The influence of power purchase agreement on electricity market price

Abstract

The purpose of this research was to assess the influence of power purchase agreement on electricity market price case of Rwanda. The specific objectives were: to assess the factors influencing the electricity market price; to assess the approaches of price setting in power purchase agreement and to assess the influence of power purchase agreement on electricity market price. The quantitative research was type of research design. This study used secondary data from different report include the statistics of sub-sectors from RURA, energy sectors review and the action plan, REG annual report. The excel and Eviews were employed as data analysis tools to analyze the annual data from 2017-2020. The levelized cost of electricity and the break-even price of electricity were employed to assess the approaches to price power purchase agreement. The result in figure 6 shows that the electricity market price have several factors include the electricity generation, electricity consumption, losses in electricity market and the power purchase agreements. The result in table 6 shows that the both levelized cost of electricity and the break-even price of electricity give the same price for all power plants categories. This research conclude that the government and the independent power producer should apply levelized cost of electricity to price the power purchase agreement because they apply the price it gives while the price from the break-even price of electricity are modified according to the profit they want to achieve. The table 8 also shows that as the power purchase agreement increase over time, the price charged residential and non-residential consumers also increase over time. The result presented in table 5 shows that the government of Rwanda are facing the losses from the electricity market where the electricity supplied to the national grid exceed the electricity and the losses increases as the power purchase agreement increases. As conclusion, this research conclude that the power purchase agreement influence the electricity market price positively because as power purchase increase, price of electricity also increase. This research recommends government of Rwanda to develop the strong infrastructure like domestic industries, attract foreign investment to cover the generated electricity and as power purchase agreement increase, the electricity generation will keep increase and that the reason why the government of Rwanda should think on strategies to increase the electricity consumption to reduce the electricity price and losses from the electricity market.