Title: Power Purchase Agreement Between Massachusetts Electric Company and Nantucket Electric Company, d/b/a National Grid, as Buyer, and Cape Wind Associates, LLC, as Seller (PPA 1)

Languages: English

Type: Document

Region: North America

Country: Global / Non-Specific

Sectors: Energy and Power

Keywords: Contractual Provisions, Climate Smart, Wind power


Power Purchase Agreements between National Grid and Cape Wind Associate868.19 KB, First amendment to PPA between National Grid and Cape Wind Associate4.46 MB, Order approving the Contract between Nantucket and Cape Wind Associate1.59 MB

Document Details:



Agreement Synopsis, Context and Review



Renewable Energy; Wind Power

Name of Agreement:

Power Purchase Agreement Between Massachusetts Electric Company and Nantucket Electric Company, d/b/a National Grid, as Buyer, and Cape Wind Associates, LLC, as Seller  (PPA 1)

First Amendment to Power Purchase Agreement dated August 9, 2010 (Amendment)

Type of Agreement:

Power Purchase Agreement for Large-Scale Off-Shore Wind Project

Region (if known):

Massachusetts, USA, adjacent federal waters of Nantucket Sound (off Cape Cod)

Year of Agreement/ Draft:

As of May 7, 2010


Principal Author(s) (firm and contact person):

Private Law Firm

Annotated by:

Cristina Ferreira (World Bank PPPLRC Consultant), Sara Sigrist, (LEGPS, World Bank)

Purpose and Context:

In 2008, the Commonwealth of Massachusetts legislature enacted the Act Relative to Green Communities (“Green Communities Act”), a legislation to promote energy efficiency and encourage investment in renewable energy. Under Section 83 of the Green Communities Act, electric distribution utilities in Massachusetts are required to enter into cost-effective, long-term contracts of 10-15 years to purchase at least three percent of their power supply from eligible renewable resources.In 2010, theMassachusetts Department of Public Utilities (“MDPU”) approved the power purchase agreement (“PPA-1”) pursuant to which two Massachusetts-based distribution utility subsidiaries of National Grid USA, Massachusetts Electric Company and Nantucket Electric Company (hereinafter collectively referred to as “National Grid”) will buy approximately 50% of the output of Cape Wind Associates, LLC’s proposed 468 MW off-shore wind farm(the “Cape Wind Project”,  “Project”, or “Facility” ) for a 15 year term. The MDPU found that PPA-1 is both cost-effective and in the public interest. The Project output sold to National Grid under PPA-1 would represent approximately 3.5% of their retail load in Massachusetts (and thus exceed its renewable power purchase obligations under the Green Communities Act), and also helps compliance with greenhouse gas emissions reduction requirements of the Global Warming Solutions Act. Under the terms of PPA 1 National Grid will purchase energy, associated capacity, renewable energy certificates (‘RECs”) and other environmental attributes of the Project.

Initially, National Grid had intended to purchase the entire output of the Cape Wind Project through 2 separate power purchase agreements. Only PPA-1 received approval from the MDPU. The second agreement (“PPA-2”) assumed that National Grid would assign its entitlement to the remaining output of the Project to a third-party, thus facilitating the Project’s ability to obtain financing based on having 100% of its output contracted. PPA-2 did not get approval from the MDPU on the basis that, since PPA-2 contemplated that it would be assigned, and the contract could be modified upon assignment, there was no purpose for the MPDU to approve PPA -2 in advance.  See www.env.state.ma.us/dpu/docs/electric/10-54/112210dpufnord.pdf  


This synopsis describes the provisions included in PPA-1, as amended. The Amendment to PPA-1 dated August 9, 2010 is a separate document that reflects the terms of a settlement between National Grid, Cape Wind, the Attorney General of the Commonwealth of Massachusetts, and the MDPU. The settlement provided among others for a decrease in pricing from US$ 207/MWh to US$187/MWh. Where appropriate, this synopsis will indicate if the relevant contractual provision appears in the original PPA-1 or in the Amendment.

