Recent PPA pricing

trends and the resilience

of corporate PPA deals

Helen Dewhurst
Dr. Werner Trabesinger 12.05.2022
Michael Waldner
Your moderator

Michael Waldner
CEO & Co-Founder, Pexapark

§ Prior to co-founding Pexapark, Michael spent 14 years

at Axpo Trading

§ Over 15 years of experience in international energy

trading, origination and portfolio management

§ MSc in Engineering from the Swiss Federal Institute

of Technology (ETH) in Zurich, Switzerland

[email protected]

2
Your presenters

Helen Dewhurst Dr. Werner Trabesigner

Senior Associate, BloombergNEF Head of Quantitative Products, Pexapark

§ Focuses on corporate energy procurement strategies, § Has 12 years at Axpo Trading as Head of Structured
fundamentals of power markets, power purchase Trading in Europe
agreements, green certificates and energy policies
§ 15 years of experience in energy trading
§ Builds and maintain datasets that track corporate and structuring for renewable investments
renewable energy procurement
§ MSc in Physics and a PhD in Physical Chemistry from
§ Worked in sustainable procurement at Accenture, the Swiss Federal Institute of Technology (ETH) in
working closely with key suppliers to deliver Zurich
Accentureʼs environmental strategy

[email protected] [email protected]

3
 Overview
RENEWABLES
MADE SIMPLE 1 Introduction ‒ European cPPA pricing survey

2 Pricing dynamics: Key findings

3 Market data highlights

4 Fair value prices & benefits for corporate offtake

5 Q&A

4
Poll 1

Do you see expansion opportunities in the

aggregated corporate PPA space?

q Yes, we are actively trying to sell to several parties

at once

q No, it is preferable to contact one larger and credit

worthy counter party at a time

5
Overview

1 Introduction ‒ European cPPA pricing survey

2 Pricing dynamics: Key findings

3 Market data highlights

4 Fair value prices & benefits for corporate offtake

5 Q&A

6
PPA pricing in Europe: BNEF market survey data

7
Europeʼs PPA market is thriving

Source: BloombergNEF Corporate PPA database. Note: Includes offsite PPAs. Data are through March 2022. Dashed fill 8
indicates the country is not covered in the survey.
This has continued into 2022 so far

Source: BloombergNEF Corporate PPA database. Note: Includes offsite PPAs. Data are through April 2022. Dashed fill 9
indicates the country is not covered in the survey.
Overview

1 Introduction - European cPPA pricing survey

2 Pricing dynamics: key findings

3 Market data highlights

4 Fair value prices & benefits for corporate offtake

5 Q&A

10
How are PPA contracts priced ?

PPA Price = Fair Value ‒ Discount

Price at which utilities Expected Value given Price adjustments made by

bid for PPA volumes market prices, utilities to cover the cost of
expected volumes and hedging and the risks which
expected price are warehoused
capture

Discounts are determined via risk models - the performance of stack-and-roll hedging

Generally, the higher the level of risk, the higher discounts will be in percentage terms.

11
The price of power is a core pricing consideration

Source: BloombergNEF, Pexapark. Note: Chart tracks European average PPA price indices for wind and solar over a one-year 12
period, with a pay-as-produced structure.
So is the cost to build

Source: BloombergNEF. Note: The global benchmarks are country-weighted LCOE averages using the latest annual capacity
additions and country LCOE benchmarks. Offshore wind includes the offshore transmission costs. Coal- and gas-fired power
include a carbon price in regions where policies are already active. Gas is combined-cycle gas turbine. LCOEs do not include 13
subsidies or tax-credits. LCOEs showed by financing date.
Unusually, these costs have risen

Source: BloombergNEF. Note: The global benchmarks are country-weighted LCOE averages using the latest annual capacity
additions and country LCOE benchmarks. Offshore wind includes the offshore transmission costs. Coal- and gas-fired power
include a carbon price in regions where policies are already active. Gas is combined-cycle gas turbine. LCOEs do not include 14
subsidies or tax-credits. LCOEs showed by financing date.
This is an important consideration for
developers looking at PPAs

