term (and change in law risk / new product incorporation) is often an important issue, particularly if a generator requires long term, limited recourse finance;
  • Performance Risks and Obligations - The contractual obligations (and liability) each party is prepared to accept in relation to matters such as asset performance, trading performance and benchmarking and aggregation risk (where an asset is aggregated with other assets not controlled by the generator);
  • Supplier Performance Failure - The contractual obligations and liabilities the supplier is prepared to accept in relation to breaching operational and trading restrictions notified to it by the generator. Examples include incorrect trades, the over cycling of an asset, excessive throughput, breaching planning permission or environmental permit restrictions on run times, voiding infrastructure/equipment warranties and breaching daily gas capacity thresholds;
  • Fee Regime - Ensuring the RTMA fee structure and incentive regime reflects the position agreed by the parties and enables the generator to have transparency on the trades undertaken and the full benefit (to the supplier) of such trades such that the full value can be shared;
  • Availability Guarantees - If the generator and supplier have agreed a revenue guarantee / tolling arrangement, issues including how the asset availability and efficiency guarantees provided by the generator interact with the supplier’s minimum revenue guarantee / tolling fee and the development, ownership and licensing of intellectual property rights through the creation and utilisation of any trading models, algorithms and software;
  • Dispatch – Hardware and software installation and compatibility, installation cost and responsibility, dispatch responsibility and the consequences of a dispatch failure as a result of counterparty or equipment failure and back up procedures;
  • Termination Payments - Termination Payments (and caps) and whether forward power positions in place at termination are transferred, unwound and/or taken into account in the termination payment;
  • REMIT – the REMIT reporting obligations of each party and liabilities for REMIT breaches; and
  • Credit Support - Credit support terms.


Whilst not straightforward, RTMAs can offer generators an opportunity to diversify and (potentially) increase the revenues they generate from their assets. They can also enable generators to simplify their contract structure and may in certain circumstances help to unlock the availability of project finance. 

How can Burges Salmon help?

For many years, Burges Salmon has been at the cutting edge of developing and implementing new arrangements relating to the trading of electricity and ancillary products in the GB and Northern Ireland markets.

If you have any questions on the content of this article, or would like to discuss the risks and opportunities that arise from RTMAs, please contact James Phillips or Alec Whiter.

This article was written by Alec Whiter.

Key contact

James Phillips

James Phillips Partner

  • Head of Energy & Utilities
  • Head of Energy Transition
  • Energy Regulation

Subscribe to news and insight

Burges Salmon careers

We work hard to make sure Burges Salmon is a great place to work.
Find out more