Breaking Down Basis: How does basis degrade PPA value?
After years of permitting, supply chain delays and financing, you finally close on the project that has kept you and the development team occupied for the better part of a year. The project is passed to your asset management division and you move onto trying to dissecting the implications of the IRA with legal and hopefully live a happy life.
Fast forward a year and you’re pulled into an emergency meeting with the asset management team, tax equity, the offtaker, and an army of lawyers. That project that kept you up at night is once again interrupting your REM cycle. [Cue Apple watch stress alerts]
Offtake arrangements can fall apart for a multitude of reasons, but more often we see relationships degrade when the allocation of risks inherent in PPAs are too lopsided in favor of one party or another. In many cases this manifests in the form of basis: when prices at the resource node are substantially dislocated from the liquid hub.
We often think of basis as a problem for the asset owner/manager – when hub-settled prices are higher than nodal prices, the asset revenues are insufficient to pay down the cash outflows to the offtaker when the settlement price goes above the strike.
As experts in congestion management and asset optimization, we can help.
At CWP Energy Solutions we know that there is no silver bullet to resolving basis risk. That’s why we believe in using the whole suite of tools available to de-risk portfolios and improve returns.
If you have a project that keeps you up at night, ask about what CWP Energy Solutions may be able to do for you!
