Power & Infrastructure · Renewables & IPPs
The Contracted Premium in Power Multiples
EV/EBITDA bands for contracted yieldcos versus merchant generators, how to build the ratio from filed figures, and why integrated books sit between them.
Selborne Research · Renewables & IPPs coverage: 7 guides, 6 company profiles, a primer and Excel model
Educational analysis. This guide is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
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Multiples Follow Cash-Flow Quality, Not Fuel Labels
IPP valuation starts with contract profile, then applies EV/EBITDA. Cash flow under long-term power purchase agreements, or paid out as yieldco CAFD, is priced above cash flow earned on merchant spark spreads, because its volatility is lower and its recontracting risk is further away. This site states two working bands of its own for that difference: contracted renewables and yieldcos at roughly 11-15 times EBITDA, merchant-heavy generation at roughly 6-9 times, and a contracted premium of three to five turns between a contracted book and a merchant peer at similar leverage. The bands are a screen, set on June 2026 market levels.
Contract Profile and Leverage
| Company | Contract profile proxy | Net debt / EBITDA | As-of |
|---|---|---|---|
| Brookfield Renewable (BEP) | ~89% of proportionate long-term average generation contracted | ~5.8× | FY2025 |
| Clearway Energy (CWEN) | ~91% of revenue non-emitting; ~12-year weighted contract life | Target 4.0-4.5× at the corporate level | FY2025 |
| AES Corporation | Long-term PPA and competitive-market mix, no single filed split | ~9.5× | FY2025 |
| Vistra (VST) | Roughly half of expected 2026 Ongoing Operations EBITDA from retail plus long-term PPAs | 2.6× (2026E); ~3.1× (FY2025) | Company outlook, 2026 |
| NRG Energy | Integrated retail and merchant; no filed split | ~2.9× | FY2025 |
Constellation has no adjusted EBITDA line and does not appear in the table. The proxies are on different bases, generation volume for Brookfield, revenue for Clearway, EBITDA for Vistra, so the column ranks contract exposure only loosely; read each on its own terms before comparing two of them.
The Two Bands
| Band | EV/EBITDA | What it prices |
|---|---|---|
| Contracted renewables / yieldco | ~11-15× | PPA-backed cash flows, CAFD payout mechanics, lower recontracting risk |
| Merchant generation | ~6-9× | Hub energy and capacity auction exposure; EBITDA re-rates with gas and power prices |
A book that sits between the two descriptions, retail-integrated generation, a fleet with some plants under long-term contract and others merchant, does not belong in either band. Its multiple has to be built from the parts, which is the point of the next section.
Building the Ratio From Filed Figures
Enterprise value starts from the market capitalisation of every listed vehicle that holds the equity, and Brookfield Renewable has two. Net debt and EBITDA then have to sit on the same basis: for Brookfield, that is proportionate net debt of $15.6 billion against FY2025 proportionate Adjusted EBITDA of $2,698 million. Mixing a consolidated debt figure with a proportionate EBITDA distorts the ratio before any band is applied. The result is arithmetic, not a verdict: the primer’s contracted-yieldco archetype runs the same inputs through a multi-period DCF, and the multiple is the cross-check on that value, never the value itself.
Why a Contracted Yieldco and an Integrated Merchant Book Diverge
Two names with the same EBITDA can carry multiples several turns apart for reasons that have nothing to do with which one is cheap. A yieldco with most of its generation under long-term contract has most of its next decade’s cash flow priced today, so it is valued closer to an annuity. A retail-integrated generator with no filed contracted share earns part of its margin on the spread between wholesale cost and retail price, part on hedged merchant output, and part on capacity payments, and each of those re-rates with gas and power prices. Retail integration and long-term nuclear PPAs both add contracted-like cash flow to a merchant fleet, which is why an integrated book tends to build to a multiple above the pure gas-merchant anchor without reaching a fully contracted one.
Leverage widens the gap further. A yieldco at ~5.8 times net debt to EBITDA carries more of its enterprise value in debt than a merchant name at ~2.9 times, so the same enterprise multiple lands on a very different equity multiple. Compare enterprise value to EBITDA at similar leverage before reading a spread as a cash-flow-quality premium; at different leverage, the spread is partly a balance-sheet effect.
