Why are PPAs bankable and what makes them attractive to investors?

Why are Power Purchase Agreements bankable and attractive to investors?

The market for Power Purchase Agreements (PPAs) has developed dynamically in recent years – from a niche instrument to one of the central financing pillars for renewable energy projects. But what actually makes a PPA bankable? And why are banks, investors, and project developers now so convinced by this model? 

At its core, it’s about one thing: predictability and risk transparency

A PPA is a long-term power supply contract that governs the purchase of electricity under pre-defined conditions – often over terms of 10 to 15 years. For project developers, this means a stable revenue stream over a long period. For banks and investors, it’s the key to reliably calculating debt repayments. Secured revenues mean projects that can be financed and a reduction in capital costs. 

In contrast to government-subsidised feed-in tariffs, PPAs are based on market principles. They demonstrate that a project is economically viable without subsidies – and therefore resilient in the face of regulatory changes. For many investors, that’s a strong argument. 

PPAs make renewable energy projects plannable and independent of state subsidies. However, price risks during the direct marketing without state subsidies can also be significantly reduced as a result. Modern PPAs are designed to address key market risks: Price risks, volume uncertainties and regulatory fluctuations. Fixed or indexed prices, flexible volume models or price hedging mechanisms (caps, floors) can be used to cushion earnings fluctuations in a targeted manner - which significantly increases the attractiveness for investors. In detail, this means that fixed-price PPAs offer a high degree of predictability, as the electricity price is contractually fixed for the entire term. Index-linked PPAs, on the other hand, link the price to market indices, but often contain contractually defined price limits (caps and floors), enabling flexible market linkage with simultaneous risk protection. A PPA therefore transforms a volatile market price into a calculable return - particularly important for project financing, lending or accounting.  

PPAs make renewable energy projects predictable and independent from state support. They create long-term, financeable revenues – and are therefore exactly what the market needs: “bankability”. 

What does "bankability" mean concrete? A bankable PPA meets the requirements of financial institutions and investors: it is structurally sound, reliably calculated, and designed to minimise risk. This includes market-based pricing mechanisms, reliable volume and offtake agreements, and transparent valuation frameworks. 

Our valuation approach: transparent, model-based, and practice-oriented 

At Montel Analytics, we pursue a clear objective: PPAs must not only be financially viable - they must be conceived and evaluated in a financially viable manner. 

Our project-specific PPA valuation is based on our market-realistic European power price scenarios, granular production profiles, and a detailed risk analysis – including site- and technology-specific factors. For the valuation of long-term power price value (base prices and profile value), we use our power price scenarios, which are recognised by banks and institutional investors. To assess structuring risks, we apply our power price scenario swarms – an add-on to our power price scenarios – which quantifies risks arising from structuring. 

Thanks to our close integration with Montel’s data platform, we ensure maximum market relevance and price transparency. Our price assumptions are traceable, our scenarios are stress-tested – and our valuations provide a solid foundation for financing, accounting, and decision-making. 

In order to create transparency with regard to the Guarantee of Origin (GoO), price we use the market assessment of the GoO trading platform “Montel Match” and combine this with an assessment by our experts for the long-term price development. 

In addition, we maintain regular dialogue with various PPA stakeholders and benchmark our project specific PPA prices against the market. For this, we also rely on a dependable source: our own PPA Benchmarking Tool .  

Whether project development, corporate PPA or refinancing - anyone investing in volatile markets needs reliable figures. With our PPA analysis, we create trust on the bank side and decision-making certainty for buyers and sellers.