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power purchase agreement(PPA) is a contract between two parties, one who generates

electricity for the purpose (the seller) and one who is looking to purchase electricity (the buyer).

The PPA defines all of the commercial terms for the sale of electricity between the two parties,

including when the project will begin commercial operation, schedule for delivery of electricity,

penalties for under delivery, payment terms, and termination. A PPA is the principal agreement

that defines the revenue and credit uality of a generating project and is thus a key instrument of

project finance. There are many forms of PPA in use today and they vary according to the needs

of buyer, seller, and financing counterparties.!"#!$#

%n the &.'., PPAs are typically subject to regulation by the ederal nergy *egulatory

+ommission(*+). *+ determines which facilities applicable for PPAs under the nergy

Policy Act of $-.!#PPAs facilitate the financing of distributed generation assets such as

photovoltaic, microturbines, reciprocating engines, and fuel cells.

Contents

1 Background

2 Parties Involved

o 2.1 The Seller

o 2.2 The Buyer

3 Regulation

4 Where !!ro!riate

" #inancing

$ Contract Ti%eline

o $.1 &'ective (ate

o $.2 Co%%ercial )!eration

o $.3 Pree%!tive Ter%ination (ate

* )!eration and +etering

, Sales

http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-1http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-2http://en.wikipedia.org/wiki/Federal_Energy_Regulatory_Commissionhttp://en.wikipedia.org/wiki/Federal_Energy_Regulatory_Commissionhttp://en.wikipedia.org/wiki/Energy_Policy_Act_of_2005http://en.wikipedia.org/wiki/Energy_Policy_Act_of_2005http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-3http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-3http://en.wikipedia.org/wiki/Power_purchase_agreement#Backgroundhttp://en.wikipedia.org/wiki/Power_purchase_agreement#Parties_Involvedhttp://en.wikipedia.org/wiki/Power_purchase_agreement#The_Sellerhttp://en.wikipedia.org/wiki/Power_purchase_agreement#The_Buyerhttp://en.wikipedia.org/wiki/Power_purchase_agreement#Regulationhttp://en.wikipedia.org/wiki/Power_purchase_agreement#Where_Appropriatehttp://en.wikipedia.org/wiki/Power_purchase_agreement#Financinghttp://en.wikipedia.org/wiki/Power_purchase_agreement#Contract_Timelinehttp://en.wikipedia.org/wiki/Power_purchase_agreement#Effective_Datehttp://en.wikipedia.org/wiki/Power_purchase_agreement#Commercial_Operationhttp://en.wikipedia.org/wiki/Power_purchase_agreement#Preemptive_Termination_Datehttp://en.wikipedia.org/wiki/Power_purchase_agreement#Operation_and_Meteringhttp://en.wikipedia.org/wiki/Power_purchase_agreement#Saleshttp://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-2http://en.wikipedia.org/wiki/Federal_Energy_Regulatory_Commissionhttp://en.wikipedia.org/wiki/Federal_Energy_Regulatory_Commissionhttp://en.wikipedia.org/wiki/Energy_Policy_Act_of_2005http://en.wikipedia.org/wiki/Energy_Policy_Act_of_2005http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-3http://en.wikipedia.org/wiki/Power_purchase_agreement#Backgroundhttp://en.wikipedia.org/wiki/Power_purchase_agreement#Parties_Involvedhttp://en.wikipedia.org/wiki/Power_purchase_agreement#The_Sellerhttp://en.wikipedia.org/wiki/Power_purchase_agreement#The_Buyerhttp://en.wikipedia.org/wiki/Power_purchase_agreement#Regulationhttp://en.wikipedia.org/wiki/Power_purchase_agreement#Where_Appropriatehttp://en.wikipedia.org/wiki/Power_purchase_agreement#Financinghttp://en.wikipedia.org/wiki/Power_purchase_agreement#Contract_Timelinehttp://en.wikipedia.org/wiki/Power_purchase_agreement#Effective_Datehttp://en.wikipedia.org/wiki/Power_purchase_agreement#Commercial_Operationhttp://en.wikipedia.org/wiki/Power_purchase_agreement#Preemptive_Termination_Datehttp://en.wikipedia.org/wiki/Power_purchase_agreement#Operation_and_Meteringhttp://en.wikipedia.org/wiki/Power_purchase_agreement#Saleshttp://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-1

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o ,.1 (elivery Point

o ,.2 Pricing

o ,.3 Billing and Pay%ents

o ,.4 Per-or%ance Ter%s

&/a%!le Contracts

10 See also

11 Re-erences

12 &/ternal links

Background

A power purchase agreement(PPA) is a legal contract between an electricity generator

(provider) and a power purchaser (buyer, typically a utility or large power buyer/trader).

