Increasing Utilization of Clean Power Generation Sources
Clean energy has been one of the fastest growing sources of electricity generation globally over the past decade. We expect the renewable energy generation segment in particular to continue to offer growth opportunities driven by:
the competitive cost of most clean energy technologies and, most significantly, the ongoing reduction in the cost of clean energy, which will increase the number of markets that are trending toward grid parity;
the replacement of aging and conventional power plants in the face of increasing industry challenges, such as regulatory barriers, increasing costs of and difficulties in obtaining and maintaining applicable permits, and the decommissioning of certain types of conventional power plants, such as coal and nuclear facilities;
the ability to couple renewable power generation with other forms of power generation, creating a hybrid energy solution capable of providing energy on a 24/7 basis while reducing the average cost of electricity obtained through the system;
the effects of an aging transmission infrastructure and transmission and distribution charges that enable renewable energy generation sources located at a customer’s site, or “distributed generation,” to be more competitive with, or cheaper than, grid-supplied electricity;
the desire of energy consumers to lock in a predictable rate for long-term pricing of a reliable energy source;
renewable power generation’s ability to utilize freely available sources of fuel, thus avoiding the risks of price volatility and market disruptions associated with many conventional fuel sources;
environmental concerns over conventional power generation; and
government policies that encourage development of renewable power, such as national, provincial, state or local renewable portfolio standard programs, which motivate utilities to procure electricity from renewable resources.
In addition to renewable energy, management expects natural gas to grow as a source of electricity generation due to its relatively low cost and low environmental impact compared to other fossil fuel sources, such as coal and oil.
Project Operations and Generation
The Company's revenue is primarily a function of the volume of electricity generated and sold by its power plants. Our current portfolio of power plants is generally contracted under long-term PPAs with creditworthy counterparties. As of October 31, 2016, the weighted average remaining life of our PPAs was 17 years. In most instances, pricing of the electricity sold under these PPAs is contracted for the duration of the contract. Certain of our PPAs have price escalators based on an index (such as the consumer price index) or other rates specified in the applicable PPA, while other PPAs have a flat tariff for the term of the PPA.
Management defines “project availability” as the actual amount of time a power plant is available to produce electricity divided by the amount of time during the defined measurement period, after excluding the duration of events such as anticipated maintenance and interconnection interruptions. Our ability to generate electricity in an efficient and cost-effective manner is impacted by its ability to maintain and utilize the electrical generation capacity of its power plants. The volume of electricity generated and sold by our power plants during a particular period is also impacted by the number of projects that have commenced commercial operation, scheduled and unexpected repair and maintenance required to keep the power plants operational and other factors. Equipment performance often represents the primary factor affecting our operating results because equipment downtime impacts the volume of the electricity that the Company is able to generate from its power plants. We historically depended on affiliates of SunEdison for O&M and asset management services for our power plants. The performance of these services may be negatively impacted as a result of the SunEdison Bankruptcy, which may impact generation availability as a result of down-time and other delays in scheduled and unexpected repair and maintenance. We will continue to monitor the situation, and we are engaging in contingency planning intended to mitigate the impact of any disruption in these services. This contingency planning includes retention of key personnel, ensuring timely payments to vendors and subcontractors, and identifying alternative service providers.
The volume of electricity generated and sold by our power plants will also be negatively impacted if any facilities experience higher than normal downtime as a result of equipment failures, electrical grid disruption or curtailment, weather disruptions, short to medium term weather variations from long-term averages or other events beyond management’s control. Certain of our power plants have periodically experienced periods of curtailment by the grid company due to a lack of infrastructure and transmission capacity. Curtailment results in reduced tariff payments to the power plant as the facility is only entitled to receive payment for energy delivered to the grid companies.
Generally, over longer time periods, management expects that the Company's portfolio will exhibit less variability in generation compared to shorter periods. It is likely that we will experience more generation variability in monthly or quarterly production than it does for annual production due to the seasonal nature of wind and solar resources. As a result, periodic cash