Power Purchase Agreements

Part One

Introductory Overview

Because the primary purpose of the PPA is to stabilise the revenue generated by the power plant for the benefit of the debt financiers, it is appropriate to start with an overview of the characteristics of limited recourse financing, of the enforcement of contractual rights, and of the features of power generation.

• This power purchase agreement course begins by exploring the key characteristics of project financing: The project entity, limited recourse, single cash flow

• Identifying, quantifying and managing cashflow volatility

Law and Contracts:

• Elements that will be governed by local law

• The impact of Basle and the standardisation of contracts

• PPA interface with other contracts – e.g. EPC, fuel supply and the clauses that need to be harmonised

• The importance of liquidated damages

Power Generation:

• Base Load, Peaking, Non-Dispatchable

• Utility markets, bundled vs unbundled

• Merchant markets

Corporate PPAs

A rapidly developing presence, firstly in North America and later in Europe, is Corporate PPAs. They can take several forms and have differences from the more traditional Utility PPAs. The growth in corporate PPAs has accelerated due to the recently encountered uncertainty and volatility in electricity prices. Power Purchase Agreement training assesses:

• Utility PPAs

• Direct Wire PPAs

• Sleeved PPAs

• Virtual PPAs

• Proxy PPAs

Law and the Enforcement of Rights

The one thing that a PPA has in common with O&M, Construction, Interconnection, and Financing Agreements is that they are all contracts. There is no point in having a contract unless we have reasonable prospects of enforcing our rights under those agreements, and this may well become an issue where the counterparties are from different jurisdictions.

• If the financing is limited recourse, why is litigation of disputes unacceptable

• Alternative Dispute Resolution procedures: Expert mediation

• Arbitration

• The 1958 Convention

Sovereign power vs. contractual rights and obligations

PPA course training also looks at cross-border enforcement

Key Risks Within PPAs

Before we go through the PPA itself in detail, we give special detailed consideration to the various risks that may be encountered in power generation projects.

• Dispatch: Take-or-Pay, capacity charge, energy charge

• Take-and-Pay, priority dispatch, deemed dispatch

• Intermittency, reserve capacity

• Curtailment

Tariff:

• Feed-in tariffs, selling forward

• Fixed price, fixed escalators, cap-and-collar model

Feedstock Risk

Transmission Interconnection Risk

Heat Rate

Foreign Exchange exposures

Regulatory Risk

Political Risk

Tax Change Risk

Change in Control

Force Majeure

Termination & Compensation:

• Maturity, force majeure, Seller default, buyer default

• Termination for convenience

• Put and call options

Construction Risk – delays, performance

Sponsor credibility

Environment & Social Compliance

Counterparty credit risk:

• Credit enhancement options

• Escrow and Trust Accounts

• Contingency reserve accounts

• Deficiency guarantees

Part Two

The Power Purchase Agreement

This represents the central focus of Redcliffe's PPA course. We deep dive into a renewable Power Purchase Agreement, discussing each clause's requirements and flexibilities. It will carefully consider the objectives and perspectives of both the generator (seller) and the distributor (purchaser).

• A profile of the project – the parties

• Extension rights and options

• Conditions subsequent

• Performance Guarantees

• SPV’s construction & development obligations

• Interconnection responsibilities

• Contracted capacity & energy

• Tariff adjustments

• Metering

• Commissioning and commercial operations commencement

• Representations and Warranties

• Purchaser covenants

• Generator Covenants

• Insurances required

• Maintenance and scheduled outages

• Confidentiality

• Credit enhancements (if required)

• Flexibility provisions

• Early Termination rights

• Offtaker Step-in Rights

• Change in Law

• Local content

• Severance clause

• Transfer of ownership rights, assignments, novations

• Events of Default: Generator/Seller

• Offtaker/Purchaser

Force majeure provisions

Grace periods

Liability & Indemnification

Disclaimers and Limitations of Liability

Law and jurisdiction

Dispute Resolution

Direct Agreements concludes power purchase agreement training

Training Objectives

This Power Purchase Agreements training enables you to identify:

• How the provisions of a PPA support and safeguard the project's revenue.

• How they are a vital component of the risk allocation structure of the project.

• How power purchase agreements differ from each other according to the technology involved.

• How lenders will approach the analysis of debt serviceability and the provisions that they will expect to benefit from in the agreement.

• How the structure of the project and the obligations to other counterparties will influence the risk allocations within the PPA.

Training Course Summary

The first half-day of this Power Purchase Agreement course deals with its contract enforceability and the interface with some of the other project contracts, to ensure consistency and protection for both Lenders and Sponsors. It also focuses on the revenue of the project, which entails mechanisms for managing the volume of dispatch and the identification of the price to be paid by the off-taker for both distribution and deemed distribution.

The second half-day of PPA training represents a deep dive into the Power Purchase Agreement itself. We will work through the provisions of a renewable PPA.