Source: BloombergNEF, Pexapark. 15

ʻBase caseʼ PPA assumptions

Source: BloombergNEF 16
Annual baseload costs can materially change
the price of a PPA

Source: BloombergNEF, Zeigo, participants. Note: Assumes all else remains equal (see slide 6 for the base case). PAP = 17
pay as produced; AB = annual baseload.
This does not apply everywhere

Source: BNEF, Zeigo, survey participants Note: All else remaining equal. PAP = pay as produced; AB = annual baseload. 18
Commodity and freight prices have increased materially

Source: BloombergNEF Note: Bloomberg tickers for each commodity are Chromium (C9CNRLJI AMTL Index), Zinc (LMZSDS03
Comdty), Molybdenum (MBCNLUFJ SMET Index), Aluminum (LMAHDS03 Comdty), Steel (STANHCXW KLSH Index), Cobalt 19
(LMCODY LME Comdty), Copper (SHSZ300 Index), Nickel (LMNIDS03 Comdty), Freight from Asia (WCIDSHRO Index)
Gas and carbon prices have also reached record levels, and
are expected to stay high

Source: BloombergNEF, Bloomberg Terminal. Note: 1The Title Transfer Facility (TTF) is Europeʼs most commonly-traded 20
gas contract.
For most of 2021, PPAs held their appeal

Source: BloombergNEF, Pexapark. Note: All PPA prices reported by Pexapark are nominal. These ʻfair valueʼ prices are based
on an adjustment of the power market baseload price, taking into account a number of structural, risk and cost-based 21
factors.1Chart shows percentage change in price since March.
Overview

1 Introduction - European cPPA pricing survey

2 Pricing dynamics: Key findings

3 Market data highlights

4 Fair value prices & benefits for corporate offtake

5 Q&A
Europeʼs energy crisis legacy is more mixed over time

Source: BloombergNEF 23
No market or technology was immune to price rises

Source: BloombergNEF, Zeigo, survey participants. Note: Data were collected from January-March 2022. Hatched infill 24
indicates that no solar PPAs have been announced to date, so these represent bid or estimate prices only.
Wind prices rose 9.4% on average

Source: BloombergNEF. Note: Data are through March 2022. Increases are shown since 2H 2021. 25
The 5.7% rise for solar wasnʼt far behind

Source: BloombergNEF. Note: Data are through March 2022. Increases are shown since 2H 2021. 26
Itʼs a good time for buyers - financially

Source: BloombergNEF. Note: Data are through March 2022. Increase shown since 2H 2021. 27
Most markets favour buyers, but itʼs not that simple

Source: BloombergNEF, Pexapark. Note: Forward price calculated from available traded futures (taken April 1, 2022) and
averaged over the contract duration. Base case combines solar and wind ranges. Pexapark data (taken April 1, 2022) are 28
extrapolated back for years 1-5
Overview

1 Introduction ‒ European cPPA pricing survey

2 Pricing dynamics: Key findings

3 Market data highlights

4 Fair value prices & benefits for corporate offtake

5 Q&A
Relative discounts change during 2021

Data ‒ Quotes given in respect of a single project throughout much of 2021 were compared
to the fair value, as determined for each quote date. The plot shows the percentage
discount of these quotes vs fair value.

Trend ‒ At the beginning of 2021, discounts were quoted at ca 20%. Over time, especially in
Q4ʼ21, these discounts widened to reach nearly 40%

Discounts are determined via risk models. Such models simulate the risk of stack-and-roll
hedging. Such models are based on volatility calibration, assumptions on future cannibalization
etc. Generally, the higher the level of risk, the higher discounts will be in percentage terms, as
is indeed seen in market quotes.

30
Market events and their impact on PPA pricing

Impact
Price Surge The extreme price increase translates into higher fair values (note the
extreme increases are “only” affecting the first and second years)

Volatility Surge The extreme volatility increase leads to higher price discounts (see
previous slide)

Cashflow Impact PPA books have been materially affected by cash outflows (see
performance slide), potentially leading utilities to price the cost of
contingent funding into PPAs

Price gains are only partially passed on to sellers, as utilities become more risk adverse.