+ontractual terms may last anywhere between - and $ years, during which time the power

purchaser buys energy, and sometimes also capacity and/or ancillary services, from the

electricity generator. 'uch agreements play a key role in the financing of independently owned

(i.e. not owned by a utility) electricity generating assets. The seller under the PPA is typically an

independent power producer, or 0%PP.0

%n the case of distributed generation(where the generator is located on a building site and energy

is sold to the building occupant), commercial PPAs have evolved as a variant that enables

businesses, schools, and governments to purchase electricity directly from the generator rather

than from the utility. This approach facilitates the financing of distributed generation assets such

as photovoltaic, micro1turbines, reciprocating engines, and fuel cells.

Parties Involved

The Seller

&nder a PPA, the seller is the entity that owns the project. %n most cases, the seller is organi2ed

as a special purpose entity whose main purpose is to facilitate non1recourseproject financing.

The Buyer

&nder a PPA, the buyer is typically a utility that purchases the electricity to meet its customers3

needs. %n the case of distributed generation involving a commercial PPA variant, the buyer may

be the occupant of the building4a business, school, or government for e5ample. lectricity

traders may also enter into PPA with the 'eller.

Regulation

http://en.wikipedia.org/wiki/Power_purchase_agreement#Delivery_Pointhttp://en.wikipedia.org/wiki/Power_purchase_agreement#Pricinghttp://en.wikipedia.org/wiki/Power_purchase_agreement#Billing_and_Paymentshttp://en.wikipedia.org/wiki/Power_purchase_agreement#Performance_Termshttp://en.wikipedia.org/wiki/Power_purchase_agreement#Example_Contractshttp://en.wikipedia.org/wiki/Power_purchase_agreement#See_alsohttp://en.wikipedia.org/wiki/Power_purchase_agreement#Referenceshttp://en.wikipedia.org/wiki/Power_purchase_agreement#External_linkshttp://en.wikipedia.org/wiki/Public_utilityhttp://en.wikipedia.org/wiki/Distributed_generationhttp://en.wikipedia.org/wiki/Distributed_generationhttp://en.wikipedia.org/wiki/Nonrecourse_debthttp://en.wikipedia.org/wiki/Project_financinghttp://en.wikipedia.org/wiki/Project_financinghttp://en.wikipedia.org/wiki/Project_financinghttp://en.wikipedia.org/wiki/Power_purchase_agreement#Delivery_Pointhttp://en.wikipedia.org/wiki/Power_purchase_agreement#Pricinghttp://en.wikipedia.org/wiki/Power_purchase_agreement#Billing_and_Paymentshttp://en.wikipedia.org/wiki/Power_purchase_agreement#Performance_Termshttp://en.wikipedia.org/wiki/Power_purchase_agreement#Example_Contractshttp://en.wikipedia.org/wiki/Power_purchase_agreement#See_alsohttp://en.wikipedia.org/wiki/Power_purchase_agreement#Referenceshttp://en.wikipedia.org/wiki/Power_purchase_agreement#External_linkshttp://en.wikipedia.org/wiki/Public_utilityhttp://en.wikipedia.org/wiki/Distributed_generationhttp://en.wikipedia.org/wiki/Nonrecourse_debthttp://en.wikipedia.org/wiki/Project_financing

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PPAs are typically subject to regulation at the state and federal level to varying degrees

depending on the nature of the PPA and the e5tent to which the sale of electricity is regulated

where the project is sited. %n the &.'., theederal nergy *egulatory +ommission(*+)

determines which facilities are considered to be e5empt wholesale generators (67) or

ualifying facilities and are applicable for PPAs under the nergy Policy Act of $-.!8#

Where !!ro!riate

Power purchase agreements (PPAs) may be appropriate where9!-#

the !roected revenues o- the !roect is uncertain and so so%e guarantees asto uantities !urchased and !rice !aid are reuired to %ake the !roectviale

!rotection -ro% chea!er or susidi5ed do%estic or international co%!etition6e.g.7 8here a neighoring !o8er !lant is !roducing chea!er !o8er9

there is one or a -e8 %aor custo%ers that 8ill e taking the ulk o- the!roduct : -or e/a%!le7 a govern%ent %ay e !urchasing the !o8er generatedy a !o8er !lant : the govern%ent 8ill 8ant to understand ho8 %uch it 8ille !aying -or its !o8er and that it has the ;rst call on that !o8er7 the !roectco%!any 8ill 8ant certainty o- revenue

!urchaser 8ishes to secure security o- su!!ly.

