A trader opens the daily Position & P&L report and zooms into one specific PPA. Nothing out of the ordinary: the position looks fine; the valuation sits within the expected range. It’s a routine check, the kind done dozens of times a day.
But even though the number is clean and current, it’s incomplete. The valuation model assumes every generated MWh settles at the agreed contract price; however, the contract itself often doesn’t work that way:
- Payments may stop during negative-price periods.
- Curtailed or unavailable volumes may be treated differently depending on the clause.
And these aren’t rare, off book exceptions. In today’s market, with negative pricing and curtailment increasingly common wherever renewable penetration is high, they’re standard mechanics that materially shape the deal’s real risk.
If none of that is represented in the system, the valuation looks perfectly correct, until actual cash flows come in and don’t match it.
Why the gap exists
Utilities have historically run trading and sales as separate worlds with trading built around standardized, counterparty-based products; and sales built around long-term, relationship-driven customer contracts.
PPAs didn’t fit neatly into either. To satisfy the financing behind wind and solar assets, they needed to be priced, hedged, and risk-managed like trading instruments. So, they landed on the trading desk by default, even though a PPA is a bespoke, often 200-plus page contract running 10 to 25 years, built around settlement conditions a standard trade never has to account for. This structural mismatch is the foundation of a larger operating-model problem we’ve explored previously.
The ETRM inherited that mismatch. It was designed to value standardized positions, and not to encode the settlement logic buried inside a one-of-a-kind, decades-long contract. Some platforms are evolving to close that gap, but many haven’t yet.
Where to start
This settlement-modeling gap sits inside a larger operating-model problem: who in the company actually owns a PPA once it’s signed? A topic we’ll explore in depth next. But the fix for what’s in front of you today doesn’t begin there.
It begins with visibility: identifying exactly: which settlement mechanics your current valuation model does and doesn’t capture (negative-price clauses, curtailment terms, availability conditions).
Once you visualize the gap clearly, you’ll know whether the answer is configuration, a new module, or a different platform altogether.
Utilities that jump straight to “replace the system” often end up rebuilding the same blind spot on a newer infrastructure, because the system was never actually the root problem.
Want to understand where your ETRM sits on settlement-logic coverage? Let’s assess that.
