To determine market value within the power and electricity sector, ArrowHead conducts asset roll-ups at accurate market prices. In this distinctive approach, a company's overall value is derived from the cumulative worth of its individual assets—complementing traditional metrics like comparable company analysis, income multiples, and intangible assessments. Importantly, For those who need it, ArrowHead’s process can incorporate probabilistic considerations, offering joint probability distributions for both individual asset values and the collective company value.
Within the power and electricity sectors, market events constantly influence prices, quantities, capacity changes, and retirements—all characterized by a pervasive degree of uncertainty. We begin with deterministic pricing in the web of complexity that is an electric power system, to calculate crucial commodity prices over time, quantities over time, capacity additions, and capacity retirements tailored to clients’ specific decision timeframes. For those who need it, we can leverage our analysis to make probabilistic assessments. By making a single model run that contains the full market and supply chain complexity a number of individual scenarios, each weighted by a probability of occurrence, our models can generate probability distributions for highly time varying prices and quantities, enabling comprehensive probabilistic responses to the difficult market questions and challenges presented.
The process of new power and electricity project development bears resemblance to asset valuation, but it is a forward-looking undertaking that demands a thorough examination of the market dynamics that will influence the power sector once the infrastructure is up and running. Asset development and financing involves assessing the potential profitability of different projects, taking into account a range of market influencers and assumptions. When coupled with a detailed assessment of project capital costs, operating costs, losses, project temporality, and fuel and factor costs, we have a comprehensive, accurate assessment of project profitability. For those who require it, we can extend this to a probabilistic measure.
Successful trades in the dynamic electric power sector rely on having reliable probability distributions for market prices, including regional and temporal variations, without relying solely on subjective judgment. Often deterministic analysis is sufficient to reveal the right and wrong trades because the signals are so strong. For those who need it, ArrowHead’s models can be used to develop interdependent probabilities. The electric space is so temporally complicated (peak versus off peak, hour to hour) that we let the deterministic models deal with temporal basis, and we rely on multiple scenarios for the power model, each weighted by a probability, guide hedging and trading decisions based on locational basis, leading to confident trading and hedging decisions with transparency in assumptions, data, and probabilities.
