On July 11th, we hosted a webinar titled “ERCOT PPA Pricing in the New Era of Load Growth” and didn't have time to answer all the Q&A questions, so below are the outstanding answers.

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1. How have buyers reacted to the Price Tracker?

• We’ve collected feedback from dozens of buyers on the Price Tracker.
• While every company has unique a risk appetite that influences their pricing strategy, we’ve been able to confirm that our methodology is consistent with buyers’ internal methodologies.
• Typically, PPA matches happen within approximately 5% of RenewaFi’s valuation estimations, indicating that we are aligned with market.

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2. What are the three options related to economic curtailment risk that are included in the Price Tracker?

• The Price Tracker evaluates three primary strategies to address economic curtailment risk:
  • No Floor: The buyer pays the full PPA price even when the hub price is negative. Because the buyer alone bears the economic curtailment risk, no premium is added to the PPA price. 
  • Floor: Adjusted Settlement <$0: The buyer decreases the PPA payment 'dollar-for-dollar' when the hub price is negative. For example, if the PPA is $40 and the hub price is -$2, the buyer pays $38. Because the buyer and seller share the economic curtailment risk, a moderate premium is added to the PPA price.
  • Floor: No Settlement <$0: The buyer does not pay when the hub price is negative. Because the seller alone bears the economic curtailment risk, a significant premium is added to the PPA price.

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‍3. What is the price differential between a 10-year vs. 15-year PPA, for solar and for wind?

• The delta between a 10-year solar PPA and a 15-year solar PPA is -$1.10/MWh, assuming a Jan 2025 COD.
• The delta between a 10-year wind PPA and a 15-year wind PPA is +$0.60/MWh.
• Note that the wind PPA price increases in value at the longer-term length. This is because, in part, wind capture rates are expected to stay consistently high, while solar capture rates are expected to deteriorate as solar assets continue to penetrate the grid.  
• Also note that these deltas change almost every day.

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4. From the standpoint of a developer, which would you rather have: a steady project earnings from a PPA or uncertainty with merchant market? Why?

• It depends on the developer’s objectives.
• If they need to raise as much debt as possible, they should pursue a PPA.
• If they want to take risk, optimize for a potentially higher return, and are willing and able to invest significant equity, holding some (or all) capacity merchant might make sense.

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5. Where do buyers and sellers typically meet on letter of credit amounts?

• Here are averages from our marketplace:
  • Buyer amount at execution: $116,000/MW-AC
  • Buyer amount at start: $120,000/MW-AC
  • Seller amount at execution: $104,000/MW-AC
  • Seller amount at start: $108,000/MW-AC

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6. Why is there a discount for the unit contingent structure for wind PPAs? Does that account for basis? Something else?

• Unit contingent PPAs expose the buyer to shape risk, which is the potential difference in value between a facility’s expected and actual generation. It is a different risk than basis risk.
• Shape risk for wind is larger than for solar because wind output is much harder to predict.  
• This is why unit contingency impacts wind PPA prices more than solar PPA prices.  
• For more on shape risk, see Shape Risk | RenewaFi Help Center

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7. Why have offtakers been avoiding West hub?

• Some firms we speak to still are not 'allowed' to contract solar at West. This is most likely due to economic curtailment concerns.  
• This risk might be overblown because the market is simultaneously expecting so much new load in West. Curtailment issues can also be partially mitigated or shared contractually.  
• Until that new load shows up during solar hours, however, curtailment concerns will remain an issue for West hub.
• We saw some attractive bids at West in 1H2024, but forwards have moved down since.

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8. Can you expand on the tax equity behavior in the market and how that's impacting PPA processes?

• While we do not have direct experience with tax equity investors, we’ve heard from some of our market participants that tax equity approvals are holding up PPA execution.  
• This has frustrated these market participants who would have sought to close quickly and feel that they are being burdened by overly conservative requirements from tax equity investors.

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9. Do you believe the increase in ERCOT PPA values over the past 2 months was more of an overreaction in the market?

• It’s possible, but if that load materializes, we may see dramatic changes to future pricing.

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10. Could you share the pricing view for standalone storage and comment on the zonal differences?

• Yes! Stay tuned for our next BESS report and webinar.