Circumstances where this contract may be appropriate:

PPA-1 may be an appropriate model for large-scale off-shore wind farm facilities serving bulk power systems similar to the regional bulk power system in New England, which has an independent system operator (“ISO”) who operates the bulk power transmission system on an open-access basis and administers centralized, bid-based bulk power markets for energy, capacity and ancillary services. It is of particular interest to power authorities seeking to foster investment in clean energy. 

Drafted for common law/ civil law jurisdiction:

Common Law

Main Features:


Purchase and Sale of Energy, Capacity and environmental attributes, including RECs

Seller will sell and deliver to Buyer, and Buyer shall purchase and receive Buyer’s Percentage Entitlement of the Products, namely, (i) Energy; (ii) Capacity; and (iii) RECs produced by each Phase of the Facility that has achieved its Partial Commercial Operation Date(PPA § 4.1 (a) (b)). The Buyer’s Percentage Entitlement is defined as 50% of the Products, up to and including the Contract Maximum Amount.  The Contract Maximum Amount is 234 MWh of Energy and corresponding amount of all other Products, subject to possible adjustment to the size of the proposed Facility under § 4.10.  The Facility is defined in the recitals and Exhibit A to the PPA-1 as a wind-energy generating facility of up to 468 MW to be located offshore of Massachusetts in the adjacent federal waters of Nantucket Sound. (PPA-1 Definitions)


Environmental Attributes; RECs

PPA-1 clearly states that Environmental Attributes are sold with energy and capacity. Seller transfers to Buyer all of the right, title and interests to Buyers’ Percentage Entitlement of the Facility’s Environmental Attributes(PPA § 4.7).


The definition of RECs includes certain specified certificates and all other Environmental Attributes produced by the Facility. Environmental Attributes is broadly drafted to include Seller’s title and claim over all generation attributes, including RECs under all international, federal, regional, state or other law that are attributable now or in the future to Buyer’s Percentage Entitlement to the generation or environmental attributes of the Facility. It excludes production tax credits  and other credits associated with the construction and ownership, operation and maintenance of the Facility.(PPA-1 § 1 (Definitions))


All Energy under PPA-1 shall meet requirements for eligibility pursuant to the Renewable Portfolio Standards (RPS). However if the Facility ceases to qualify as a RPS Class I Renewable Generation Unit due to a change in Law, Seller is only required to use commercially reasonable efforts to meet RPS requirements after such change in Law. (PPA-1 § 4.7 (b))

Seller bears the risk of change in law with respect to RECs subject to a standard of commercially reasonable efforts.  For background information on Massachusetts RPS rules see and for general United States policies by state regarding  RPS  also see

Renewable Portfolio Standards Fact Sheet


Prior to delivery of any Energy, Seller shall cause Buyer to register as the initial owner of RECs under PPA-1, in the New England Power Pool Generation Information System (GIS), or Seller and Buyer shall make an irrevocable forward transfer of the RECs in the GIS to the benefit of Buyer. (PPA-1 § 4.7 (d)


RECs can be defined as electronic certificates that label the environmental attributes of each megawatt hour of electric energy from renewable resources. For more information about the RECs trading in the  GIS see Generation Information System.  



Milestones and Phases of the Facility Development





Commercial Operation

Seller shall develop the Facility and achieve Critical Milestones including (i) receipt of all Permits in final form by December 2013; (ii) acquisition of all real property and site rights, interconnection of the Facility to the Interconnecting Utility by December 31, 2013;(iii) closing of Financing including with respect to the interconnection of the Facility by December 31,2013; (iv) commencement of construction by 12/31/2013; (v) achievement of the commercial operation of all phases (Commercial Operation Date) on December 31, 2015. (PPA§ 3.1 (a))

If the Facility fails to achieve the Commercial Operation Date by December 31, 2015 as it may be extended by Seller by up to 2 years in total, subject to Force Majeure; either Party may terminate PPA-1 and after such termination neither Party will have any further liability except with respect to the Security for Performance, Confidentiality and Indemnification provisions.  (PPA § 3.1 (c)(e))

The Facility may achieve commercial operations in phases (Partial Commercial Operation Date) if: (1) no phase is less than 28MW of capacity; and (2) there are no more than 17 phases in total for the Facility. (PPA 1, § 3.3 (a)).

