Flexible generation acquisitions look deceptively simple: buy capacity, earn capacity revenues, optimise dispatch.
But the real question boards should ask is sharper: Does this platform become a 12% Integrated Power engine: or a 9–10% return trap that sits below WACC?
The answer depends on whether management can convert asset yield into portfolio ROACE using three value levers: storage, contracts, and trading.
The problem with the “asset yield” view
A large flexible portfolio deal can show an implied cash yield that feels underwhelming. On a pure asset basis, the returns can look structurally capped.
The mistake is assuming the acquisition is an “asset return” story.
It’s not.
Flexible capacity is the anchor that enables an integrated portfolio to monetise:
- Volatility
- Reliability premiums
- System value (balancing/capacity)
- Customer decarbonisation demand
Without the full stack, the acquisition underperforms. With the stack, it can clear 12%.
The 12% bridge: three levers that transform the platform
To move from “okay yield” to “board-grade ROACE,” you need three value engines operating as one.
Lever 1: Storage as a volatility capture machine
BESS is not “renewables support.” It is a spread capture and intraday arbitrage system.
The question to ask:
- Do we have a fast path to deploy BESS in the highest spread markets, with an execution cadence measured in quarters, not years?
What good looks like:
- Early deployment targeted to the “best volatility nodes,” not blanket rollouts
- Tight linkage between storage dispatch, trading, and finance P&L attribution
Failure mode:
- Storage treated as an engineering rollout, not a margin engine
Lever 2: 24/7 PPAs as a reliability premium product (not just volume)
Data centres and large industrials do not buy “cheap green electrons.” They buy:
- Reliability
- Auditability
- Reputational protection
- A decarbonisation narrative they can defend
That is why 24/7 carbon-free supply can price at a premium when delivered credibly.
The question to ask:
- Can we sign long-tenor PPAs that de-risk a meaningful portion of flexible generation and justify a reliability premium?
What good looks like:
- PPAs designed as “firm + clean capacity” products, backed by flexible and storage
- Pricing that reflects reliability and traceability, not just renewable supply
Failure mode:
- PPAs celebrated for TWh volume while quietly under-earning
Lever 3: Portfolio trading as the ROACE multiplier
If half of cash flow increasingly comes from trading/optimisation, then governance must treat trading as:
- A controlled profit engine
- With transparent risk capital
- With repeatability analysis (structural vs one-off)
The question to ask:
- Can we quantify trading contribution by source, repeatability, and capital at risk, in a way the board trusts?
What good looks like:
- Clean attribution: what is structural optimisation vs market dislocation
- Tight integration between ETRM, dispatch, and finance P&L
Failure mode:
- Trading viewed as a black box, which forces boards to discount its earnings
The two outcomes (and the early warning signal)
Here is the reality: this is a fork in the road.
Outcome A: Integration Alpha (credible 12% path)
Happens when the company:
- Builds capital allocation governance with hard exit triggers
- Executes BESS and PPAs fast enough to change the return profile
- Runs profitability control at contract/customer level
Outcome B: Integration Tax (9–10% structural drag)
Happens when:
- The platform becomes “assets and hope” rather than “portfolio and controls”
- Optimisation is underbuilt, late, or untrusted
- Contracts hide underperformance inside segment averages
Early warning signal:
If by mid-2026 the company cannot show a single-page view of:
- base-case vs optimised ROACE by deal,
- contract profitability for the top revenue contracts,
- trading P&L attribution and capital at risk,
…then the 12% story is narrative, not governance.
The bottom line
A flexible power acquisition is either:
- the foundation of a contract and storage and trading engine that earns 12%, or
- a capital-intensive platform that settles at 9–10% and forces a painful board debate about subsidy versus recycling.
Want the “12% bridge” model and the board questions checklist?
