Course description
This interactive workshop is designed to provide a deep level of understanding of valuation and risk management for wind, solar and battery projects.
The course starts with an overview of the new dynamics in wholesale spot and forward electricity markets as a result of increasing renewable penetration. Practical examples using case studies illustrate the main risks for renewable and battery projects such as market, volume, operational, legal and counterparty risks.
The course explores risk assessment, modeling and mitigation techniques for merchant wind and solar projects using PPAs, financial hedges, structured products and insurance. Multiple case studies will show how to perform valuation, risk analysis and hedge design for renewable and battery projects and portfolios.
We will also discuss best practices in risk metrics and hedging strategy for renewables portfolios with emphasis on understanding the real-world operating conditions.
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Content
Renewables Risk Assessment and Quantification
- Typology of risks in renewable investments and batteries
- Market Risk (Price, Basis, Shape risk)
- Congestion and Curtailment risk
- Weather-related volumetric risk
- Operational risk
- Counterparty risk
- Technology and business risk
- Legal, regulatory and environmental risk
- Financial risk (e.g. access to capital)
- Case studies on market, counterparty and operational risks
Market Fundamentals and Price Dynamics
- Drivers of investment in renewable energy
- Structural change in power markets: Impact of increasing renewables penetration
- Energy, Capacity and Ancillary Services Markets
- Generation stack and impact on evolution of heat rates in key markets
- Marginal fuel prices: Coal, Natural gas and Renewables changing role in price setting
- Zonal vs. Nodal markets: Trading hubs, load zones and nodes
- Market forecasts vs. Forward Curves
Spot and Real Time Market Dynamics with increased renewable penetration
- Physical power markets: Day-ahead, intra-day and real time
- Locational Marginal Prices: Energy, Congestion and Losses
- Net loads and hourly price shapes: The Duck curve
- Day ahead vs. Real Time spreads (DART)
- Wholesale price volatility with renewable intermittency
- Overview of Price Drivers: Supply and Demand shocks
- A tale of two markets during the summer of 2020: ERCOT and CAISO
Managing and mitigating renewable energy risk: Physical and Financial Hedges (I)
- Physical Forward Contracts (short term and long term)
- Peak, On-Peak and Wrap products
- Physical transaction firmness: Firm, System firm, Unit firm, LD, Non-firm
- Financial Fixed-for-Floating Swap with Fixed Volume (aka Bank Hedge)
- Overview of ISDA and Collateral agreements
- Financial transmission rights (FTRs) and Congestion Revenue Rights (CRRs)
- Case study: Hedging basis risk with FTRs
Managing and mitigating renewable energy risk: PPAs and Virtual PPAs (II)
- Physical Power Purchase Agreement (PPA)
- Unit-contingency PPAs vs. Shaped PPAs
- Case study: Key elements of a renewables PPA
- Synthetic power purchase agreement (Virtual PPA)
- Step by step example of energy and cash flows in a virtual PPA
- Considerations when entering into PPAs and VPPAs
Interaction between Renewable Intermittency and Price Risk
- Sources of uncertainty in renewable portfolios: Supply and Demand considerations
- Volumetric risk from wind, solar and hydro resources
- Why you can’t just average renewables: Wind in January and Solar in July
- Case study: Impact and likelihood analysis of price and production risk
- Weather and Load variability
- Shape risk and Block products
- Introduction to Proxy revenue swaps
- Case study: Risk of hedging renewable generation with different structures
Introduction to Simulation and Risk Metrics
- Main metrics used for renewable portfolios
- Introduction to risk metrics and key risk indicators
- Understanding and interpreting “at-Risk” and conditional “at-Risk” metrics
- Overview of probability distributions and percentiles
- Value vs. Flow Metrics: VaR vs. Net Revenues at Risk
- Credit Risk metrics: Expected Exposure and Potential Future Exposure
- Stress Tests and Scenario Analysis
Hedging Strategy for Renewable Energy Portfolios
- Risk management and financing decisions for renewable projects
- Alternative hedging programs: Programmatic, discretionary, risk-based
- Setting hedge benchmarks and program objectives
- Comparative Analysis of Hedging Strategies
- Practical Considerations Implementing a hedge program
- Case study: Market, price and volumetric risk for a utility in the Pacific Northwest
- Group discussion
Introduction to Battery Storage Projects
- Batteries as the new Flex Power Plant
- Main characteristics of battery projects
- Keys to profitable battery projects: Optimal siting, sizing, valuation and operations
- Arbitrage between Day Ahead and real time markets
- Optimal charge and discharge decisions
- Revenue optimization given both physical characteristics and ISO market rules
- Batteries as a physical hedge for renewables
- Case study: co-optimization of renewables + storage
Wholesale Power 101 (course preparation materials)
- Power system components: Generation, Transmission, Distribution
- Regional transmission (RTOs) and independent system operators (ISOs)
- Main physical market players: Utilities (IOUs, Munis, LDUs), Independent power producers (IPPs), Retail electricity providers (REPs)
- Oversight bodies and their roles: FERC, CFTC, NERC, State Public Service Commissions
- Renewable attributes
- Physical and Financial Power Market Players