Innovation of the year: Pexapark

Energy Risk Awards 2020: pricing and valuation engine PexaQuote brings increased transparency and liquidity to the renewables PPA market

Michael Waldner

As the era of renewable energy subsidy draws to a close, developers and operators are turning to long-term power purchase agreements (PPAs) to guarantee revenues and secure funding. Last year, some 19.5GW of wind and solar capacity worldwide was traded through PPAs, up 44% from 2018, according to figures from Bloomberg New Energy Finance.

However, developers, traders and offtakers alike face a challenge: calculating fair value of long-term, often bespoke PPAs.

“In the past, with feed-in tariffs, renewable energy projects had the revenue from their energy sales guaranteed by governments,” says Michael Waldner, chief executive and co-founder of Pexapark, a Zurich-based software and advisory company and winner of Energy Risk’s Innovation of the year award for its PexaQuote pricing engine. “Now [renewable energy] investors are exposed to volatile power markets for the 10- to 15-year finance period of the asset. It’s very uncertain.”

The answer is to secure a long-term PPA with an offtaker such as a power utility, trading company or corporate buyer. The challenge is that the process is bilateral, time-consuming and opaque. To receive an indicative price from a trader – which will only be valid for a day or two given the sensitivity of a PPA to current power market prices – can take weeks, says Waldner

Pexapark was launched in 2017 as a fintech company offering renewable energy trading and risk management software and advisory. Two of the three co-founders – Waldner and Luca Pedretti – worked previously at Switzerland-based energy firm Axpo, where they gained experience in renewable energy sales and trading, and were involved in structuring some of Europe’s first PPAs. The third co-founder, Florian Mueller, brought a background in software development.

It was while advising clients on structuring and pricing renewable energy PPAs that Waldner and his team came up with the idea of both building a platform to bring together PPA buyers and sellers and, crucially, giving them access to the PexaQuote pricing and valuation engine. The software – which was launched last October – can generate fair-value pricing for onshore wind, offshore wind and solar PPAs across most European countries. Users can generate prices for benchmark or custom PPA contracts, and benefit from various other functionalities, such as credit analytics, explains Werner Trabesinger, head of quantitative products.

“What makes our platform stand out is that we show transparent fair-value pricing on a daily, updated basis,” he adds.

The platform has attracted users from both the sell- and buy side, he says, including large offtakers such as Engie, Vattenfall, RWE and Axpo. Waldner says that, rather than fearing a loss of an information advantage, they recognise the value of having a common starting point for PPA negotiations. “Offtakers don’t need to invest as much time in educating clients [who might start with] a completely different understanding of the price: the discussions are just much more efficient,” he says. The software allows users to break the pricing of each contract down into its component parts, enabling objective comparison.

As well as the PexaQuote service, Pexapark is developing requests-for-quotation functionality to allow users to put out a call for prices. The company also plans to add US power markets, namely PJM, Ercot and Caiso, to the pricing engine.

Werner Trabesinger

“Our fundamental belief is that, as with any market, the more transparency you bring to it, and the more efficient price discovery becomes, the easier it will be for everyone to enter into transactions,” Trabesinger adds.

That transparency extends to Pexapark publishing benchmark PPA prices – for a hypothetical 10-year baseload PPA contract – across 11 countries, as well as an index of average European renewable energy prices.

As that data shows, the collapse of power demand in response to the Covid-19 lockdown did renewable energy generators no favours. According to Pexapark data, average European renewable energy prices slumped from €37.41/MWh at the beginning of March, before the crisis hit, to as low as €32.88/MWh on March 23, before recovering to €36.63/MWh, on April 7. This compares with a similar fall in broader power markets.

Low power prices will make it more difficult for new projects to strike PPAs. “Some projects will be put on hold or delayed because price levels are not where [developers] would like to transact,” says Waldner. “But we also see companies becoming more sensitive to energy risk and wanting to have a better grip on market prices. In the last month, we sold 60% more licences than average.” 

Waldner believes the demand shock inflicted by Covid-19 will be a short-term bump in the road in a process that is seeing renewable energy projects increasingly competing in the market. That competition will, he believes, rest on transparency. “The only way for the PPA market to evolve from its current infancy is by establishing consensus on fair transaction prices,” he says.