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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-18/9/2019 Power purchase Agreement.docx
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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_financing8/9/2019 Power purchase Agreement.docx
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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-108/9/2019 Power purchase Agreement.docx
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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.!"#
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