Pexapark makes quant engine available for renewable energy PPAs
Pexapark is making its advanced ‘quant’ data and analytics – used to price and optimise over 11GW of renewable energy Power Purchase Agreements (PPAs) – available to the wider market via its post subsidy software and advisory platform.
This move represents a major step towards levelling the playing field for power producers, utilities and developers in their PPA negotiations – enabling these market players to successfully navigate increasingly complex hedging decisions.
The renewable energy PPA market has seen tremendous growth over the past quarter, with over 1.4GW of deals signed in April alone. While this is good news for the energy transition, gaps in pricing and valuation capabilities still hinder many renewable companies from harnessing the full value potential of their market offering, leaving money on the table.
Unlike energy traders and utilities in conventional power – who have been modelling the risks of the traded markets for 20 years or more – many renewable energy companies do not yet have the in-house tools and experience to quantify risk and revenue for projects operating without subsidies. Project owners often lack the essential quantitative analysis needed to support their decision making and PPA negotiations – particularly given the wide array of possible PPA structures and price scenarios.
This can result in less-than-optimal PPA decisions, potentially leading to huge losses, or even worse, inadequate protection against renewable energy risks perceived as hedged.
Pexapark’s digital tool, PexaQuant, is a new addition to Pexapark’s ‘post subsidy operating system’. It enables users to model PPA risks, drawing on more than three years of development work by some of the industry’s foremost quantitative analysts.
Pexapark’s quant expertise is already being used by leading funds and IPPs in the market, such as Glennmont Partners, Ardian, and Greencoat Capital. It has underpinned the quantitative side of Pexapark’s advisory services for over 80 PPA deals signed since 2017. By distilling these capabilities into an intuitive software platform, Pexapark is now making advanced risk modelling and analytics accessible to the wider market.
Asset owners and developers can input forward curves and expected values for seasonal production into the tool to run comprehensive long-term simulations to understand the impact of different PPA structures on asset valuation, risk, and revenue. Using these insights, businesses can compare different contract alternatives on a like-for-like basis and decide on the best structure for their asset, which provides them with further leverage during PPA negotiations.
Jordi Francesch, Head of Asset Management and Chief Risk Officer Glennmont Partners, says: “Pexapark is integral in supporting us to deliver optimal returns for our ten-year funds by assessing the intrinsic value of our contracts. Using their advanced renewables analytical tool, we are able to optimally structure our PPAs with a view to generating better cash yields for our assets.”
Adam Basnett, M&A, Greencoat Capital, says: “Pexapark helped us to analyse and compare the potential risk-adjusted returns for various deals, enabling us to structure the optimal baseload hedge for our new renewables asset, Kokkoneva in Finland. Pexapark’s advanced analytical tool is of key value to us as we continue our growth strategy of investing further into Northern European renewables.”
As Pexapark’s ‘post subsidy operating system’ continues to grow, users who are already subscribed to Pexapark’s award-winning price reference platform, PexaQuote, will be able to feed forward curves and price data for markets they are already tracking directly into PexaQuant. This saves tedious setup work, allowing users to immediately benefit from proven reference prices.
Werner Trabesinger, Head of Quantitative Product at Pexapark said: “So far, the renewables industry has been buoyed by subsidies, and as such, many companies have never had to develop the in-house capabilities needed to access the energy trading market. Now, with more and more subsidy-free projects being brought onto the market, companies need to bridge that knowledge gap in order to effectively navigate the risks of open power markets.”
“PexaQuant lowers the threshold for using our library of Monte Carlo simulations, by providing an easy-to-use interface, so even users entirely unfamiliar with coding can benefit from the same insights as a utility or energy trader. PexaQuant goes way beyond just modelling forward curves and provides a fully comprehensive assessment of the risk profile for an asset throughout its lifetime.”