The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. Presenting a live 90-minute webinar with interactive Q&A Renewable Energy Projects: Negotiating Power Purchase Agreements Structuring Terms To Meet State and Federal Renewable Power Standards Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific THURSDAY, FEBRUARY 9, 2017 W. Bryce Chastain, Partner, Atkinson Andelson Loya Ruud & Romo, Pleasanton, Calif. Darin Lowder, Partner, Ballard Spahr, Washington, D.C. Kristen Thall Peters, Partner, Cooper White & Cooper, San Francisco and Walnut Creek, Calif.
109
Embed
Renewable Energy Projects: Negotiating Power Purchase ...media.straffordpub.com/products/renewable-energy-projects-negotia… · Presenting a live 90-minute webinar with interactive
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
Presenting a live 90-minute webinar with interactive Q&A
Renewable Energy Projects:
Negotiating Power Purchase Agreements Structuring Terms To Meet State and Federal Renewable Power Standards
Facilitates renewable energy development that may not otherwise occur, providing environmental, educational, financial, economic development (e.g., green jobs) benefits to the community
How Competitive procurement (RFP or RFQ/RFP)
Specific project or open invitation to bid
Add-on through master energy performance contracts
Alternatives: customer may propose key terms or seek form PPA from provider 18
Power Purchase Agreements:
Risks
Risk-Sharing
Risk to public property
Project completion risk
Schedule risk
Losing financial incentives (grants, rebates)
Change in law
Loss of use of project site by Customer (convention center)
Decrease in solar resources (allowing a building to block sun)
PPA must continue through financing term
Risk of lower future power prices 19
PPA: Tax Issues
Tax Issues Who owns the system (according to the IRS)?
Control, risk of damage, benefits & burdens of ownership
Risk of Recapture of federal tax benefits
20
PPA: Financing Issues
Financing
Step-in rights for lenders to operate project
Consent to assignment of PPA
Results of customer default (requirement to
remain in place or be removed – at whose
cost?)
Financing lien on system property (the project
– not the underlying real property, land, or
other improvements)
Documents recorded in full or in
memorandum form 21
PPA: Business Terms
Business Terms Energy pricing – output guarantee?
System size variation
PPA lease renewal (beyond normal 15-20 year initial term)
roof obstructions, zoning, pitch and orientation, visual impact, size,
distance to sufficient building electric load, etc.
Make sure roof warranty issuer can integrate solar project into
roof warranty before transaction is finalized with solar owner
Have substitute sites lined up
Include solar planning in longer-term roof replacement planning
Issue # 2: Roof Selection, Replacement
Schedule, and Warranty
38
Why it is important?
15- to 25-year agreement with legal entity often created to
own agency’s projects and sometimes a broader portfolio of
renewable projects
Liability of agency for SPE obligations
Long-term outside ownership of equipment on government
agency’s roof, parking, and/or land sites
Why it can be overlooked?
PPAs are an industry standard for government agencies
Contracts are sold as, and intended to be, turnkey leases
Issue # 3: Understanding SPEs and
Other Contractual Risk Issues
39
How it can stop or slow solar projects?
Legal, Finance/Insurance, and/or Executive staff become
concerned about risks in PPA documents
Final contract negotiation is not the best time to start thinking
about risk mitigation
Issue # 3: Understanding SPEs and
Other Contractual Risk Issues
40
Key (overlooked) stakeholders to involve early
Legal (ability to form entities, share risk, waive rights)
Finance/Insurance (liability issues)
Executive (PR impacts of corporate actions)
How and when to involve
At initial project organization/feasibility meeting
Contract structure and risk mitigation can affect fundamental
aspects of procurement process
Whether a PPA is right for the agency, PPA size and duration,
favored provisions, types of owners desired by agency, etc.
