Strike prices for virtual power purchase agreements based on power demand and supply analysis: An empirical study in Japan

Power purchase agreements (PPAs) have emerged as alternative business models for sustaining renewable energy development in Japan, where new feed-in tariffs have been discontinued. Virtual PPAs rely on contracts for differences (CfDs) to mitigate inherent fluctuations in market prices. When determining strike prices for CfDs, transparency for both renewable power producers and energy consumers should be ensured, and geographically diverse curtailment and congestion should be considered. This study addressed these challenges through power demand and supply analysis. The proposed process involves formulating various constraints on power plants and transmission lines, resolving the constraints as a unit commitment and dispatch optimization problem, calculating the operating costs of the plants, estimating market prices based on the operating costs, and determining strike prices. The optimization problem was solved using the Multi area Regulation program, which is a software for power demand and supply analysis. The strike prices suitable for each node in Japan's Tohoku balancing area for 2019 and 2030 differed by power source and geographically, even within the same area, with a range of up to 1 JPY/kWh. The proposed process provides transparent strike prices for renewable power producers and energy consumers, promotes engagement in virtual PPAs, and accelerates decarbonization.