31
How Surging Volatilities Capped PPA Price Gains

Forward Prices and Volatilities

180 140.00
Discount vs Fair Value

COD 22 Fair Value Price [EUR/MWh]

160
120.00
Historical Volatility in % p.a.

0
140

10
100.00
120

% Discount
100 80.00

30
80 60.00
60
40.00
40

50
20.00
20 Mar May Jul Sep Nov
0 -
Date
04.01.21 04.04.21 04.07.21 04.10.21

Volatility COD 22 10yr Fair Value

As volatilities surged, so did the discounts that utilities apply to the fair value of energy

32
The difference between corporate and utility offtakers

Utility Offtake Corporate Offtake

Project Impact Project Impact
Market Risk ▼ 1 Market Risk ▼ 2
Credit Risk LOW Credit Risk HIGH
Utility Impact Corporate Impact
Market Risk ▲ 1 Market Risk ▼ 2
Credit Risk LOW Credit Risk LOW

Market Risk: For the utility offtake case, a PPA is a transfer of risk (1) from the project onto the utility
which warehouses part of that risk. For the corporate offtake case, both the project reduces risk and the
corporate offtaker reduces risk (as it reduces its short position). This creates a win-win, where corporates
should be able to out-compete utilities

Credit Risk: Depending on the corporate offtaker, the PPA may mean that the project assumes a higher
degree of credit risk.

33
Corporate offtakes ‒ higher overall benefit

Sellers ‒ As corporate offtakers do not have

to apply any risk discounts, sellers can
receive a higher price, while achieving the
same reduction of risk

Corporates ‒ Corporates hedge their energy

needs in the long run and thereby reduce
the volatility of costs, ie they manage their
procurement risk

Win ‒ Win: The value of risk reduction and

higher efficiency (no trading necessary !)
can be split between parties, realizing gains
for either side

A market shift from Utility PPAs to Corporate PPAs improves market efficiency. The focus
shifts from market risk to credit risk.

34
Will volatility give rise to a bifurcation of PPA markets ?

Utilities: Competitive
hedging in liquidly
traded markets

§ In the current market environment,

where 1-3yr prices are extremely
1-5yrs high, short term PPAs are an
attractive possibility to lock in high
10 -15 yrs prices, without suffering high risk-
related markdowns

§ The share of corporates in the long

tenor segment of the PPA market
Corporates: Purchase for own has consistently risen during the
consumption, no hedging in traded markets
last year
required, no margin cashflow issues

35
The need for benchmark pricing models

Tracking market developments in a consistent way is a Daily Updates ‒ Utility grade models built on
key enabler for efficient negotiation with offtakers, even continuously updated market data allow to
more so in the current market turmoil, where utilities faithfully track the impact of all relevant drivers
may apply defensive stress-type pricing onto PPA pricing

Market Insight ‒ Pexapark tracks market

developments in order to backtest models and
recalibrate to stay in line with PPA pricing

Product Coverage ‒ Pexapark tracks benchmark

pricing for different tenors, start dates & product
types

36
Poll 1 results

Do you see expansion opportunities in the aggregated

corporate PPA space?

51% Yes, we are actively trying to sell to several parties

at once

49% No, it is preferable to contact one larger and credit

worthy counter party at a time
Poll 2 results

What do you see as the biggest risks to

renewables market players in 2022 and beyond?
(Please select a maximum of 3 answers)

70% Price and market volatility

30% Unfavourable legislation changes
8% Lack of funding options
69% Global supply chain disruptions
13% Risk management and origination skill shortages
16% Increased risk exposure from poor deal terms and/or pricing
15% Limited PPA opportunities
10% Intermittent generation volumes
39% Cannibalization due to increased renewables build out
Participate in Pexaparkʼs renewable outlook survey

https://go.pexapark.com/renewable-outlook-survey
39
Overview

1 Introduction ‒ European cPPA pricing survey

2 Pricing dynamics: Key findings

3 Market data highlights

4 Fair value prices & benefits for corporate offtake

5 Q&A
Questions?
 Get in touch with us

CORPORATE PPA DESK PPA PRICING

Head of Corporate PPA Desk Head of Data Sales

Rommero Carrillo Dr. Alexandra Münzer

[email protected] [email protected]
Thank you