Alter5 Insights – Using energy price curves effectively in merchant financing in Spain

By Alter5 . Published 05 Jun, 2023

On May 31st, Alter5 hosted the webinar Using energy price curves effectively in merchant financing in Spain, with Ana Barillas, Head of Iberia and Latin America at Aurora Energy Research and Javier Revuelta, Senior Principal at Afry Management Consulting as panelists.

You can watch the session here.

The speakers talked about the factors that drive energy price curves in Spain, such as gas prices, hydrology, wind and solar generation, demand, and market intervention. They also discussed the key inputs considered when calculating price curves, including capacity mix, hydrology, flexible demands, self-consumption, and regulation.

The speakers acknowledged that there can be significant differences in energy price forecasts between different companies. These differences are attributed to various factors, such as the timing of updates, regulatory impacts, hydrology assumptions, and differing views on future capex and LCOE (levelized cost of electricity) of renewable projects. Despite these differences, both Ana and Javier emphasized the importance of understanding the key assumptions and inputs used in the models provided by energy advisors. This understanding helps project finance managers assess the conservativeness of assumptions and evaluate the financial viability of renewable energy projects.

In addition to considering the models and assumptions, the speakers highlighted the significance of looking at the results and ensuring that the projected returns make sense in a financial model. They emphasized the need for transparency and clear explanations from energy advisors regarding the implications of their forecasts. Finally, there was mention of the ongoing debate among investors regarding which curve to use for sizing, indicating the complexity and specific considerations involved in renewable energy financing.

The participants agreed that there is a correlation between the curtailment of renewable energy generation and economic constraints. They discussed how certain areas are more affected by curtailment, leading to disadvantages for specific projects. They also mentioned that both economic curtailment and local curtailments need to be considered when evaluating assets. 

The conversation then shifted to power purchase agreements (PPAs) and their evolving trend. They acknowledged that PPAs and power prices are closely linked, with similar drivers affecting both. They discussed the impact of regulatory changes on PPA liquidity and the increasing demand for PPAs due to the uncertainty surrounding renewable asset development. They also touched on the importance of PPA pricing in project financing.

The conversation further addressed the pricing of guarantees of origin and their consideration in project debt sizing. The participants acknowledged the historical low prices of guarantees of origin but anticipated a decrease in prices and considered them as an additional benefit in project financing. 

Finally, the conversation touched on the evolution of energy storage as a structural element in the transition to green energy. They discussed the economic aspects of storage, the potential revenue streams, and the need for a significant storage capacity to integrate renewables effectively. They emphasized the role of regulatory authorities in developing mechanisms to support storage deployment and facilitate the integration of renewables.