Roozbeh Qorbanian: Valuation of Power Purchase Agreements 7 December 2023 16:00 - 17:00

Corporate renewable power purchase agreements (PPAs) are long-term agreements that enable companies to source renewable energy without having to build and operate their own renewable energy projects. Typically, producers and consumers agree on a fixed price at which power is purchased. The value of the PPA to the buyer then depends on the difference between the fixed price and the expected price at which the produced volume is expected to sell the future. To model this so-called capture price, practitioners often use either fundamental models or statistical approaches, each with their inherent weaknesses. We propose a new approach that blends the logic of fundamental electricity market models with statistical learning techniques. In particular, we use regularized inverse optimization of a quadratic programming formulation of a bid stack model to estimate the marginal costs of different technologies as a parametric function of exogenous factors. We compare the out-of-sample performance using market data from three European countries and demonstrate that our approach outperforms established statistical learning benchmarks. We then discuss the case of a photovoltaic plant in Spain to illustrate how to use the model to value a PPA from the buyer's perspective.