Solar PV Facility Project Financing & Contracting
Power purchase agreement (PPA)
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Power purchase agreement
Simplified sequence of events
Owner identifies need to find a buyer for electricity generated by
the solar PV Facility once in operation.
For Utility or Commercial development, relatively less ability for
Seller to negotiate, and increasing creditworthiness.
Negotiation of term of PPA
The PPA is designed for use between the
developer and the retailer/government
authority/buyer, where the buyer
undertakes to pay the amount set out
in Schedule 2 (Price and Rates).
PPAs are usually issued in standard form
by the retailer/government authority/
buyer where there are multiple suppliers
of renewable energy under an auction
or outsourcing scheme. However, the
precedent PPA provided is a useful
benchmark for the obligations of
parties under such an agreement,
and is part-suited to quote
behind-the-meter projects.
The developer must consider the most
appropriate payment structure for the
facility, having regard to the commercial
aspects of the project. There are two types
of payment structures for the PPA:
•
Direct payment for electricity
produced, on the basis of price per
MWh (with potential for an additional
tariff to cover fixed generation costs).
This is the current structure of
payments in the precedent PPA.
"Take or pay' arrangements, whereby
the local government authority/
buyer agrees to pay a fixed amount
regardless of what it actually takes.
Certain legal requirements must be
considered when structuring the
type of arrangement, in particular
the inclusion of a fixed offtake
entitlement (as noted in the Drafting
Note to General Condition 7.1 of
the Precedent PPA). If this type
of arrangement is sought, the
contract should be referred to your
Legal Department.
The developer should also consider what
impact a Feed in Tariff (FIT) and other
legislative incentives, such as Renewable
Energy Certificates or Large-Scale
Generation Certificates (LGCs),
would have on the payment structure.
•
Usually 15, 20 or 25 years
•
May be renewals
.
Buyer option to purchase
•
Negotiation of pricing where appropriate
PPA contract is a "take and pay" output
purchase arrangement
Consider need for a "carry over provision" in cl 6.1
PPA Execution
•
Timing: PPA generally executed first, with other
key contracts following as conditions subsequent to
effectiveness of PPA (subject to a longstop date)
Interaction with EPC Contract
.
•
•
Back to back EPC provisions with PPA
-
Fixed price affects PPA pricing
Guaranteed "Final Completion" date and LDs
.
Guaranteed output/capacity and LDs
.
Guarantees of performance
Sign contract
Reject quote from Supplier
Recommence process
PPA binding from Effective Date (subject to
conditions precedent)
Contract will commence on Commercial Operation DateView entire presentation