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We are services company that encompasses innovative, cutting edge and high quality services. The company resource consists of high end professionals with proven track records in their domain of expertise.
Solar Energy for the Industry
Industries around the world are looking for ways to cut down their costs and Solar energy is playing a major part in it. RAC has partnered with one of the largest renewable energy business in the country to provide solar energy solutions to our local industry.
Power Purchase Agreement
A Power Purchase Agreement (PPA) secures the payment stream for a Build-Own Transfer (BOT) or concession project for an independent power plant (IPP). It is between the purchaser “offtaker” (often a state-owned electricity utility) and a privately owned power producer. The PPA outlined here is not appropriate for electricity sold on the world spot markets. This summary is focused on a base load thermal plant (the issues would differ slightly for mid-range or peaking thermal or hydro plants).
- Where a government agency enters into an arrangement for a private power company to establish a power plant and sell on the power to the government agency, the public agency typically enters into a PPA.
- The PPA usually takes the place of a BOT or concession agreement: in addition to obligations relating to the sale and purchase of the power generated, the PPA also sets out the required design and outputs and operation and maintenance specifications for the power plant.
- Sale of capacity and energy – the power producer agrees to make available to the Purchaser the contracted capacity of energy and deliver the energy in accordance with the PPA.
- Charges for Available Capacity and Electrical Output – the charging mechanism in the PPA is generally a pass through arrangement: the price charged for the power will consist of a charge (availability charge) to cover the project company’s fixed costs (including a return on equity for the project company) plus a variable charge to cover the project company’s variable costs. The availability charge relates to the availability of the power plant and the variable charge is calculated according to the quantity of power supplied. The purchaser will want a guaranteed long-term output from the project and so the availability charge is typically the minimum that it will be paid, provided that the plant can be shown to make sure power available.
- Third party sales – the ability to make third-party sales can enhance the finance ability of the project and cushion the purchaser against risks such as a reduction in the purchaser’s monthly tariffs. This flexibility also has the advantage that, given the long-term nature of the PPA, if the market is deregulated at a later date then the PPA may not need to be completely replaced. However, purchaser’s are often nervous about allowing third-party sales as they want to be sure that all capacity is available to them at all times and so the PPA may include an exclusivity period during which all power producer is be supplied to the purchaser. Flexibility may need to be incorporated into the PPA to ensure that this exclusive period is not an impediment to future development/ deregulation of the electricity market. Exclusivity provisions in PPAs can create challenges for development of energy markets.
- Under-performance and delays by power producer – the PPA may provide sanctions or require the power producer to pay liquidated damages if the power producer fails to deliver power as promised; in particular, if the construction of the project is not completed on schedule or does not perform as required when completed. Lenders will be concerned to ensure that liquidated damages do not have too damaging an impact on debt coverage ratios.
- Force majeure or purchaser breach of contract – the power producer is usually not required to pay damages for delays resulting from events beyond its control.
- Testing regime – this should be objective and designed to confirm levels of contracted capacity, reliability and fuel efficiency or heat rate, ideally certified by an independent engineer.
- Termination – the PPA will need to provide for what happens on termination (whether at the end of the term of the agreement or early termination for default etc), including obligations of the power producer on hand-over of assets, calculation of buyout price for IPP (if this is contemplated), what happens to employees of power producer if IPP transferred to purchaser on termination.
- Project operation – issues typically include scheduled outages and maintenance outages, operation and maintenance, emergencies and keeping of accounts and records.
- Change of law – PPA should address impact on tariff in event of a change in applicable law and the mechanism for tariff adjustment. Lenders will be anxious to ensure that the cash flows of the project required for debt service are protected against changes in law.
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