Case study

Buy-side due diligence for CDPQ's acquisition of a 25% stake in First Hydro

Energy transition Energy consultancy Revenue forecasting Due diligence

We supported CDPQ in their acquisition of a 25% stake in First Hydro, providing the revenue forecasts to support the commercial assessment of the First Hydro assets. This included forecasts for the wholesale, balancing, capacity and ancillary services markets across a number of plausible pathways towards a net zero electricity system.

The background

CDPQ, a global investment group, announced on 24 September 2024 that it had entered into an agreement to acquire a 25% stake in First Hydro Company (“First Hydro”). Responsible for the management and operation of two pumped hydro storage plants at Dinorwig and Ffestiniog in the Snowdonia region of Wales, representing 76% of total pumped hydro storage in the United Kingdom, First Hydro assets provide critical infrastructure to support the country's increasing needs of grid flexibility and stability.

What the client needed and their key question(s)

The client needed robust revenue forecasts for the two First Hydro pumped hydro storage assets, alongside our views of the GB market, to challenge sell-side revenue projections and inform their own financial model when valuing First Hydro.

The client also wanted to understand the impact of key assumptions on the revenue projections, such as lower gas prices and higher competition from the deployment of other flexible assets.

Our solution

We used our EnVision power market modelling framework, developed in house, to model the development of the GB power market, the operation of the First Hydro assets, and the revenues they capture. This included stochastic forecasts for prices across day-ahead, intraday and balancing markets against which pumped storage assets optimise their dispatch to maximise revenue.

We also provided forecasts for the non-energy revenue streams and charges. Including the Capacity Market, TNUoS charges and ancillary revenues.

We worked alongside our partners Frontier Economics, who agreed market scenarios with CDPQ, and then collaborated to identify the key sensitivities to explore through the modelling.