Leverage Interacts With the Premium
Net debt to EBITDA screens this site uses: below 5 times conservative for a contracted yieldco; 5-7 times normal; above 7 times stretched for a merchant-heavy book. Against those screens, the table above spans the whole range, from Vistra’s 2026 outlook at the low end to AES at the high end. A contracted premium does not excuse leverage. A renewables backlog, 12.0 GW contracted and 5.7 GW under construction in AES’s case, is a growth story a leverage screen alone does not capture.
Regulated Utilities Use a Different Premium Logic
Contracted IPP multiples reward PPA cash-flow stability. Regulated utilities reward rate-base growth and allowed return on equity, and the utility P/E premium guide covers that axis. Do not mix the two frameworks on a single name.
What Matters Most
Screen contract profile first, then read EV/EBITDA against the right band at similar leverage, building an integrated book from its parts. None of that says which name to own.
Renewables & IPPs Sector Primer
A multi-period DCF splits contracted PPA years from the merchant tail, pricing each off realised power price and term, then checks the value against a flat EV/EBITDA multiple and the CAFD payout.
- 15 sections, PPA-term cash flows and merchant tail to a discounted cash-flow value
- 45 pages
- a contracted yieldco and a merchant combined-cycle generator
- 2 worked archetypes
- contracted share, CAFD and payout, leverage, EV/EBITDA by archetype
- 6-company screen
The Excel model is the primer's two archetype builds live across 10 sheets: a multi-period DCF with a contracted-or-merchant toggle, step-down discount rates for the PPA term and the merchant tail, a spark-spread build for the merchant case and a CAFD-and-payout bridge for the yieldco. Change the realised PPA price, the contracted discount rate or the merchant spread and the value per share moves; the premium and payout sheets update alongside it. It also splits the contracted premium into the part the pipeline explains and the part contract quality explains, splits the PV between contracted years and the merchant tail, and reads EV per kW on both archetypes.
See what's in the Renewables & IPPs Sector Primer →£25 PDF · £59 with the Excel model · £159 for all three Power & Infrastructure industries
Frequently Asked Questions
- What EV/EBITDA multiple do contracted renewables trade at?
- We screen contracted renewables and yieldcos at ~11-15× on Adjusted EBITDA when more than 80% of generation is contracted and counterparties are investment-grade. This is a house screening convention: cash flows that are largely PPA-backed carry less revenue volatility, which is what the band is pricing.
- What is the merchant generation EV/EBITDA band?
- We screen merchant-heavy gas generation at ~6-9× on Adjusted EBITDA, where EBITDA re-rates with hub prices and capacity clears. Retail-integrated or nuclear-and-coal-baseload generators can screen above this pure-gas anchor, because that mix behaves more like contracted revenue. Treat the band as a gas-merchant anchor, not a ceiling on integrated names.
- What is the contracted premium in power multiples?
- We treat the contracted premium as +3-5 turns of EV/EBITDA versus a merchant peer at similar net debt/EBITDA. Leverage still matters: a contracted yieldco carrying more debt against its EBITDA than a merchant name will show a wider enterprise-multiple gap than the cash-flow-quality difference alone explains.
- Why can't you compare Constellation on EV/EBITDA?
- Constellation does not disclose adjusted EBITDA (FY2025). The company reports Adjusted Operating Earnings of $2,944M instead. Without a filed EBITDA denominator, EV/EBITDA is not comparable to VST, NRG, BEP or CWEN. Use contract-profile proxies and operating-earnings-based leverage (~1.8× net debt ÷ adj. op. earnings, derived) on CEG.
Read next
PPA vs Merchant: How Generators Get Paid
Contract profile first; proxy hierarchy when no single % is filed; BEP ~89% LTA GWh split is the exception.
Utility P/E Premiums and Rate-Base Growth
Reading bands (<7% in-line to >11% +4–6 turns); D 10.2% vs DUK ~9.6% calibration pair.
Generation Capacity and Technology Mix by Company
Six power generators ranked by reported capacity in gigawatts, technology mix and each filer's own basis, owned, net, operating or gross, stated per row.
CAFD vs Free Cash Flow in Yieldcos
CAFD is a yieldco's own cash metric, stopping before growth capex. What it leaves out that free cash flow keeps, and how to convert one to the other.
See it applied
These company profiles apply the concepts from this guide to real public companies.