In this report, we explore the opportunities and risks associated with the residual value (RV) and follow-on value (FOV) of electricity generators. To illustrate the value of RV, we assume a contract period of 20 years and an RV period of 10 years, although these parameters could vary substantially in practice. We discuss the RV and FOV phases in the context of discounted cash flow that results in the levelized cost of energy (LCOE) metric used in technology benchmarking. Also, the data enable a discussion of fixed contracts, such as power-purchase agreements (PPAs), used in electricity markets and grid modeling. We also consider the potential application of RV and FOV, which have historically provided value to thermal plants, to wind and solar generation technologies, in the context that most of these renewable assets are still operating under their original electricity contracts, given how recently they were installed.
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