Agreement for Power

Power Purchase Agreement (PPA) – Abridged agreement developed for small electricity projects in Namibia Standard short-form power purchase agreement developed for small electricity projects in Namibia. This is part of a number of documents, including a fuel supply agreement, which can be found at the Namibian Electricity Control Bureau. At its Regency Saugus Center in Massachusetts, the owner of a national mall, Regency Centers, partnered with tenant Trader Joe`s to install a 253 KW solar system on the roof. Regency Centers owns the solar system and sells the generated solar energy at a discounted price to Trader Joe`s, offsetting about 65% of its total electricity consumption with clean electricity. Many small and medium-sized energy projects are simply not big enough to generate interest. The above-mentioned PPAs should be distinguished from power purchase agreements in a deregulated electricity market, which are usually power purchase agreements with a private generator if the power plant already exists or if the plant is built on the initiative of the private generator. For examples of this type of PPA, click on the following sample links: Edison Electric Institute Master Power Purchase & Sale Agreement (PDF) (4/25/2000) and Tri-State PPA. The Green Tariff 1.0 program did not provide any economic benefit to customers because it was essentially an additional line above what customers were already paying for electricity. While it gave customers the right to brag about green energy, it came at a price.

However, these programs generally did not require a long-term commitment, which was an advantage. REC sales contracts often spanned three to five years rather than decades. In an off-site APP, the customer enters into a long-term PPA with the owner of a renewable energy project, but does not accept a physical delivery of the electricity produced, which is instead sold to the local grid at market price. The customer and the contracting authority agree on a fixed tariff for the cost of the electricity produced, also known as the strike price. The developer then sends the customer funds as part of a settlement transfer for the difference between the income from the energy sold at the market price minus the amount of the customer`s fixed interest. The amount of this settlement transfer depends on the market price of energy and, in cases where the EFA`s strike price exceeds the market price of electricity, the customer is required to pay the difference to the project owner. The customer continues to make normal payments to its utility, but some of these costs are offset by funds received as part of PBA settlement transfers. This payment agreement between the client and the project owner is called a fixed swap for float or a contract for difference. The utility that serves the customer provides a connection between the energy system and the power grid and will continue service if the system does not produce enough electricity to meet the customer`s electricity needs. If the system produces excess electricity, it can be sold to the utility, usually at the retail electricity tariff. This process is called net metering, and most states have implemented net metering policies.

For more information about net metering, see NCSL Status Net Metering Policy Overview. Electricity producers enter into PPAs bilaterally with a consumer company („corporate PPP”) or with an electricity trader who purchases the electricity produced („merchant PPA”). The electricity trader can continue to supply electricity to a specific electricity consumer (turn the contract into a „business PPA”) or choose to trade the electricity on an electricity exchange. Many international companies are already acquiring shares of their electricity consumption through PPAs or have expressed their intention to do so more frequently (see there100.org/re100). They use PPAs to obtain stable and calculable electricity prices. PPAs are an effective way to reduce electricity price risk, especially for operators of installations with high investments and low operating costs (such as photovoltaic and wind turbines). Since the payment for electricity is already partially secured, facility operators and finance banks may be more confident that the proceeds from the sale of electricity actually cover the investment costs. This makes the project more profitable in the long run. A Power Purchase Agreement (PPA) secures cash flow for a clean construction transfer (BOT) or a concession project for an independent power plant (IPP). This is between the „buyer” buyer (often a state-owned electricity supplier) and a private electricity producer. The PPA described here is not suitable for electricity sold on world spot markets (see Deregulated Electricity Markets below).

This summary focuses on a base thermal power plant (the problems would be slightly different for mid-range or peak thermal or hydroelectric plants). For a more detailed discussion of issues associated with PPAs of this type, see the IFC Guide to Power Purchase Agreements (1996) – which can be found in Annex 2 (page 160) of the World Bank`s Concession Toolkit (pdf). .