Understanding & Negotiating Power Purchasing Agreement Training

Course Overview.

A Power Purchase Agreement (PPA) is a legally binding contract between the energy producer and an end user (often a big electricity user) that specifies the terms under which the end user agrees to purchase energy from the developer at a specified price. A Power Purchase Agreement (PPA) may be thought of as the selling of a project and its natural elements, since it is a binding agreement that enables a generator to evaluate the project’s profitability, risk and make an investment choice accordingly.

This hands-on training focuses on enhancing expertise in understanding how Power Purchase Agreements (PPA’s) work; their challenges and opportunities; their contractual arrangements and a particular focus on strengthening negotiation skills – with special emphasis on multilateral negotiation with and within international organizations and companies.

Expected Training Outcomes.

• Understand the concepts of power purchasing and contracting
• Learn common terminology used in the agreements and their negotiation
• The different project structures and models for a PPA
• The roles and responsibilities of the seller and buyer under a PPA
• The essential contractual clauses necessary
• Risk management strategies
• Guarantees and warranties
• Pricing, tariffs and take or pay obligations
• Contract compliance and penalties
• Avoiding common errors and mistakes in negotiating a PPA agreement
• Adopting risk management strategies and the allocation and limitation of liability between the seller and buyers
• Examine typical payment structures and mechanisms

Learning Modules

Introduction to Power Markets and Power Purchase Agreements (PPAs)

• Overview of the international power sector
• Introduction to Energy Industry and the role of the Power Purchase Agreement
• Concepts in power purchasing and trading
• Different Project Structures & Business Models
• Market structures
• Licenses
• Metering, Measurement and Verification
• Indemnifications
• Purchaser Covenants
• Price and Payment
• Avoided Peak Demand Payments
• Liquidated Damages

Essential Clauses in a Power Purchase Agreement

• Term and Extension
• Performance Guarantees
• SPV’s Construction & Development Obligations
• Contracted Capacity & Energy
• Representations & Warranties
• Insurances Required
• Maintenance and Scheduled Outages
• Commissioning and Commercial Operations Commencement
• Early Termination Rights & Events of Default
• Off-taker Step-in Rights
• Force Majeure Provisions
• Disclaimers and Limitations of Liability & Indemnification
• Subsidies
• Change in Law
• Transfer of Ownership Rights, Assignments, Novation’s
• Law & Jurisdiction

PPAs in the Context of Power Project Development

• Types of Power Purchase Agreements
• Parties and project contract mix
• Project structures and timeline
• Case study

Commercial Aspects of a Power Purchase Agreement

• Price, Volume & Tariffs
• Metering
• Take or Pay Obligations
• Shape or Profile Risk
• Balancing Risk
• Credit Risk
• Tenor Risk

Managing Lender Expectations

• Prices: Tariffs, Quantities, Escalation, Payment
• Quantities and delivery
• Contract price
• Outages, metering, invoices

Risk Assessment in a Power Purchase Agreement

• Liquidated Damages – Delay and Performance
• Performance Bonds
• Retentions
• Variation Orders and Cost Overruns
• Dealing with Political Risk
• Dealing with Currency Exposures
• Minimum & Maximum Delivery Obligations
• Buyer Default
• Seller Default
• Sovereign Risk
• Change in Tax Law

Negotiation of a Power Purchase Agreement & Dispute Resolutions in PPA

Negotiate the Best Power Purchase Agreement

• Prepare a Term Sheet
• Set Framework for Negotiations
• Balance Buyer’s and Seller’s Needs
• Focus on Interests not Positions
• Reach Sustainable Agreement

Negotiation

• Negotiate on Key Milestones to be Achieved & Penalties for Failures
• Negotiate Performance Guarantees

Dispute Resolution

• Different Types of Dispute Resolution
• Litigation
• Mediation
• Arbitration
• Expert Determination

When Things Go Wrong – Force Majeure, Damages, Termination, Disputes

• Case study – force majeure clauses
• Default and termination
• Dispute resolution
• Case study: Power plant explosion and fire

Way forward After the Training

Participants will develop a work plan through the help of facilitators that stipulates application of skills acquired in improving their organizations. ASPM will monitor implementation progress after the training.

Training Evaluation:

Participants will undertake a simple assessment before the training to gauge knowledge and skills in the field and another assessment will be done after the training in-order to monitor knowledge gained through the training.