Over recent months we have spoken with a wide cross section of IPP executives. Their message was consistent. The period dominated by straightforward, conventional Power Purchase Agreements (PPAs) is transitioning into a new era. In this phase, commercial expertise, advanced structuring capabilities, and rigorous pricing strategies are emerging as key differentiators. While the initial phase centered around PPAs, the focus now is on more structured deals and the integration of new asset classes such as BESS.
Co-location involves combining multiple technologies at a single site, such as wind and solar, or solar paired with battery storage. Traditionally, pricing was based solely on energy delivered. Now, it is necessary to evaluate and price the marginal value added by co-location, the interactions between different resources, and the premium associated with reduced curtailment and improved grid capacity utilization.
Battery contracts can take various forms. Tolling contracts delegate operational decisions to the operator, merchant sharing agreements allocate both the upside and downside, and capacity-based deals pay for guaranteed availability. The frameworks for valuation and pricing in these contracts differ significantly from those used in pure energy agreements.
Despite a clear trend toward increased adoption of BESS and hybrid PPAs, the market for stand-alone PPAs remains significant. However, the prevalence of “plain vanilla PPAs” has diminished as renewable markets mature. Transaction price ranges have expanded, requiring deeper analysis to understand the impact of negative prices and curtailments on price and value. Additionally, in many markets balancing risk is now handled completely differently than just 12 months ago.
The Pexapark Renewable Valuation Framework for PPAs continues to provide a solid foundation. However, the importance of the “middle part”– understanding risk and projecting future realized prices – has increased substantially!
With the introduction of BESS as a new asset class as well a new set of valuation frameworks had to be developed. And they can vary greatly between different price zones, mainly due to differences in ancillary market designs.
Sample Multi-Market Revenue Model
The Pexapark platform provides several data inputs that are essential to the valuation and pricing of PPAs, hybrid PPAs, and BESS deals:
Depending on the market, this “middle” segment can account for up to 60% of total costs in a given PPA! With balancing costs reaching mid to high single-digit figures, and with ongoing fluctuations in total power structure price ranges and negative price risk, these data sets have become significantly more valuable over the past eighteen months.
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