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PPA Valuations: new product launch from Montel Risk Management

January 23rd, 2024

As renewable capacity expands in the race to reach net-zero, understanding the true value of Power Purchase Agreements is paramount for both investors and businesses looking to harness the potential of renewable energy sources.

Markus Gragert, analyst for forecasts and optimisation at Montel Risk Management explains how this cutting-edge new product delivers highly accurate PPA Valuations.

Having already had storage and flexibility valuations in our product portfolio for some time, it has not taken us long to see how we can extend our valuations process to more areas.

That is why we have now launched a new valuation service for PPAs. With the majority of new energy capacity coming online expected to be from renewable sources, it was clear to us that a product able to estimate the true value of a PPA to a very high-level of accuracy was needed.

How do we deliver PPA valuations?

We provide our PPA valuations as a consultancy service. By working with you to understand your exact project specifications and dependencies, we can deliver a customised valuation within any European price area.

Our PPA valuation methods are housed within our hedging and risk software (Shape). Shape takes into account changes in renewable power capacities within the specified area, providing derived distributions for risk figures and quantiles – which can then also be used for advanced risk management strategies.

By using this method, we are able to take into account technical constraints, market dynamics, and regulatory frameworks, to provide tailored and trusted PPA valuations – empowering decision makers in the energy sector.

Overcoming valuation challenges:

Cannibalism Effects: Tackling the Renewable Energy Challenge

One of the most significant challenges in valuing wind and solar power plants is the cannibalism effect. We address this challenge head-on with state-of-the-art simulations that consider correlations, cointegrations between prices, and fundamental market drivers.

These simulations are specifically tailored for PPA valuation, ensuring highly reliable valuations that maximise profitability while mitigating risks. 

Synthetic Wind and PV Profiles

Standard forecasts for wind and PV profiles often lead to systemic errors in calculating market values.

What make our service unique is that it calculates individual wind and PV profiles for any location in European price areas, making your valuation truly unique to your specific site.

 These synthetic profiles are derived from high-resolution weather data, incorporating area-specific renewable capacity expansion models.

Stochastic processes are also integrated to account for situations such as unplanned shutdowns driven by extreme weather events, regulatory changes, or technical grid constraints.

 

What can you do with our PPA valuations?

Stress Testing

This product also allows you to stress-test existing contracts for PV and wind power against changing market dynamics. By determining the main drivers of price uncertainties, you can make informed decisions to optimise your investments. 

Valuation and Investment Decision Support

Combining our synthetic profile service for wind and PV projects with our robust Monte Carlo simulation achieves unparalleled accuracy in PPA valuations. This combination ensures that you have a comprehensive understanding of the potential risks and rewards associated with your renewable energy projects. 

Custom Scenario Analysis

Our software also allows you to add your assumptions regarding renewable capacity expansion, grid connections, and commodity prices into its simulation framework. This enables you to anticipate price fluctuations and determine sensitivities for your particular project, thereby enhancing your decision-making process. 

This new PPA Valuation Service is a game-changer in the renewable energy industry. By leveraging advanced simulations, synthetic profiles, and comprehensive tools, decision-makers can confidently navigate the complex world investment and optimisation. 

Want to know more?