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PPA pricing structured on 3 pillars

Written by
Tomás Oliveira

Defining a PPA price that reflects volume and price risks specific to a renewable energy asset and considers risk-return profiles of electricity sellers and buyers can be a daunting task.

2 min
26th Oct, 2023
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At Synertics we believe in providing transparency when computing a PPA price, to allow consensus between multiple parties and enable data-driven decision-making processes.

There are many aspects that go into PPA pricing. In this post, we summarised the 3 main pillars Synertics uses to estimate future energy streams specific to the characteristics of an individual asset, which are then translated to a PPA price.

Power

The power price is the first and main pillar used when a PPA price is computed. Here it is important to identify during which periods, at which prices, and in what quantities a renewable energy asset is expected to be producing. Indicators such as Futures, capture prices, risk premiums, grid curtailments, capacity additions but also regulatory changes play an important role here. Technology, location and market-specific factors will play an integral role in deriving the value of a PPA and ultimately the financial viability of an asset.

Guarantees of Origin (GoOs)

GoOs certify that the electricity was generated through renewable energy sources. The demand of GoOs has recently sharply risen through the decarbonisation efforts of various industries. This has positively impacted their prices. GoOs have intrinsic environmental value for buyers and commercial value for sellers. Their prices are mainly driven through demand/supply factors as well as their expiration dates.
 

Balancing

Physical PPAs encompass balancing costs, which ultimately impact the revenues that are generated within a PPA. The costs linked to balancing do not have to be fixed throughout the whole tenor of a PPA. Imbalance costs, electricity price volatility, contract tenors, and the competitiveness of BRP services within a market are all aspects that impact the price. 

 

PPA pricing in 3 main pillars by Synertics

 

Summary

All three pillars shape the PPA price and address economic, environmental, and operational elements for both buyers and sellers.

At Synertics we are aware that PPA pricing is increasingly gaining in complexity, which we translate into variables in our PPA pricing models. 
Feel free to reach out to us to find out about our additional PPA pricing pillars (e.g. counterparty risk) and to guide you through your PPA.


 

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About Synertics
Synertics provides advisory services and develops digital data-driven solutions for the energy industry with the purpose of driving productivity and transferring knowledge.
PPA Origination, Structuring and Pricing