Title: Power Purchase Agreement (PPA) (Example 5)
Languages: English
Region: Global
Document(s):
Document Summary:
This section provides samples of power purchase agreement (PPA).
Document Details:
Sector:
Name of Agreement:
Power Purchase Agreement (PPA)
Type of Agreement:
Power Purchase Agreement for fuel oil fired power plant
Outlines basic provisions commonly found in power purchase agreements
Region (if known):
Prepared for general use in developing countries
Year of Agreement/ Draft:
Author of Agreement:
Prepared by leading international law firm with extensive experience of energy sector infrastructure projects and of the developing world.
Annotated by:
Victoria Delmon/ Mark Moseley (LEGPS)
Purpose and Context:
Agreement outlines the basic provisions commonly found in power purchase agreements in international private power projects. It is prepared as a document to raise issues for discussion and to be used to assist in preparation of country-specific agreements.
The Agreement was prepared together with endnotes which contain explanatory notes and the Agreement should be read in conjunction with those notes.
The Agreement is in respect of a facility fired by fuel oil (as opposed to natural gas, coal etc).
It sets out terms on which Seller is to sell electricity from an electric generating station it is building and the state owned energy provider (Purchaser) undertakes to purchase capacity and delivered energy and to install the Interconnection Facilities.
The Seller is being provided with assistance and other protection by the Government in relaiton to the project under and Implementation Agreement.
While this document was prepared for common law jurisdictions, the provisions in this agreement could be adapted for use in civil law jurisdictions - subject to advice from local lawyers.
Circumstances where this contract may be appropriate:
This has been prepared for the developing world, in relation to medium sized fuel fired power plants.
It is suitable where an independent power producer is supplying power to a utility and where the utility wants to monitor operations of the plant and ensure plant is built in accordance with minimum specifications and sound engineering standards.
Purchaser has exclusive right to capacity and energy of seller for duration of contract (this may not be appropriate where wish to maintain possibility of future bilateral trading).
MainFeatures:
Seller undertakes to make available and sell to Utility and Utility to purchase from the Seller the Dependable Capacity and Net Energy Output form the commercial Operations Date (2)
Seller to design finance construct own operate and maintain Complex in accordance with Agreement, Minimum functional Specifications, sound engineering and construction practices etc (4.7.1)
(9.3) Seller to pay liquidated damages for:
· Delays inc commissioning of plant
· Shortfalls in Commissioned Dependable Capacity
· On-going Dependable Capacity shortfalls
· Falling outside Minimum Functional Specifications
Term – construction period plus [15] years operating period (3.1), with possibility of renewal by mutual agreement [need to check this broad renewal works with local procurement rules]
Seller to obtain consents and permits (4.1)
Site – it is assumed that the Seller will acquire the site – there are no stipulations as to where etc
Seller to maintain reliable supply of fuel and enter fuel supply agreements (6.7)
Seller to provide revolving Letters of Credit (9.7), Construction Security and Operations Security in the form of a direct pay letters of credit (9.4.1 and 9.4.2)
Utility to pay Capacity Payment (9.1) and Energy Payment (9.2). Capacity payment based on Capacity Purchase Price and Dependable Capacity.
Purchaser to build, operate and maintain Interconnection Facilities (7). Liquidated damages for delay.
Seller to install metering system and expense of Utility. Utility to operate and maintain meters.
Seller to install and operate and maintain Backup Metering System
Indemnification and Liability (12)
Mutual indemnification for loss of other due to negligence, omissions etc
No indemnification for fines or penalties for non-compliance with laws.
De minimis level of claims before claims under cause 12 can be brought.
Operating committee (6.9) with reps of both parties for developing and implementing operating procedures. Costs borne equally by parties. Chairman of committee to be on 6 month rotating basis between parties.
Transfer of facility under certain circumstances to Purchaser on termination of agreement (10.4) on payment of sum set out in 10.4.2
comprehensive list of representations and warranties (5)
Insurance (11) – well-drafted and clear. Proceeds of all risks Insurance shall at option of Utility and subject to Lenders’ rights, be applied to repair of complex (11.3).
There are a number of endorsements to be applied to the insurance (11.2) and care should be taken that these are available in the particular jurisdiction.
Force Majeure (13) – events which materially and adversely affect performance of party of its obligations, beyond the reasonable control of a Party.
FM events divided into FM Events-Political and FM Events-Natural. Political FM Events are extensive (and divided into events inside country and outside the host country that directly involve the host country (Host Country Political Events and those outside host country which do not directly involve the host country (Foreign Political Events).
Consequences of FM – Affected Party not liable for failure or delay, and time limits and deadlines shall be extended. If it is a Foreign Political Event or Natural Event, Seller not entitled to receive Capacity Payments or Energy Payments (unless only partial impact on Complex when Energy Payments and pre-rated Capacity Payments payable).
Host Country Political Event – Seller to receive Capacity Payment and Energy Payment for maximum period of [ ] months (unless only affecting part of Complex, when pro-rated).
Seller not to assign or transfer Agreement other than in accordance with clause 17 or appoint replacement construction contractor or O&M Contractor (15) (these constitute events of default.)
15 – typical list of events of default, and remedies in case of default
15.5 – in case of termination due to Seller Event of Default, Utility has option to purchase Complex for greater of the fully depreciated value of the Complex and the remaining debt service under Loan Documents (minus liquidated damages or other Damages and accrued interest thereon).
(17) Seller not to assign rights under Agreement, associated with Complex, site, moveable or intellectual property without consent of Utility (other than de minimis for assets).
Assigning to lenders/ creating security requires consent of Utility, such consent not to be unreasonably withheld or delayed [this may not be acceptable in all circumstances to Lenders who may want more certainty re assignment and granting of security].
Utility not to assign its rights or obligations under Agreement without consent of Company
Consequential Damages (19.8) No liability for indirect, consequential, incidental, punitive or exemplary damages
Dispute resolution (16)
Resolution in good faith by parties
Where specified in the Agreement or where parties agree, disputes to go to expert determination (to be binding and final)
Other disputes, or where expert fails to make a determination, to Arbitration under ICSID rules . [ICSID rules only appropriate where Seller is a foreign controlled party
Waiver of sovereign immunity (16.4)
Good faith (19.15) – there is an implied obligation of good faith [this may have different interpretations depending on the jurisdiction]
Possible additional provisions that it might be appropriate to include:
May be appropriate to provide: -
- that Seller is to procure an Environmental Impact Assessment at the Site
- in the event of termination of Agreement, Seller has right to enter agreements to sell capacity and electricity to any persons and Utility to provide access to Interconnection Facilities and transmission system on reasonable terms and conditions.
Seller may seek an overarching limitation of liability under the Agreement (especially for risks not covered by insurance).
Site – it is assumed that the Seller will acquire the site – there are no stipulations as to where etc. It may be important to the Utility to specify where the site is situated, or the Utility may wish itself to lease land to the Seller for the duration of the Agreement. this will usually be set out in a separate Lease.
Does Utility want to have step-in rights in limited circumstances of Seller breach?
Provisions that may not be advisable to replicate/ may need further thought:
Provisions of wider general use:
Agreement clear and well drafted.
Explanatory notes with alternative wording suggested also helpful as guide and starting point for issues to consider.
(5) – comprehensive list of representations and warranties
Experience Since Coming Into Force (including any amendments)/ if draft form, whether it has been applied:
Tracking Number:
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Updated: September 27, 2021