The Partial Commercial Operation Date for any Phase occurs on the date on which such Phase is substantially completed as described in Exhibit A and capable of regular commercial operation in accordance with Good Utility Practice, tests have been successfully completed and certain conditions precedent including completion of transmission and interconnection facilities, execution of Interconnection Agreement, establishment of ISO-NE related accounts, and relevant regulatory approvals have been obtained. (PPA 1, § 3.3 (b))

The Commercial Operation Date occurs on the date that all Phases of the Facility have achieved Partial Commercial Operation Date satisfying all conditions of section 3.3 (b). (PPA 1, 3.3 (c))







Services Term

The term of PPA-1 begins on the Effective Date (May 7, 2010) and ends upon final settlement of all obligations after the expiration of the Services Term, or earlier termination in accordance with PPA-1 terms. (PPA, § 2.2)(a))


Buyer will purchase power from each phase of the Facility beginning on its Partial Commercial Operation Date for 15 years. The Service Term of the PPA-1 commences on the first Partial Commercial Operation Date and continues for a period of 15 years after the Commercial Operation Date, which will be the date that all phases of the Facility are substantially complete and capable of regular commercial operation (PPA, § 2.2)(b)(c)

Extension of Contract

Within 90 days before the 14-year anniversary of the date on which the first phase of the Facility achieves the First Commercial Operation Date (the Determination Date),  Buyer has the option to extend the PPA for a 10-year period.  Seller has to provide Buyer with an Extension Price at least 180 days prior to the Determination Date. The Extension Price will reflect any unrecovered construction costs and reasonably projected operating and maintenance costs, together with an IRR corresponding to the average rate of return of investment with comparable risk (cost-plus-pricing). If Buyer does not receive Regulatory Approval for the extension within 210 days after the Determination Date, Buyer’s rights to the extension becomes void.  (PPA-1, § 2.2 (f), and PPA-1 Amendment exh. E, App X, § 5).

Note that the exercise of this option by Buyer depends on market-prices for bulk power and environmental attributes, as well as possible future regulatory requirements regarding greenhouse gas emissions. This option may prove valuable to ratepayers after the contract term.


Adjustments to Facility Capacity

Seller has the option to adjust the nameplate capacity of the Facility two times during the term of the PPA-1. The nameplate capacity may not exceed 468 MW. If Seller exercises the option, Buyer’s obligation to purchase Products would be adjusted to the lesser of (1) 234 MW per hour; or (2) 80 percent of the revised contract capacity of the Facility expressed in MWh. Such adjustment shall not result in any adjustment of the Bundled Price (Amendment, §4.10).

Provisions such as this are not uncommon in renewable energy PPAs from wind and solar resources where project capacity is scaleable. The Cape Wind Project would be comprised of up to 130 wind turbine generators (each 3.6 MW) and for some reason may not be fully developed.  

Price for Products

All Products delivered to Buyer shall be purchased at the Bundled Price for the Products, subject to adjustments for Forward Capacity Market Payments and for Wind Outperformance Adjustment Credit. (PPA 1, § 5.1 (a)  and Amendment Exhibit E).  

Bundled Price per MWh is allocated to each of Energy and RECs. (PPA-1 Amendment exh. E). The monthly price for RECs shall be in accordance with the Massachusetts Class 1 Compliance RECs future settlement price as published by the Chicago Climate Futures Exchange.  The monthly price ($/MWh) for Energy shall be the Bundled Price per MWh less the RECs allocation and less the $/MWh adjustment for the Forward Capacity Market (“FCM”, see below for description) for the applicable billing period (Amendment exh. E § 3)

Forward Capacity Market Payments

Buyer’s monthly payments to Seller will be reduced to reflect the FCM value of the Capacity Buyer is purchasing. The FCM is a three-year forward capacity market administered by the ISO New England (“ISO-NE”). The ISO-NE conducts annual auctions to purchase sufficient capacity to provide resource adequacy on the ISO-NE-controlled grid three years in the future. (PPA 1, § 1Definitions).