Ask for each solar bidder’s standard PPA contract during RFP
process and for its flexibility in meeting agency’s legal
requirements
There can be significant differences among bidders in these areas
Consider having Legal integrated into bid review at some level
Issue # 3: Understanding SPEs and
Other Contractual Risk Issues
41
Commencement
“Synchronous Operations”
Successful completion of construction
and testing of the Facility
Facility has synchronized with Buyer’s
distribution system
42
Commencement
Seller has determined in accordance with
Prudent Electric Industry Practice that the
Facility is ready to deliver the Energy to
the Delivery Point in accordance with the
provisions of this Agreement
Written notification
43
Standard of Care
“Prudent Electric Industry Practice” Practices that, at a particular time, in the exercise
of reasonable judgment in light of the facts known or reasonably should have been known at the time a decision was made, could have been expected to accomplish the desired result consistent with good business practices, reliability, economy, safety and expedition.
Generally conform to operation and maintenance standards recommended by the Facility’s equipment suppliers and manufacturers, applicable Facility design limits and applicable Governmental Approvals and Applicable Law.
44
Standard of Care
“Prudent Electric Industry Practice” Not intended to be limited to the optimum
practice, method or act to the exclusion of all others, but rather to include acceptable practices, methods or acts generally accepted.
Includes, but not limited to, practices engaged in or approved by a significant portion of the U.S. electric power generation industry.
45
o Wind PPAs
o Solar PPAs
o Geothermal PPAs
o Biomass PPAs
o Landfill Gas PPAs
Overview of Key Characteristics of
Renewable Technologies
46
o Wind
o Intermittent resource
o Incremental project size
o No fuel supply contracts
Key Characteristics
of Wind Technologies
47
Intermittent resource
• “As-delivered energy” (timing/amount of delivery not guaranteed; no capacity/reliability value)
• Payments for energy only
time-of-day/seasonal pricing
• Curtailment/transmission constraint issues
allocation of risk
• Transmission instability/upgrade costs
Wind PPAs
48
• Availability/output guarantees
ramp-up, rolling average, annual caps
wind-adjusted
• COD issues
no performance testing pre-COD
Post-COD warranties are key
Wind PPAs (cont’d)
49
Incremental project size
• What is project size?
project phasing for large projects
shared facilities
• When is COD?
RECs available for financing
• RECs: need to define ownership and examine ability to separate them from delivered electricity – state law issue
Wind PPAs (cont’d)
50
RECs
PPA Damages should include tax and
other non-cash losses
No fuel supply contracts
• No fuel pass-throughs
• Force majeure issues
Wind PPAs (cont’d)
51
Solar
• Intermittent resource
• Incremental project size
• RECs available for financing
• No fuel supply contracts
• Current paradigms: customer PPAs and
utility PPAs
Key Characteristics
of Solar Technologies
52
Intermittent resource
• Same issues as wind PPAs
Incremental project size
• Same issues as wind PPAs
No fuel supply contracts
• Same issues as wind PPAs
Solar PPAs
53
Current paradigms: customer (retail) PPAs and utility PPAs
• Customer PPAs: rooftops and parking lots
one option for financing project
leaves ownership, operation issues to
seller
end of term/transfer of underlying real
estate issues
• Utility PPAs
mimics traditional wind PPA structures
Solar PPAs (cont’d)
54
Geothermal
• Non-intermittent resource
• Resource degradation
• Station service requirements
• RECs available for financing
Key Characteristics of
Geothermal Technologies
55
Non-intermittent resource
• Receive both capacity payments and
energy payments
• Must demonstrate capacity and other
performance measures at COD and
during contract (usually annually)
Geothermal PPAs
56
Resource degradation
• Must be incorporated into capacity/output
guarantees
• Force majeure for unexpected depletion
of resource
Geothermal PPAs (cont’d)
57
Station service requirements
• Can be significant in order to use
geothermal resource, need to ensure
associated RECs run to project
RECs available for financing
Geothermal PPAs (cont’d)
58
Biomass
• Non-intermittent resource
• Fuel shortage and supply issues
Key Characteristics of Biomass
Technologies
59
Non-intermittent resource
• Same issues as geothermal PPAs
Fuel storage and supply
• Supply logistics extremely complex
• Shortage requirements can be
burdensome
• Ability to claim force majeure for third
party supplier acts/omissions critical
Biomass PPAs
60
Landfill Gas
• Non-intermittent resource
• Resource degradation
• RECs available for financing
Key Characteristics of Landfill and
Digester Gas Technologies
61
Non-intermittent resource
• Same issues as geothermal PPAs
Supply Issues
• Logistics can be extremely complex
• Shortage requirements can be burdensome
• Ability to claim force majeure for third party supplier acts/omissions critical (quality and/or quantity)
Resource degradation for LFG
Landfill and
Digester Gas PPAs
62
Strategies For Negotiation
What is the Market for Renewable Energy?
