On the consumer side, many large companies and industrial customers are now choosing to source renewable energy directly from project developers, not only to negotiate lower long-term energy consumption costs, but also to facilitate investments in new renewable assets. Such agreements, known as Enterprise PPAs (CSLA), are used by many proponents to improve the bankability of projects without a subsidy system and to be fully exposed to concessionaire risk. In 2019, according to WindEurope, a total of 2.5 GW of renewable energy plants were supported by PPPs, including about 1.5 GW in onshore wind and 250 MW in offshore wind. Non-performance may be related to the fact that minimum amounts of energy are not supplied, payments are not made, no long shutdown date for payment on delivery of projects is met, or minimum installed capacity obligations are not received under the FTA. The nature and appropriateness of the non-performance depends on the type of power purchase agreement, the duration of the contract and the risk assessment that both parties attribute to the transaction. Both parties typically provide PPP financial guarantees in the form of bank guarantees or PCGs, depending on the risk assessment, to cover production downtime, project delays or defaults. As a project owner, you need to be careful and have a clear overview of the installed capacity and energy supply commitments you make under the FTA in order to avoid falling below the agreed minimum thresholds and triggering penalty clauses. Signing of power purchase agreements for Dogger Bank`s 2.4 GW wind farms A and B (Credit: Thomas G. von Pixabay.) In a long-term agreement such as a ECA, parties in a highly regulated sector such as the energy sector typically rely on a law amendment clause to balance the economy of the contract in the event of major regulatory changes.
In the event of a change in the law, the parties must retain the relative benefits, liabilities, risks and opportunities under the FTA, but neither party is required to accept the proposed amendments. An ex ante agreement on specific contractual changes in the event of a regulatory scenario is prudent practice, and the parties should also agree on events that do not trigger the law change clause. As a project owner, do you carefully assess your exposure to regulatory risks? The levers for trading PPPs are directly influenced by the choice of the energy purchase strategy described above. .