Power Purchase Agreements for Renewable Energy

• This course is designed for personnel from
• Legal / Advisory departments/units
• Planning / Procurement
• Finance / Treasury
• Audit / Risk Management
• Research & Analysis
• Sales & Marketing
• Investment Management
• Funding / NGOs
• Government
• Authorities
• Regulation / Compliance / Documentation

The course helps participants:

• Learn about the essentials of PPAs
• Gain an overview of Project Finance in the Power Sector
• Know how to perform policy and risk analysis
• Understand the impacts and risk associated with the technology choice
• Appreciate and carry out risk evaluation of projects in the energy sector
• Understand how financial derivatives can be used as an effective hedge of financial and electricity market-based risks

Introduction to PPAs

• What does a power purchase agreement mean?
• Why PPA?
  • project financing
  • hedging
  • long-term price predictability
• PPAs and renewable energy projects
• Benefits of a PPA to:
  • a renewable asset owner developer
  • an energy buyer
  • a lender

Global trends driving Power Purchase Agreements (PPAs),

• the context in which today’s PPAs operate
• trends driving the creation of wholesale power markets
• Energy Sector Unbundling
• operational efficiency
• Independent regulation
• Private sector investment
• Demand side management
• Power market exchanges

• Conventional power generation technologies
  • Coal
  • Fuel oil
  • Gas
  • Nuclear
  • Hydro
• Renewable technologies
  • Wind
  • Landfill gas
  • Biomass
  • Hydro
  • Wave/tidal energy
  • Solar
• Developments in and Reform of the Industry
  • Deregulation, restructuring and privatisation of the industry
  • Role of regulator
• Liberalisation of the Electricity Industry
• Use of Independent Power Projects in developing countries

• • Beginning = renewable energy project
  • Determination of an Optimal Hedging Strategy
  • Sourcing o Comparison of PPA offers
  • PPA Negotiation o Signing the PPA contract
  • Post contract signing
• Who writes the initial contract?

• • Commercial structure
  • Understand Energy Risks
    • Price Risk
    • Liquidity Risk
    • Volume Risk
    • Profile Risk
    • Balancing Risk
  • Duration
  • Price Fixing
  • Credit risk
  • Settlement
    • Accounting
    • Credit
  • Underlying contract
  • Changes in law and regulations
  • Performance guarantees
  • Termination
• An analysis of Power Purchase Agreement samples

• Review of the organisation of energy markets, trading venues and trading purposes.
• Correlation between electricity, gas, oil and coal markets
• Fundamentals of physical and financial trading
  • Power
  • Natural gas
  • LNG
  • Coal
• Energy markets and how they function:
  • OTC vs. exchange trading
  • Spot vs. forward trading
  • Current trends and developments

• Electricity value chain
  • Fuels, Generation, Transmission &Distribution, Wholesale and retail
• Portfolio of Contracts
  • Forward sales, retail supply, fuel, Freight, hedges etc.
• Sources of Risk
  • Market, Credit ,Operational, Legal and regulatory , Business ,Strategic and Reputation Risk

• • Non-storability
  • Price Drivers; supply and demand, weather and others
  • Evolution of volatility in energy markets
  • Comparing spot with forward volatility: spikes and mean-reversion
  • Seasonality
    • Causes of seasonality
  • Correlations
• Power Plant Economics
  • Technologies power plants
    • base load
    • intermediate or cyclic plant
    • peaking plant
• Supply
• Demand
• Understanding the generation stack
• Operating decisions of a power plant
  • Efficiency curves and heat rates
  • Minimum on- and off-times
  • Ramp time
  • Nonconstant heat rates
  • Response rate
  • Minimum electricity dispatch level.
• Competition
• Role Exchange

• What is project finance
• History and current market developments
• Differences between corporate and project lending
• Why do sponsors choose project finance
• The risk-reward relationship with the project
• Comparative economics of renewable energy sources
• Types and impacts of incentive programmes
  • Environmental credits and feed in tariff structure

• Unique requirements of non-recourse project financing
• How it determines the structuring options for Power Purchase Agreements
• Lender’s and financier’s requirements when it comes to evaluating PPAs

• Main approaches
  • Sales comparison approach
  • Income approach
  • Cost approach
• Intrinsic Valuation
• Price Uncertainty and Real Option Valuation
  • A power plant as an option

• Fuel supply agreements
• Operations & maintenance agreements
• Long term service agreements
• Quantitative risk assessment in a power generation project

• Power Purchase Agreement
• Merchant Power Structures
• Tolling Agreements
• Contract for Differences (CFD)
• Feed-in tariff with preferential despatch

• What is a PPA
• Differences for base load, mid-range or peaking thermal plant or hydro plants
• When PPA appropriate
• Basic Power Purchase Agreement terms
  • Length of the Agreement
  • Commissioning Process
  • Sale and Purchase
  • Curtailment
  • Transmission Issues
  • Milestones and Defaults
  • Credit
  • Insurance
  • Environmental Attributes or Credits
  • Risk issues
  • Issues and Strategies

• Pricing Formula
  • Flat
  • Fixed or Floating Escalator
  • Others
• Energy Factor and Unit Charge
• Determination of Base Rate

• Country case studies
• Detailed example PPAs

• Fuel supply agreements
• Operations & maintenance agreements
• Long term service agreements
• Quantitative risk assessment in a power generation project
• Fundamentals of Negotiation Theory and Practice
• Negotiation process
• Art and science of persuasion
• Preparation
• Understanding the interests of all parties
• Creating common ground
• Team composition

The training approach is highly interactive. It uses a mixture of presentations by the facilitator and by participant(s), group or individual exercises, use of case studies and role plays. These proven learning techniques enhance understanding and retention of covered issues.