8ith solar power!roects in non:!ro;t co%!anies in order to reduce costs-or installation o- the solar energy syste%

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Co%%ercial )!eration

:efore the seller can sell electricity to the buyer, the project must be fully tested and

commissioned to ensure reliability and comply with established commercial practices. The

commercial operation date is defined as the date after which all testing and commissioning has

been completed and is the initiation date to which the seller can start producing electricity for

sale (i.e. when the project has been substantially completed). The commercial operation date also

specifies the period of operation, including an end date that is contractually agreed upon.!"#

Pree%!tive Ter%ination (ate

Typically, termination of a PPA ends on the agreed upon commercial operation period. A PPA

may be terminated if abnormal events occur or circumstances result that fail to meet contractual

guidelines. The seller has the right to curtail the delivery of energy if such abnormal

circumstances arise, including natural disasters and uncontrolled events. The PPA may also allow

the buyer to curtail energy in circumstances where the after1ta5 value of electricity changes.!"#

6hen energy is curtailed, it is usually because one of the parties involved was at fault, whichresults in paid damages to the other party. This may be e5cused in e5traordinary circumstances

such as natural disasters and the party responsible for repairing the project is liable for such

damages. %n situations where liability is not defined properly in the contract, the parties may

negotiate force majeureto resolve these issues.!"#

)!eration and +etering

?aintenance and operation of a generation project is the responsibility of the seller. This includes

regular inspection and repair, if necessary, to ensure prudent practices. @iuidated damages will

be applied if the seller fails to meet these circumstances. Typically, the seller is also responsible

for installing and maintaining a meter to determine the uantity of output that will be sold. &nderthis circumstance, the seller must also provide real1time data at the reuest of the buyer,

including atmospheric data relevant to the type of technology installed.!"#

Sales

(elivery Point

The PPA will distinguish where the sale of electricity takes place in relation to the location of the

buyer and seller. %f the electricity is delivered in a 0busbar0 sale, the delivery point is located on

the high side of the transformer adjacent to the project. %n this type of transaction, the buyer is

responsible for transmission of the energy from the seller. ;therwise, the PPA will distinguish

another delivery point that was contractually agreed on by both parties .!"#

Pricing

lectricity rates are agreed upon as the basis for a PPA. Prices may be flat, escalate over time, or

be negotiated in any other way as long as both parties agree to the negotiation. %n a regulated

environment, lectricity *egulator will regulate the price. A PPA will often specify how much

energy the supplier is e5pected to produce each year and any e5cess energy produced will have a

http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Force_majeurehttp://en.wikipedia.org/wiki/Force_majeurehttp://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Force_majeurehttp://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10

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negative impact on the sales rate of electricity that the buyer will be purchasing.!"#This system is

intended to provide an incentive for the seller to properly estimate the amount of energy that will

be produced in a given period of time.

Billing and Pay%ents

The PPA will also describe how invoices are prepared and the time period of response to those

invoices. This also includes how to handle late payments and how to deal with invoices that

became final after periods of inactivity regarding challenging the invoice. The buyer also has the

authority to audit those records produced by the supplier in any circumstance.!"#

Per-or%ance Ter%s

The buyer will typically reuire the seller to guarantee that the project will meet certain

performance standards. Performance guarantees let the buyer plan accordingly when developing

new facilities or when trying to meet demand schedules, which also encourages the seller to

maintain adeuate records. %n circumstances where the output from the supplier fails to meet thecontractual energy demand by the buyer, the seller is responsible for retributing such costs. ;ther

guarantees may be contractually agreed upon, including availability guarantees and power1curve

guarantees. These two types of guarantees are more applicable in regions where the energy

harnessed by the renewable technology is more volatile.!"#

http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10http://en.wikipedia.org/wiki/Power_purchase_agreement#cite_note-AGMRC-10

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