RPS and other Required Standards
Green Building/LEED Certification
Voluntarily Green
Why does the lessor/seller/grantor what to contract with you?
Royalty
Recipient of clean energy
63
Strategies For Negotiation
Initial Stage of Development vs. Established Facility
Who is the Off taker? And will the Off taker help you?
IOU
Local power company
Private User
Long Term v. Short Term - Guessing Future Markets
REC prices
Energy Prices
64
Post-PPA Discussion
The slides that follow address project finance considerations that are not PPA-specific.
LICENSE: The text of the foregoing is licensed under the Creative Commons Attribution http://creativecommons.org/licenses/by3.0. Pursuant to this license, you may copy this PowerPoint presentation as long as you give attribution.
DISCLAIMER: The information contained in this presentation has been prepared by Cooper, White & Cooper LLP (“Cooper”) and is not intended to constitute legal advice. Cooper has used reasonable efforts in collecting, preparing, and providing this information, but does not guarantee its accuracy, completeness, adequacy, or currency. The publication and distribution of this presentation is not intended to create, and receipt does not constitute an attorney client relationship
Cerritos • Fresno • Irvine • Pleasanton • Riverside • Sacramento • San Diego
Power Purchase Agreements
— Best Practices and How to
Avoid Pitfalls, Snafus and
Faux Pas…
Presented by: Bryce Chastain, Esq.
What is a Power Purchase Agreement or
“PPA”?
A Power Purchase Agreement (“PPA”) is a legal
contract between a power generator and a power
purchaser under which the power purchaser
purchases energy from the power generator.
83
Who are the Players in a Typical PPA?
1. Owner/Host — Almost anyone… Companies, Public Entities (i.e., City, County, School District, College, etc.)
2. Vendor/Provider (PFMG, SolarCity, etc.)
3. Financier (Constellation, Onyx, etc.)
4. Utility (PG&E, SoCal Edison, etc.)
84
Power Purchase Agreements
The Power Purchase Agreement (PPA) is one alternative to financing and owning an energy generating system.
Advantages:
- It offers the owner an opportunity to obtain power without paying upfront costs
- Owner usually doesn’t have to worry about system operation and maintenance.
- Provides 15-25 years of predictable, pre-set power prices.
85
Alternatives to
Power Purchase Agreement
1. Direct Purchase Model
2. Lease/Purchase Option
86
An owner can purchase a system outright or through a lease-purchase transaction utilizing a combination of bonds, credits, grants, loans, rebates and cash reserves
Advantages:
- Increases the value of the owner’s facility
- May make better financial sense
Disadvantages:
- Requires operations and maintenance expertise
- Retains all costs and risks of ownership, i.e. component failures
Alternatives to
Power Purchase Agreement
87
Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
10. Failing to Comprehend their Actual Power Usage Before Pursuing an Alternative Energy Solution
– Energy Audits and Assessments
– Free and low costs assessment resources
– The California Energy Commission can provide free or reduced cost assessment if certain conditions are met (http://www.energy.ca.gov/)
– The Center for Sustainable Energy can also provide free or reduced cost assessment (http://energycenter.org/)
– The California Energy Commission's existing Energy Conservation Assistance Account Program (ECAA) makes low interest loans available for investments in energy efficiency and carbon emissions reduction
– Local utilities have various programs that provide free or subsidized energy auditing
88
Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
• Deliverables from the Owner
–Historical Utility Usage and Cost Data
–Projected Future Energy Requirements – Master
Planning Issues
• Access to Records and Sites
89
Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
9. Failing to implement energy efficiency
measures prior to determining system size
– The more energy efficient your facilities are, the
smaller (and less expensive) the system will need to
be.
