Sustainability & Energy Efficiency

Selecting a Renewables Project: Evaluate Risk vs. Reward

3 min read

The industry continues to see growth in renewable mandates as well as significant increases in voluntary renewable purchases. Many of the country’s largest companies and organizations are driving this growth, entering into long-term power purchase agreements (PPAs). These agreements are great for the planet but can pose risk for the bottom line from a business perspective.

Any number of factors can impact an organization’s ability to both complete and reap full benefits from a 10-15-year project agreement. Now, companies looking to focus on renewables need industry experts to help them think through the value versus the risk of these long-term renewable projects.

First, as power sources become greener, organizations need help in navigating the many options for securing renewable power supply. Companies can look to industry experts for assistance with identifying key factors that may affect a project and simplify what is becoming a crowded marketplace.

The path to help companies match with the renewable project best aligned to their goals, includes:

1. Access to marketplace data

Finding the right renewables project is all about having access to data—and that starts with knowing what projects are available by looking at the size, developer, location, technology, shape, etc. that aligns with your needs. Big data leads to insights and informed decisions by gathering massive amounts of information on these projects and combining it with factors like future energy prices and weather predictions. Successfully navigating this data through analytics and with strategic input can help companies choose the renewable project that meets their needs and provides the best long-term value.

2. Evaluation and risk framework

Analytics play a pivotal role in determining the best project for a company by using data to provide projected outcomes of PPAs, as well as likely risk scenarios. Companies should ensure that their renewable project can exist in the current and future marketplace, and that the project is correctly valued against its risk. To get to these outcomes, complex simulations are run to predict a range of probable outcomes for key factors, such as probable contract value and yearly cashflow. Each of these outcomes provides thoughtful insights for energy and sustainability managers to define their risk preferences and find a PPA aligned with their goals.

3. Decision making

Traditionally, energy buyers may have singularly considered the net present value (NPV) of a potential renewable project. While NPV is an important metric, a high NPV is an insufficient deciding factor for a renewable PPA investment. Price doesn’t always equal value, especially when you are comparing that price against a 10-15-year forecast of energy prices that change every hour of every day. Focusing on NPV alone defaults on all additional factors to value a project correctly. In the current environment, it’s important to consider the full potential of the future market in order to value the project correctly. After a proper and comprehensive analysis of the marketplace, companies should select the project with the highest expected return for a given amount of risk in the transaction.

Most companies typically don’t have the capacity to assess and buy energy for a 10-15-year timeframe, so industry support and valuation of projects is crucial for selecting the best long-term option. Constellation leverages its decades of experience with renewable PPAs, coupled with the innovative big data capabilities of strategic relationships, to help companies that are considering our CORe+ offerings to evaluate the variability around each potential project risk along with the expected value. Our risk framework and perspective look at both fundamental and market curves to provide a better picture of risk versus reward for a renewable project.

As more businesses commit to meeting renewable energy goals, customers can look to companies like Constellation to gather and analyze data as well as implement impactful renewable energy options. To learn more about the right renewables project for your business and impactful product options, contact us today

Structured retail products, like Constellation’s CORe+ solution, differ from virtual power purchase agreements (PPA). Learn more in the image below.

Structured retail product vs vPPA

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