Option Valuation in BESS Optimization Contract

Client: A Germany-based BESS optimizer engaged in negotiations with a BESS asset owner, focusing on structuring a revenue-sharing agreement.

Client Situation: The client was in advanced negotiations related to a combined Merchant & Tolling set-up. At issue was optionality around a revenue floor vs. merchant market revenues.

Client Problem: To progress the negotiation, the client needed to quantify the value of this optionality to determine a fair fee structure.

FlexUp Solution/Work Done: FlexUp quickly delivered an analytical, data-driven valuation to support the negotiation:

• Binomial Tree Analysis: Developed a binomial tree model to assess the value of the optionality, incorporating:

  • Merchant revenue expectations in German BESS optimization, based on BESS rollout scenarios.

  • Option value of difference revenue sharing structures (floor vs. merchant).

  • Sensitivity analysis around key variables such as grid usage charges (“Netzentgeltbefreieung”).

• Rapid Turnaround: Completed the analysis within a short timeframe, enabling the client to enter negotiations with a clear, quantitative understanding of the option’s value.

• Strategic Advisory: Acted as a sparring partner to the CEO on commercial terms to balance risk and reward for both parties.

Outcome:

• Informed Decision-Making and strengthened reputation: Armed with a clear valuation of the optionality, the client confidently structured the fee to reflect its market value, thus improving its commercial position, while solidifying its reputation as a data-driven, sophisticated, reasonable route-to-market partner.