90
Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
Energy Efficiency Contracts
• Use Results of Energy Efficiency and Projected
Energy Requirements Analyses
• Analyze Cost of Solution
• Analyze Cost of Energy Post-Solution
91
Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
8. Failing to make prospective vendors compete by utilizing a competitive RFQ/RFP process
– Don’t just use the first vendor that approaches you. In this highly-competitive environment, you’re better served in requiring the vendors to compete for your business.
– Don’t worry about having every last detailed engineering aspect sorted out prior to the RFP. Let the vendors provide different options to give you ideas on how best to structure the transaction.
92
Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
7. Failing to retain appropriate expertise
The Right Power Company
Whether it’s solar, wind, geothermal or
other alternative energy source, consider
the company behind it:
- Corporate History
- Record of Past Performance
- Good References
93
Engineer/Construction Manager
- Installation Experience
- Relevant Private or Public Project Experience
- Successful past collaboration with Alternative
Energy Provider and Installers
94
Financial Consultant
- Aggressive and independent verification of
financial and cost escalation assumptions
provided by Vendor
- Experience with financing of similar systems
under PPA and Direct Purchase Models
95
Legal Consultant
- Experience with all phases of project, from
initial consideration, through RFP selection
process, through PPA negotiation and
construction and operation of project
- Demonstrated ability to effectively coordinate
owner’s team
96
Environmental Consultant
• Familiarity with the particular environmental
conditions where system installation is
proposed
• Past experience with applicable
environmental regulatory schemes and their
impact on the particular energy source and
apparatus (i.e., NEPA, CEQA, etc.)
97
• Assembling the right team with the right expertise is critical to insuring you obtain the best arrangement possible.
• Alternative energy PPAs involve complex financial, legal, environmental and construction considerations.
• The vendor’s job is to look out for the vendor. Who’s looking out for you?
Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
98
Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
6. Failing to obtain aggressive energy production guarantees
Guarantees That Preserve the Economic Benefit Enjoyed By The District
- Minimum Production Guarantees
- Metering Accuracy Guarantees
99
Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements 5. Failing to conduct proper project analysis under
the applicable environmental and other legal and regulatory schemes
Many PPA projects generate light, wind, or heat and their installation in some cases may displace or harm threatened wildlife species.
In some cases, failing to conduct appropriate environmental review leaves the project vulnerable to legal challenge.
For public owners, funding source may dictate a specific and/or competitive process to qualify for funding, i.e., Proposition 39 in California
100
Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
4. Accepting a PPA term that is too long.
As technology in the advances, we will see
more efficient and less expensive equipment,
which in turn, will have a significant impact
on the current economics of the PPA.
101
What were cell phones like
25 years ago?
102
How About Computers?
103
Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
3. Failing to Insure that the anticipated cost to the Host of the energy services will be less than the avoided costs if the services were not utilized.
In some states, like California, this is a legal requirement for publically-owned facilities that wish to contract outside of a competitive low-bid procurement process.
104
Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
2. Failing to consider direct purchase as an alternative to a PPA
Because of the falling costs of some systems and the availability of credits, rebates, grants and opportunities for selling bonds and obtaining other financing, the economics of ownership may be a preferred option for.
The right financial consultant can help you understand the “true” cost difference between ownership and a PPA.
105
Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
1. Failing to look into alternative power
arrangements now…
Given the long-term savings opportunities
achieved through lower system costs coupled
with the availability of rebates, credits and
grants, given the current challenging fiscal
environment, owners should look into
alternative energy solutions as a part of its
long-term fiscal strategy.
106
Do’s and Don’ts for Approaching
Public Owners for PPA Projects
DO’S
- Understand the legal framework under which the owner
has to operate in pursuing such projects
- Get to know the particular challenges unique to public
owners in their pursuit of alternative power
arrangements
- Figure out the local politics around the issue
- Understand who the decisionmakers are and how they
make decisions.
107
Do’s and Don’ts for Approaching
Public Owners for PPA Projects
DON’TS
• No hard sells — Don’t come across as a used car
salesperson
• No end run around the decisionmakers
• No violation of conflict of interest laws — i.e., taking
board members or council members out on golf
junkets then failing to report
• Failing to understand the framework (and restrictions)