PPA-1 provides that the Price of Energy set forth in Exhibit E shall be modified in case of substantial changes or discontinuation of the FCM to the extent that Capacity no longer has value in the New England bulk power market. (PPA 1, § 4.1 (d))


Wind Outperformance Adjustment Credit

If the Facility exceeds its target net capacity factor of 37.1 % in any year, the price paid for the surplus power will be reduced by 50% (PPA-1 Amendment, exh. E, App. Y).  Seller records for each Contract Year the annual production target based on the capacity factor of 37.1% and compares it to the actual production.  If in a given year, surplus power is generated, the price reduction will appear as credit for 50 percent of the surplus power sold to Buyer, and credits resulting from this mechanism will be calculated a the end of the applicable contract year and applied to invoices in the billing cycle for the next contract year. (Amendment, exh. E, App. Y)


Base Price

The Base Price of $187/MWh for Products on calendar year 2013 is the basis for calculating the Bundled Price which is the lesser of (i) the Base Price adjusted for size of the Facility, tax credits and financing costs; and (2) the Cost Adjusted Price – which is equal to the Bundled Price that would result in the forecasted net revenue stream, allowing Seller to realize a 10.75% internal rate of return “IRR” (PPA-1 Amendment exh. E; App. X § 4). Absent this Cost Adjusted Price mechanism, Seller and its equity-holders would benefit alone from a lower cost of the Project, here the Cost Adjusted Price is designed to pass on 60% of the benefits of a lower debt financing and construction costs to Buyer’s ratepayers.


Base Price Adjustment for Size of the Facility

The Base Price will be adjusted upward if Seller reduces the nameplate capacity of the Facility below the projected 468MW. The Base Price will increase linearly by $0.0833 per MWh for each MW decrease in nameplate capacity below 468 MW, subject to a cap of $193 per MWh of Energy Delivered during 2013.  (PPA-1, exh. E, App X, § 1.a.) The Base Price is dependent on the size of the Facility – if the Facility for some reason has less than 130 turbines with nameplate capacity of 3.6 MW, the resulting Base Price would increase up to $193 MWh. 


Base Price Adjustment for Tax Credit

The Base Price is premised on the assumption that the Facility will start Commercial Operations on a date on which the Facility is eligible for both the federal Investment Tax Credit and Production Tax Credit. If the Facility is not eligible for one or both tax credits, adjustments to the Base Price are applicable (PPA-1 Amendment, exh. E, App.X, § 2). Only renewable projects that complete construction by December 31, 2012 are eligible. For more information on U.S. federal tax renewable programs see for the ITC Business Energy Investment Tax Credit (ITC) and for the PTC Renewable Electricity Production Tax Credit (PTC)


Base Price Adjustment for Financing Costs

If Seller obtains debt financing at an interest rate lower than 7.5% per annum, the Base Price will be adjusted downward (PPA-1 Amendment, exh. E, App.X, § 3).  If Seller is able to secure debt financing cheaper than the 7.5% per annum, 75% of any costs savings will benefit the Buyer. Seller has an incentive to seek a drop on the cost of financing since it realizes 25% of cost savings.


Escalation Factor

The Bundled Price increases annually based on a escalation factor of 3.5% with the first escalation occurring on January 1, 2014 (PPA-1 Amendment, § 5.1(b) and exh. E, App.X.) If the Facility achieves Partial Commercial Operation Date in 2012, the Bundled Price for Products in 2012 will be reduced by 3.5% ((PPA-1 Amendment, exh. E, App.X., §7). The Escalation Factor will also be adjusted for extensions of the Commercial Operation Date, including in case of Force Majeure (PPA-1; §§3.1(c), 5.1(b), 10.1). If the Facility does not achieve its Commercial Operation Date by December 31, 2015, the Escalation Factor for that year will be delayed for the period of the extension, and there will be no further escalation until the Facility achieves its Commercial Operation Date (PPA-1, § 5.1(b)).


Note that the MDPU acknowledges that PPA-1 prices are higher than market prices today and may also be higher in light of forecasted energy prices, as a result it will increase the bill of National Grid’s residential retail customers by roughly 1.3 to 1.7 percent and the bills of its large commercial and industrial customers by 1.7 and 2.2 percent. Nonetheless, MPDU cost-benefit analysis of PPA-1 balances the overall cost of the contract with “unquantified” benefits including (i) compliance with state’s renewable portfolio standard and green gas reduction requirements; (ii) enhancing electric reliability; (iii) moderating system peak load and (iv) creating  additional employment.

