University of Cambridge > Talks.cam > Isaac Newton Institute Seminar Series > Valuation of floating price contract formulae for financial renewable PPAs

Valuation of floating price contract formulae for financial renewable PPAs

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MESW02 - Electricity systems of the future: incentives, regulation and analysis for efficient investment

We propose a valuation methodology based on risk measure to compute the risk premium to cover new structure of financial renewable PPA , where as opposed to traditional unit contingent PPA , a part of merchant risk remains in the hand of the asset developer. Those new contract structures are currently emerging  on the market:  Offtaker are increasingly showing interest to share the market risk, as in systems with high RES share, the PPA might become a very poor hedge of their electricity bill (due to RES cannibalization effect). We specifically focus on contract formulae based on floating price, where the financial transfer to the Offtaker is not based on the price captured by the renewable asset but rather on a floating price, defined as the average of spot prices over a predefined time duration (e.g. yearly, monthly or daily basis).  We then assess several risk mitigation strategies to lower the risk premium, namely physical (well balanced portfolio of wind, PV and battery) and/or financial (power derivatives trading).

This talk is part of the Isaac Newton Institute Seminar Series series.

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