How does Pexapark get to the PPA prices shown in PexaQuote?

The PPA market, unlike more transparent energy markets like oil or gas, currently lacks transparency in pricing. This situation results from several factors: the market’s reliance on fewer, bilaterally negotiated (over-the-counter) PPAs, rare price disclosures, and diverse deal structures tailored to specific projects.

Pexapark therefore uses pricing models supported by price evidence to determine fair, market-representative, risk-adjusted reference price, which is representative of a large class of transactions, based on market observations. This includes, but is not limited PPA transactions, market polling of PPA prices, and price reporting.

Prices shown on PexaQuote is not to inform about the price of individual transactions, but they provide a well-defined, readily observable indication of the price level at which offtakers are expected to enter into the respective transaction. Actual transaction prices may differ due to asset-specific capture prices, credit ratings of involved parties and the structural details of the deal.

 

What types of PPA products are there?

Name	Description
Baseload Annual	Fixed price for an hourly contract volume. The hourly contract volume is identical for each hour throughout the year.
Baseload Monthly	Fixed price for an hourly contract volume. The hourly contract volume is identical for each hour for a given month.
Fixed Hourly Profile	Fixed price for an hourly contract volume. The hourly contract volume is shaped within each month to a typical technology production profile for a given market.
Pay-as-produced	Fixed Price for all produced electricity. The fixed price is independent on timing and volume of production.

 

What is the difference between the Price Forward Curve provided by Pexapark and Price Forecast Curves?

Fundamental Curve providers generate and provide their clients price curves known through various names, such as Fundamental Curves, Economic Forecasts, Price Scenarios. These are techno-economic models ran by economic forecasters who aim to provide different scenarios (e.g high, central, and low) of the future going far into the future (20-40 years). These are used by businesses to have an outlook of scenarios of what the future could look like. These are not intended as forecasts. Hence, they are referred by the fundamental modellers as scenarios.

Pexapark, on the other hand, provides Price Forward Curves. These curves are based on actual market transactions and observed prices, not on hypothetical scenarios. They incorporate data from energy exchanges, direct transactions, and consultations with market participants to provide visibility up to 15 years into the future. Utilities and trading companies often rely on this type of price curve.

Where possible – when Pexapark have transaction prices – Capture Curves are derived from market consensus and not from an economic forecast of where capture rates will be in the future.

Given the distinct methodologies behind these curves, a key question arises: which type of price curve is most appropriate for valuing a Power Purchase Agreement (PPA)? For pricing and hedging PPAs, utilities and trading firms prefer Price Forward Curves that reflect current market dynamics. This is also true for market participants such as Corporates and Industrials who want to price their PPAs of the market fair value. Auditors primarily use market-based evidence, in the form of Price Forward Curves to price and value commodity contracts.

To reconcile these different approaches, Pexapark has partnered with AFRY Management Consulting for the creation of the Daily Valuation Curve which combines Pexapark’s market-based forward curves in the short term together with AFRY’s long term scenarios for the long term.

 

What is the Daily Valuation Curve?

Pexapark & AFRY Management Consulting have partnered to bring together their respective short- & long-term pricing curve to produce the Daily Valuation Curve. This product combines Pexapark’s market-based assessment of PPAs & capture rates and AFRY’s fundamental price curve into a novel product that covers the entire tenor range out to 2060 for all technologies updating on a daily basis.

Generation of Curves and Methodology:

The Pexapark-AFRY Daily Valuation Curve (DVC) consists of the market curve on the short end (typically the liquid horizon or where Pexapark see price evidence), a transition period (combining both the Pexapark & AFRY pricing curves), and a forecasted curve beyond the transition period. This combination ensures the curve accurately represents value across all tenors, from the present day to 2060, offering a unified perspective on the potential lifespan of renewable assets.

Daily updates capture market movements for the short-term and transition periods, while the long-term forecast reflects AFRY’s quarterly insights. This holistic approach provides a reliable basis for analysing renewable asset values over typical PPA durations and beyond.

To address price uncertainty, the DVC includes P90 and P10 monthly range. These outline the expected price realisation range with an 80% probability for a given month, based on observed market volatilities for the short end and fundamental-implied volatilities for the long-end. The interpolation between both along the tenor axis is performed using the volatility term structure implied by a market-standard two-factor model.

 

What are PPA Prices shown on PexaQuote and the Market Price of Risk?

Given the long-term nature of PPA agreements and the intermittent character of renewable energy the valuation and pricing of PPA contracts are associated with risks. Pexapark’s approach derives the PPA price based on an Expected Value – the intrinsic value of the contract – and a Market Price of Risk

PPA Price (Risk-Adjusted Fair Value) = Expected Value – Market Price of Risk

Pricing of structured products is generally based on the assumption that they can be perfectly replicated via tradable products, not leaving any residual risk. Since PPA offtakers are left with residual risks, which are unhedgeable, offtakers demand risk compensation, which is being priced into the value of PPA contracts in the form of a what Pexapark calls “Market Price of Risk”.

In other words, offtakers (both utility and corporate offtakers) bid at a PPA Price, which incorporates compensation for taking an unhedgeable risk. This compensation is the Market Price of Risk (previously known as “Liquidity Premium”). Pexapark calibrates the Market Price of Risk to match observed market price evidence (transactions, committed bids and offers and indicative quotes).

The PPA Price refers o the value of renewable electricity, excluding the following components:

• Energy Attribute Certificates (EAC) for said market. E.g. Guarantees of Origin (GoOs) or Renewable Energy Guarantees of Origin (REGOs)
• Balancing energy costs, arising from the deviation between forecasted and the actual production
• Grid access cost
• Additionality

For PPAs transactions which counterparties are paying premiums such as Additionality, this is covered through our Reported Price Range.

 

What is a Hybrid PPA Price?

Similar to the non-hybrid case, the hybrid PPA pricing is estimated using the fair price deducted by the hybrid liquidity premium:

Hybrid Bid Price = Hybrid Expected Price – Hybrid Market Price of Risk

 

What are Green Fuels?

Pexapark uses the term Green Fuels to cover the umbrella of definitions for hydrogen, ammonia and other hydrogen-derivatives produced from renewable energy derived from renewable energy sources such as wind and solar. These include RFNBO’s and other renewable definitions. We might use renewable hydrogen or ammonia interchangeably with Green Fuels.

RFNBO’s (Renewable Fuels of Non-Biological Origin) is the definition provided by the EU Commission through the Renewable Energy Directive (RED) for what constitutes hydrogen, hydrogen-based fuels or other energy carriers produced from renewable energy sources other than biomass. Gaseous renewable hydrogen produced by feeding renewables-based electricity into an electrolyser is therefore considered an RFNBO. At the same time, liquid fuels, such as ammonia, methanol, or e-fuels, are considered RFNBOs when produced from renewable hydrogen.

 

How does Pexapark get to the Green Fuel Prices (GFP) shown in PexaQuote?

The green fuels market is in its infancy, with little or no transactions for spot or long-term offtake agreements. The green fuels market will follow a similar trajectory to the PPA market with long-term agreements closed to enable non-recourse project finance. They will be highly structured and be linked to the pay-as-produced PPA market due to RFNBO (renewable fuels from non-biological origin) regulatory requirements.

Please follow the EU Commission’s Q&A for further information: EU Delegated Acts on Renewable Hydrogen (europa.eu)