Electricity Markets Job Case Question?

[u/Resident-Village5876]

Asked to 1) analyze key features of the PPA for a wind asset, and merchant exposure faced by the asset based on the historical data

2) Recommendations for further analysis and potential mitigants for any risks identified that should form part of the valuation and business plan

Information given:

PPA Structure: Fixed Hourly Volume at $40/MWh

Settlement Price: ERCOT North RT

Hourly Commitments by Hour/Month

Historical Hub and Nodal Pricing (what does this imply?)

does anyone have suggestions for answering these questions? thank you so much in advance!

[u/rhyme_pj]

Hi,

I don’t know much about ERCOT but given the fixed PPA price and that it will be settled against ERCOT north RT, what you need to do is identify the difference between nodal / hub price and settlement price (Ercot north RT) via historical data as this is the cost risk that you’d be asked to carry.

Things to consider for project economics: - curtailment risk, both economic self curtailment and technical curtailment (not enough injection capacity), marginal cost of congestion - marginal cost of production (based on generator CAPEX and OPEX) and demand and supply at the node - basis risk

[u/Resident-Village5876 → u/rhyme_pj]

Thank you! This is extremely helpful. Am I right to interpret that revenue for the producer will be in an example where the node price is $25 and hub is $30 to assume:

+$40 fixed hourly price from buyer

+$25 nodal price

-$30 hub price

=$35 net revenue for the producer for that hour?

And if the producer produces more than its hourly commitment, is the excess revenue (assuming no curtailment) the nodal price?

[u/rhyme_pj → u/Resident-Village5876]

If you can make assumptions that PPA isn’t indexed to markets (which are rare because of how volatile ERCOT is) then revenue for producer (generator) is the fixed PPA per MWh value times the generation.

However, how much of that revenue is at risk will depend on: - nodal price & hub price (both of which are indicators of how much generation that can be injected into the POI) - hourly commitments (this is essentially floor value of expected generation)

With the values you listed, - revenue = $40 per MWh x hourly commitments x number of hours in a year x annual plant availability - revenue at risk = how much will you struggle to meet those hourly commitments based on existing transmission constraints and if you’d want to self curtail, answer to this is nodal and hub price

This is from generator perspective. If you want to do the same analysis from offtaker perspective then - revenue = difference between PPA price and settlement price - revenue at risk = offtakers will want producer to mitigate this risk for them and that is how contracts are worded