Evaluation
How Assets are Selected
Evaluation
Many parameters are used to form a complete picture of the asset being evaluated. The characteristics of each asset broadly fall under three (non-exhaustive) categories:
- Cash Flow Profile & PPA Terms
- Technical Performance & Remaining Useful Life
- Site-Specific Risks & Advantages
1. Cash Flow Profile & PPA Terms
The cash flow profile of an energy site is primarily influenced by:
- Existing Power Purchase Agreements (PPAs)
- Creditworthiness of the offtaker of produced energy
- Historical production revenue data and consistency
The terms of the PPAs (duration, length, inflation-adjustments, fixed/variable components etc) determine whether energy generated by an asset has to be sold in the open market. Therefore assets with the same technical characteristics may offer greatly different economic profiles.
The PPA defines the buyer of generated energy; similarly, if no PPA exists, similar contracts define the entity representing the asset in the open energy market. Both of these come attached with credit risk, owed to the fact that the buyer/manager may be unable to deliver.
Energy sites vary in their energy production consistency thus performance data is required to cross-check predictions and adjust the cash flow profile as needed.
The above elements form a complete picture of the cash flow profile of the asset under investigation.
2. Technical Performance & Remaining Useful Life
Energy production sites are built based on projections of energy generated over their lifetime. Some of these projections are, but are not limited to:
- P50/90 rates ("50/90% chance that site will produce X energy")
- Predicted vs actual capacity factor (how much energy is being produced per unit of production)
- Degradation rate (rate of energy production decrease)
The projections must be checked against the site's production track record to ensure alignment between expected and actual performance.
The energy sites are dependent on the smooth functioning of the equipment used to produce energy (solar panels, turbines, cables etc). To that end, it is imperative to check:
- Maintenance records and component health
- Remaining warranty periods for major equipment
- Expected lifetime remaining versus original design life
Thus the quality of predictions and current state of equipment is wholistically determined.
3. Site-Specific Risks & Advantages
The performance of an energy site is affected by several environmental factors such as:
- Location
- Regional policy
- Land lease terms
The environmental conditions directly impact the stability of the energy production site so qualifying the environment in which an asset operates is paramount in assessing its risk profile.
Selection Criteria
Understanding deeply the implications of all the aforementioned characteristics of an energy site is vital; the above specifications make the difference between a B-tier or a triple A-tier site.
To that end Aure:
- Entrusts analysis to experienced market leaders such as Mytlinaios in Greece, and ENEL in Spain
- Curates assets within the regions of Southern Europe, UAE, Saudi Arabia and Qatar for policy stability and ideal weather conditions.
- Promotes assets with high equipment fidelity and proven track record
Hence the assets chosen are of the highest likelihood to sustain performance and returns.