Seven Tweaks to Upgrade Corporate PPAs

The objective of corporate PPAs is quite similar to traditional utility PPAs: both aim to secure long-term revenue streams through the sale of electricity generated by power plants, while maintaining standards of bankability, payment obligations, and providing a framework for the relationship between a power producer and an off-taker. Utility PPAs are massively implemented in the energy sector, predominantly used by governments as a vehicle to promote renewable energy, and oftentimes yielding extraordinarily low prices. However, a recent surge in corporations’ interest in renewable self-generation is pushing solar developers towards more innovative PPA structures and solutions. Corporations are now at the vanguard of renewable markets.

Distributed generation is a well-known example of a renewable generation solution where the solar system is installed at the off-taker’s premises, offsetting its energy requirements. In some jurisdictions, distributed generation is the only viable means of accessing the benefits of renewable generation for corporations. Thus, maximizing the generation capacity of their premises is of utmost importance: site conditions, the availability of space and technological constraints may restrict customers from enjoying the true full potential of their solar system.

It is the job of the solar developer to provide a technically and commercially sound solution that optimizes the economic and environmental benefits for the customer, while ensuring the non-disturbance of the facility’s daily operations. Customers should rely on solar developers’ capacity to maximize the generation of their premises, however, there are emerging contractual solutions that can be implemented to ensure and protect customers from non-performing solar developers.

Attractive solar tariffs require long-term agreements that can be perceived too lengthy for most companies. Corporations are subject to macro-economic cycles that affect their businesses, and most are driven by quarterly business cycles that induces myopic strategic planning. Nevertheless, energy management is progressively being a competitive differentiator, and by offering flexible contractual solutions, the solar developer can help corporations to achieve that vision.

Here are seven tweaks to upgrade a corporate PPA

Although traditional utility PPAs serve as the backbone for the implementation of corporate PPAs, due to its longevity and proven bankability, some adjustments are advised to address the challenges associated with a corporate off-taker in a behind-the-meter corporate PPA.

1. License to access the premises

The customer should grant the solar developer an irrevocable license to access the premises for the duration of the agreement, in order to perform its obligations, such as, cleaning, preventive and corrective maintenance and other works relevant to operating the system. Additional measures can be added to protect customers confidentiality and privacy, such as, license’s prior notification and limitation of areas without customer’s supervision required.

2. Allowance for scheduled outages

The customer may require a partial or total shutdown of the solar system to perform annual maintenance on the facility. The agreement should allow an annual limit for planned outages without further equitable compensation to the solar developer.

3. Energy generation guarantee

The agreement should include an energy generation guarantee: a mechanism that ensures the reliability of the estimated solar generation of the system and guarantees the solar developer’s commitment towards operations and maintenance activities. With this mechanism, the solar developer guarantees that the annual energy generation of the solar system in any given year will be no less than the amount set out in the agreement. If the annual energy generation is less than the guaranteed energy, the customer should be reimbursed by the developer for the electricity bill savings that otherwise would have been enjoyed.

4. System relocation

Due to its long tenure, and acknowledging the flexibility required by the customer, the agreement should provide a variety of exit solutions in the case that the customer ceases its activities in the premises, sells and vacates the premises, or loses its right to occupy the premises. In such cases, the first exit option is to allow the customer to provide a substitute facility where the solar system can be relocated. However, the conditions of the substitute facility must be similar to the initial facility (system size, solar irradiation, shading or site conditions and access), in order to maintain the economic benefit of the agreement for both parties.

5. Agreement novation to a new tenant

In the case that the customer cannot provide a substitute facility to relocate the solar system both parties should have the option to enter into discussions to novate the agreement to the new owner/tenant of the premises. However, the solar developer should have full discretion in the acceptance of the new customer, upon conducting a thorough due diligence.

6. Early acquisition

The customer should be allowed to acquire the solar system before the agreement term, by paying a pre-determined value. The flexibility here is twofold: if the customer cannot provide either a substitute facility to install the solar system; or if a creditworthy substitute customer to novate the agreement is not engaged. Additionally, the customer may simply reserve the right to purchase the system as a financial decision at their own discretion. It is common for solar developers to extend Operations and Maintenance agreements thereafter.

7. Customer payment guarantee

In a state-backed utility PPA, the solar developer may receive a sovereign guarantee as security for the payment’s obligations. Although such mechanisms are not available in corporate PPAs, the form of payment security required may vary, depending on the size of the project and the creditworthiness of the customer: most commonly a payment deposit, a letter of credit, or a parent company guarantee.