Merchant exposure

An asset is “merchant” to the extent its output is sold at spot or short-term market prices rather than under contract. Merchant revenue captures upside when prices are high, but leaves the owner fully exposed to price falls, capture-price erosion and volatility.

For renewables, merchant risk is compounded by cannibalisation: wind and solar assets tend to generate at the same time as their neighbours, depressing the prices they capture. Many owners run hybrid strategies — contracting part of the output under a PPA and leaving a portion merchant — with the split driven by risk appetite and lender requirements.