Industry Analysis
Dec 7, 2023

Understanding Shape Risk

How do originators think about shape risk?

Shape risk refers to the potential discrepancy between when a buyer wants to buy energy and when a seller can produce it.

Shape risk is especially important for intermittent renewable energy assets because they rely on the weather to generate energy.

In other words, shape risk captures the fact that a seller would prefer to sell their energy as it is generated, whereas the buyer would prefer (and is willing to pay a premium for) energy delivered at specific times.  

A unit contingent PPAs, in which the buyer agrees to purchase the sellers’ energy whenever it is produced, puts the shape risk on the buyer. A fixed shaped PPA, in which the seller promises to deliver a certain amount of energy at the times specified by the buyer, puts the shape risk on the seller.  

We can see how sellers priced shape risk by comparing fixed shape and unit contingent offers on RenewaFi.

The chart below shows that, for 2-7 year North solar PPAs, sellers put a $5.23 premium on fixed shaped structures, on average.

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