Enabling PV investment decision through PPA sizing and pricing
Facing substantial energy cost increases during the energy crisis, the customer, a large industrial limestone producer with significant power consumption, considered developing a large-scale photovoltaic (PV) installation on its production site, through the signing of a Power Purchase Agreement (PPA) with a third party investor.
We conducted a strategic analysis, delivering a tailored sizing and valuation model for the PV production against market conditions and its adequacy with the consumption profile. We tested our results under various scenarios to deliver a comprehensive decision framework for the client. With our analysis, our client was able to proceed towards FID together with its partner in a win-win deal
Objectives
- Define the value of the PPA to be concluded with the 3rd party investor
- Determine the optimal size of the PV installation in light of projected growth of limestone production scenarios
- Define the most appropriate approach for valuing the projected excess PV production
- Identify opportunities to valorise flexibility and battery storage.
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Methodology
Valuation Model
We built a flexible valuation model allowing our team to study multiple scenarios. The valuation model encompasses the following key components:
- projected consumption profile
- forecasted PV production – volume and profile based on extrapolation of historical production data and PV installation size
- forecasted residual consumption to be sourced beyond PV production, as well as excess production to be injected onto the grid
- fair price valuation of pro-sumption profiles, applying irex proprietary pricing methodology
- determination of PPA fair price range – min/max price for both investor and consumer.
Methodology
Sensitivity Analysis
Thanks to the flexibility of the valuation tool developed, the project profitability and PPA fair price have been studied for a range of scenarios, allowing to gain understanding of the sensitivity of the PPA contract for current and future conditions.
Considered options were:
- different PV installation sizes
- use or not of flexible assets, such as battery or micro pumped-hydro
- consumption profile modulation through adjusted operating model of the limestone production facility
- purchase of the entire production or only the auto-consumed volumes
- PPA contract starting date.
Methodology
Decision Framework
Strategic recommendations have been delivered in the form of a decision framework, supporting our client in striking a balance in the PPA negotiations.
For this purpose we clearly highlighted the options and their impact for both parties, breaking up the complexity of the matter into successive choices.
Results
Thanks to our valuation model we were able to identify double-digit reduction in projected energy costs for our client, depending on the final PPA concluded price. Our sensitivity analysis allowed the client to gain insights in key elements driving PPA value, taking future evolutions of its core business into consideration. Finally our decision framework enabled the client to drive negotiations with a clear understanding of a non core-business, yet crucial matter for profitability.
“Our expertise in energy pricing, PV forecasting and scenario building was ideally combined to create a trustworthy decision-making analysis“
irex Consulting played a crucial role as a strategic advisor working closely with our client to build the decision framework step-by-step. We underlined the strategic importance of PPA pricing in maximising the project value for both parties.
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