Electricity prices on the NE ISO are set in hourly auctions. All

generators receive payment equal to the marginal cost of production

for the most expensive generator. Wind has zero marginal cost, so the premium paid by customer for power from Cape Wind will only have a

small net effect on utility bills. In the same decision above, the MPDU

stated “We are fully persuaded that if Massachusetts is to meet its statu

tory renewables and greenhouse gas emissions reduction requirements, offshore wind, and Cape Wind in particular, will have to be part of the


Most Favored Nation Clause

Prior to Seller entering into a new agreement or amending an existing agreement with another party for the remaining output of the Facility or output of another affiliated offshore wind facility within a 50 miles radius from the geographic center of the Facility, Seller shall: (1) offer Buyer to enter into an amendment of the PPA-1 to incorporate the terms and conditions of the new agreement if the term of the new agreement is for one year or longer; or (2) offer to enter into a new agreement with Buyer on the same terms and conditions as the new agreement if the new agreement is for less than one year (PPA-1, § 4.1(e)).  Buyer will have 20 days to accept or reject Seller’s offer, and the MDPU will have 180 days to approve any new agreement or amendment, if MDPU takes longer, Seller can sell to a third party (PPA-1, § 4.1(e)). Additionally, if Seller constructs additional offshore wind energy generating facilities in Massachusetts coastal waters or adjacent federal waters (within 50 miles of the facility), Buyer has an exclusive period of 60 days to negotiate with Seller for purchase of the Products of that project. (PPA-1 § 4.1(f)). 


Assignment by Seller; Lenders Rights

Seller may pledge or assign the Facility, PPA-1 or the revenues under PPA-1 (i) to an Affiliate of Seller or (ii) to any Lender as security for the financing of the Facility. (PPA-1 § 14.2)

Buyer’s consent (which may not be unreasonably withheld) is required for a change in control of Seller (PPA -1§ 14.3).


Buyer shall provide a copy of any notice of default given to Seller to any financing party, and Buyer shall afford such financing parties the opportunities to cure pursuant to the terms of the consent to assignment referred in Section 14.2 (PPA-1 § 9.3(d))


Interconnection and Delivery Systems

Seller is responsible for all costs associated with interconnection, service and delivery charges, including all related ISO-NE administrative fees, and shall defend and indemnify Buyer against any liability arising due to Seller’s performance under the Interconnection Agreement (PPA-1 § 3.5(a)(b))


Scheduling and Delivery of Energy






















Output Cover Damages






Resale Cover Damages

Seller shall Schedule deliveries of Energy with ISO-NE within the defined Operational Limitations of the Facility as set forth in Exhibit A. Seller shall transfer Energy to Buyer in the ISO-NE-administered Day Ahead Energy Market or Real Time Energy Market, as applicable in such manner that Seller can resell such Energy in the same markets. Buyer has no obligation to pay for any Energy not credited in the ISO-NE settlement system (including, without limitation, as a result of a transmission outage).(PPA-1 § 4.2(a)(b)(c); 4.3) Lenders are not comfortable when a project has to take unbounded risk of economic curtailment (i.e., wind project does not get dispatched because of very low or negative or zero clearing prices (which can happen in markets with lots of wind resources running at full capacity during low load conditions (e.g., Texas at night, Pacific Northwest when hydro is running to meet environmental restrictions re fish), but generally are ok with risk of physical curtailments (eg, line outage, system emergency). Depending on the market, curtailment provisions may be very contentious.

Seller shall at all times be designated “Lead Market Participant” for the Facility and shall be responsible for any obligations and liabilities under ISO-NE Rules. This provision makes clear that Seller is the entity that will have to qualify, schedule and bid the Project into ISO-NE’s market.

Seller takes the risk of all penalties and charges assessed by a Transmission Provider caused by noncompliance with the Scheduling obligations (PPA-1 § 4.2(c). Note that Lenders will likely want to fully understand the nature and possible scenarios where such penalties and charges may apply.


