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Case Studies, Interview, PPA Transaction

Finerge, Pexapark case study

The client

Finerge is the second largest renewable energy producer in Portugal, with a growing portfolio in Spain. The company is owned by First Sentier Investors, an asset management firm focused on sustainable investment, managing over €160 billion across various asset classes. Finerge currently operates 69 wind farms and 17 solar plants, in strategic locations across 46 municipalities in Portugal and five provinces in Spain. In total, Finerge has an installed capacity of 1.6GW in both countries enabling it to avoid 1.6 million tons of CO2 emissions.

With over 25 years’ experience and an impressive 20% annual growth rate, the company is set to maintain its sustained growth through further investment and acquisitions of wind and solar assets.

The Challenge

Finerge expects renewable energy prices to remain high and needs market data to monitor this assumption. To deal with high energy prices, they are evaluating not only regular 10-year PPAs, but also looking at shorter 2-to-5 year PPAs. To understand the pricing points for these tenors, they are speaking directly with various counterparties, mainly utilities.

Finerge has its own internal pricing model that uses futures prices and forward curves. This model is important to assess whether offers received are fair or not. However, this often requires collecting pricing and market data manually from multiple sources which is time consuming and distracts resources from valuable energy sales activity. Firstly, counterparties that are very active on the Iberian PPA market are contacted and multiple offtaker quotes collected and included in Finerges’ price modelling. Additionally, Finerge are in contact with brokers who closely follow market trends and trading activity. These combined sources are important in helping mark the market price and develop pricing expectations for each deal. The pricing data collected from numerous offtaker quotes also helps Finerge closer to closing a deal, to support price negotiations and the smaller, but often critical, contractual details within the PPA.

Finerge also observe that imbalance costs are enormous. Having a pre-defined profile that does not match the generation profile leads to substantial costs. Therefore, the PPA structure needs to be carefully considered. To combat this, Finerge needs to consider different PPA structures that can reduce risk while maintaining an attractive price level. Their future merchant exposure is set to increase as assets are reaching the expiration of the Feed in Tariffs (FiTs) schemes, requiring consideration of a new short, medium and long-term energy sales and risk management strategy. Understanding PPA pricing, available PPA structures and market activity will be critical in supporting their strategical planning.

 

How we help / Why we were selected

To look at increasing efficiencies in how Finerge price PPAs, Jorge Paraíba, Head of Energy Management at Finerge energy began considering alternative options for PPA price discovery. Having vast energy origination experienced gained from 17+ years working for the biggest Portuguese Utility, he has been exposed to many systems supporting energy pricing and therefore knows exactly what capabilities are needed to address his team’s needs.

“In the past, while working for a utility, I had a lot of tools to support the pricing and structuring of PPAs. So, when I joined Finerge I needed to decide which solutions would be best to meet our specific needs as an IPP, that would also work with our current ecosystem of data providers and our price modelling processes. I wanted to find a solution that would enable us to more efficiently model and evaluate PPA pricing for various contract structures,” Paraíba explains.

“Based on my former experience with other providers and having used Pexapark’s PPA price reference platform in a previous company, it was clear to me that Pexapark was the best fit. I selected Pexapark’s solution due to the accuracy and volume of data available as well as the easy access and navigation. The company also stood out for providing excellent support and ongoing training, something that I think adds a lot of value to users.”

Pexapark’s PPA price reference platform provides benchmark PPA pricing for 18+ markets at a glance. Users can identify what the fair pricing is for all standard PPA structures and tenors for solar, onshore wind and offshore wind, based on what is actually happening in the market. Prices are updated daily and pricing evolution over the last rolling 12-month period is displayed, giving confidence to users that their pricing expectations fit within actual min and max prices achieved in the market during this time.

Jorge considers that Pexapark’s PPA price platform is a must-have for PPA price review and is a great way to follow the reference price levels. “I use the platform on a daily basis as the main platform for PPA pricing updates and long-term forward curves. It is a great tool, not only for sponsors but also for offtakers, as it gives the exact price references, according to the location of the asset and the corresponding generation profile. As a customer of Pexapark, I‘m impressed to see that the product continues to improve year-on-year, with more data and functionalities being added” he says.

 

The future

Jorge’s goal is to centralise all of Finerge’s energy production and energy risk management. He is preparing the company for the future, for when subsidies and FiTs are slowly phased out and more of Finerge’s assets are exposed to merchant risks.

Jorge commented, “Practically all of our assets are subject to regulatory attributions. So that means, in terms of risk exposure, we intend to maintain a conservative approach in the short-term and will have to adapt our risk profile to new service circumstances in the medium to long term. Combining different options of PPA structures, tenors and project technologies will be a key strategy to allow us to maintain our well-balanced risk profile in the future.

“Once the end of the regulated periods expire, we will consider new greenfield projects and some brown field ones. PPA pricing will play an integral role in securing the right fixed contracted revenues,” he concludes.

 

 

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