PPA and EV/MW
Two measures that belong together: the PPA determines whether a project has a predictable cash flow. EV/MW puts a frame around what the market pays per megawatt for it.
The PPA — the contract the present value hangs on
A power purchase agreement is a long-term offtake contract for electricity between operator and buyer. It turns a fluctuating wholesale power price into a calculable series of payments — and with that, a project into something a bank can finance.
Four points determine its worth. "There is a PPA" says nothing without them:
| Question | Why it counts | |
|---|---|---|
| Term | 5, 10 or 15 years? | Determines how much of the present value is secured at all |
| Price and indexation | Fixed, inflation-linked, with a floor? | A fixed price without indexation loses value in real terms every year |
| Creditworthiness of the offtaker | Utility, industrial group, trader? | A contract is only as good as whoever pays |
| Volume risk | Fixed volume or as produced? Who bears curtailment? | Decides who carries the weather and grid risk |
The residual period is the real bet. A wind farm with a 25-year operating life and a 12-year PPA has more than half its present value in the uncontracted period that follows — valued on a price forecast nobody actually has. Extend post-contract revenues at today's price and you are selling an assumption as a certainty.
EV/MW — and why the raw pipeline says nothing
Enterprise value divided by installed or planned capacity. The multiple is only usable when separated by stage of maturity. A megawatt in an early project idea and a megawatt on the grid are not the same good — the probability that either ever produces electricity is entirely different.
| Stage | How to recognise it | What changes in the value |
|---|---|---|
| Early development | Land secured, nothing else | Pure option value. A substantial share of these projects is never built |
| Advanced | Permitting under way, grid connection applied for | The probability of delivery rises, the timing stays open |
| Ready to build (RTB) | Permitted, grid connection granted, financed, PPA signed | The big step up: an option becomes a financeable stream of payments |
| Under construction | Final investment decision taken | Permitting risk gives way to construction and schedule risk |
| On the grid | Generating and selling | Full present value; the remaining risks are price, weather and availability |
The two stages at which value changes abruptly are grid connection and permitting. Both are decisions taken by authorities or grid operators, which the company does not control. A pipeline figure without a breakdown by these stages is therefore not a basis for valuation but a statement of intent.
Why there are no amounts per MW here
Market reports circulate ranges per megawatt by stage of maturity. We do not reproduce them. Such values depend on the market, the technology, grid charges, the support regime and the interest rate level on the relevant date; an order of magnitude from one country and one year cannot be transferred to another country and another year, and few of the figures in circulation say what they rest on. We have no verifiable primary source for them.
Our own rule applies: a number without a source and a date is not qualified, it is left out. What carries the argument is not the amount anyway but the sequence — where in a project's life the value jumps, and why. A specific EV/MW figure belongs in the analysis of a specific company, together with the peer group, the reference date and the breakdown by stage it came from.
Where it misleads
The pipeline is reported gross. A developer will happily cite the full project size while holding only a share of it. What counts is the attributable capacity.
MW is not MWh. Ten MW of solar in Germany and ten MW of wind in Scotland produce very different amounts of electricity. Across technologies and locations, EV/MW is only readable with full-load hours in mind.
Projects sold look like revenue growth. Many developers dispose of the finished project and book the proceeds as revenue. That is a legitimate model, but the earnings are one-off and project-dependent. A year-on-year comparison without reference to the projects is meaningless.
The debt sits inside the project. Such projects are heavily financed with debt, usually without recourse to the parent. Read only the group balance sheet and you underestimate the leverage. The enterprise value in the numerator has to include project debt.
The interest rate is a first-order valuation factor here. The value of a project is almost entirely a discounted stream of payments with a large upfront investment. Raise the discount rate by two points and it costs a double-digit percentage of the present value — even if nothing whatever happens at the project itself.
How we work with it
We value project by project on a DCF basis and weight each by the probability attaching to its stage of maturity; EV/MW serves solely as a plausibility check on the result, never as a valuation method. For every project we state the stage, the ownership share, the remaining PPA term and the discount rate applied. And where we lack a primary source for a comparator, we write that down rather than adopt a number.
The full framework is set out under How we value renewable energy companies.
Sources
- The four contract components described — term, price formula and indexation, creditworthiness of the offtaker, volume and curtailment risk — are standard elements of such agreements. In any individual case what governs is always the company's own disclosure: annual report, project documentation or ad hoc announcement, each cited with its date.
- Deliberately not included: ranges of enterprise value per megawatt by stage of maturity. We have no verifiable primary source for them, so the figure is omitted (see the section above).
As of: 11 August 2026 · Version 2