Shape Risk for Wind PPAs Grows Costlier
The shape risk of wind PPAs in ERCOT may now exceed $20/MWh for certain projects, especially those in West Texas.
Shape risk refers to the potential difference in value between a facility’s expected and actual generation. It tends to be more significant for wind than solar because wind generation is more variable and harder to predict. It can also become more pronounced when projects over-estimate generation during times with relatively higher power prices.
This is what we’re observing with ERCOT wind currently. As the forecasted price of around-the-clock electricity increases, the cost of shape risk increases as well.
The chart below shows how shape risk has changed for a standard wind PPA at West Hub over the past 12 months. The PPA in question has a January 2025 start date and a 10-year term. A year ago, the shape risk would have reduced the value of this PPA by about $13.50/MWh. Today, that reduction is just over $20/MWh.
Yaniv Yaffe, Data Scientist at RenewaFi, explained that the increasing cost of shape risk underlines the importance of considering historical generation data when evaluating wind PPAs.
“Relying on a generic P50 generation profile to evaluate a wind PPA could lead to significant discrepancies between modelled and actual value,” he said. “For wind, that discrepancy could be as high as 36%.”
“At RenewaFi, our PPA valuation model incorporates over three years of hourly historical wind and solar generation data to ensure we can accurately account for shape risk,” he added.
