Work out power purchase agreement value instantly with clear inputs, formula shown and shareable results.
A flat-price power purchase agreement is an annuity: annual volume times price, discounted over the term at the annuity factor (1 - (1+r)^-n) / r. The present value is materially below the headline contract total — a 15-year agreement at 8% discounts to about 8.6 times annual revenue rather than 15.
PPA present value
PV = annual revenue x (1 - (1 + r)^-n) / r
Volume risk if the resource underperforms, curtailment risk, basis risk where settlement is at a different node, and counterparty credit risk over a long term.
Many PPAs include an annual escalator of 1-3% to preserve real value. Adding escalation raises present value materially and should be modelled explicitly rather than by adjusting the discount rate.