On Thursday 12th April, Pöyry's Madrid office co-organised, with law firm Clifford Chance, a workshop on Power Purchase Agreements (PPAs) in Spain.

PPAs are one of the new schemes that can enable:

  • securing the financing of projects for independent developers, and
  • securing long term power prices below market expectation for consumers or supply companies.

Yet, whilst the Spanish market context suggests that PPAs should start flourishing like mushrooms in wet soil, in fact very few true PPAs have been signed after 2 years of noisy discussions. Reality is that PPAs are extremely complicated ~80 page contracts, with abundant clauses, risks of counterparty, risks of falling under the strict regulations of financial derivatives, risks of market or political fundamental changes etc. Not to mention that a PPA is such a generic term with so many implementation options, that actually there are few matches between the needs of the off-taker and the needs of the producer. This means that after at least a year of negotiations, only occasionally, an agreement is reached.

In this session, Pöyry presented:

  • the market context explaining the rational for the development of PPAs;
  • the sources of uncertainty in the future prices of electricity, and its methodology to quantify them in truly consistent scenarios; and
  • the novel methodologies that Pöyry proposes to assess the pricing of PPAs, combining deterministic and probabilistic approaches, that allow a detailed understanding of the fair value of PPAs by answering questions such as: what is the P50 NPV of the market revenues? What is the P90 or the P10? What is the probability of the downside hedged by the PPA? What is the value and probability of the upside that we lose when entering a PPA?

In turn, Clifford Chance provided a thorough explanation of the type of contractual arrangements of PPAs, and the different legal and financial regulations that may affect PPAs depending on their type such as MiFID II, EMIR and REMIT related issues.

The wide audience appreciated very much the topics, the insights, the presentation style, and the set-up in the beautiful Palace of 'Duques de Pastrana'.

#AFPoyryBrave #AFPoyryDevoted #AFPoyryTeamPlayers #AFPoyryEnergyTransition #AFPoyryMakingFuture

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Pöyry Oyj published this content on 18 April 2019 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 18 April 2019 13:17:04 UTC