Power purchase agreements and solar securitization: modelling risk factors and returns
thesisposted on 28.03.2022, 09:39 by Stephen L. I. James
The number of small-scale photovoltatic system installations has risen dramatically in the last ten years due, in part, to the introduction of government subsidies. However, the capital expenditure and complex investment decisions imposed on households limit the growth potential. This thesis examines an alternative way of funding the growth of solar installations on rooftops: Power Purchase Agreements (PPA) financed by Asset Backed Securities (ABS). The thesis enhances and expands the foundational PPA ABS model developed in Alafita and Pearce (2014), to respond to the literature and technological developments. The model is enhanced by: introducing three investment tranches to the ABS, applying a sequential collateralised debt obligation (CDO) structure; discounting the PPA electricity price to below the retail grid price; using real customer production and consumption data; incorporating a Feed-in-Tariff (FiT); and adding a lithium-ion battery to the model, which allows for consumption under the PPA during the evening. To the best of the author’s knowledge, this is the first time in the literature that these attributes have been considered in a solar PPA ABS model, in the literature. The thesis demonstrates the viability of a PPA ABS, by finding that there are conditions under which PPA electricity customers, investors in the ABS, and PPA providers can all achieve financial benefits. The paper discusses the benefits of introducing PPA ABS into the Australian renewables and financial markets, and proposes avenues for future development.