If Seller fails to satisfy any of its obligations to deliver Products, Seller shall pay Buyer an amount for such Delivery Shortfall equal to the Cover Damages that includes the amount by which Replacement Price exceeds the Price for Energy and RECs under Exhibit E multiplied by the quantity of the Delivery Shortfall, plus penalties and other costs arising out of such failure. (PPA-1 § 4.3 and Definitions)

If Buyer fails to accept all or part of the Products it shall pay Seller the Resale Damages which is the positive net amount by which the applicable Price that would have been paid for the Rejected Amount exceeds the Resale Price, multiplied by the quantity of the Rejected Purchase, plus penalties and other costs arising of such failure. (PPA-1 § 4.4 and Definitions)



Energy Delivery Point










Notional Delivery of Capacity


The Delivery Point for Energy is set forth in Exhibit A as the Barnstable, Massachusetts substation where the title and risk of losses passes from Seller to Buyer. (PPA-1 § 4.5 (a)(b)(c))

Seller is required to install, maintain and operate the electric meters in accordance with Good Utility Practices, ISO-NE and other. Each Meter shall be tested at Seller’s expense once a year. Buyer may require more frequent tests at its own expense and has access to audit Meters. The variance acceptance in Meter’s accuracy is less than 2% otherwise the measurement of Energy shall be adjusted as far back as possible up to a period of 6 months. Meters shall be capable of sending meter telemetry data and Buyer is to have simultaneous access to such data. (PPA-1 § 4.6 (a)(b)(f)) 


The delivery of Capacity by Seller and its purchase by Buyer is through financial settlement as per Exhibit E. (PPA-1 § 4.8 (a))

Security for Performance

Seller pledges and grants to Buyer as security for all outstanding obligations under the PPA-1 a first priority continuing security interest, lien on and right to set-off against all Posted Collateral. The Posted Collateral is defined as all Credit Support and proceeds thereof. (PPA-1 § 6.1, and §1 Definitions)

Development Period Security

The Seller is required to post Credit Support in the form or cash or Letters of Credit in the amount of $4,680,000 to secure Seller’s Obligations until the Commercial Operation Date (PPA-1 § 6.2(a)

Operating Period Security

The Seller is required to post Credit Support in the form of cash or Letters of Credit in the amount of $4,680,000 to secure Seller’s Obligations after the Commercial Operation Date through the date that all Seller’s obligations are satisfied. (PPA-1 § 6.2(b)).


Force Majeure








Defaults and Remedies
















Termination Payment and Liquidated Damages












Dispute Resolution

The PPA-1 FM provision excludes among others (i) events that merely increase costs or cause economic hardship to a Party; (ii) events caused by or contributed to by the Party claiming FM; (iii) higher or lower prices to Seller or Buyer respectively, (iv) curtailment by Transmission Provider unless curtailment is FM under firm transmission agreement (PPA-1 § 10.1 (a)(d)).


Events of Default by either Party include (i) material breach of representations and warranties continuing for more than 30 days after notice; (ii) failure to make undisputed payment continuing for more than 10 business day after notice; (iii) bankruptcy or liquidation not dismissed within 60 days; (iv) failure to maintain or comply with its permits other than Regulatory Approval; (vi) breach of certain covenants under PPA-1 not cured within the applicable cure period. (PPA-1 § 9.1 (a) through (d)).

Events of Default by Seller include (i) taking of Facility Assets or performance taken upon execution or process of law against Seller, or attachment not disposed in 60 days; (ii) failure to maintain credit support required under PPA 1 for more than five business days; (iii) failure to satisfy material ISO-NE obligations; (iv) failure to meet certain critical milestones for construction. (PPA-1 § 9.2 (a) through (d)).

Remedies in law and in equity include suspension of performance by Non-Defaulting Party; withholding payment; specific performance and termination.  (PPA-1 § 9.3 (a)).


In case of termination by Buyer due to Seller’s default, the calculation of Liquidated Damages formula includes the the replacement value of Buyer’s Percentage Entitlement of the Products for the remainder of the Term using a discount factor of 8.0% minus the contract value plus penalties.

In case of termination by Seller prior to the Financial Closing date due to Buyer’s default, Buyer must pay Seller all of Seller’s out-of-pocket expenses incurred for the development and construction of the Facility prior to its termination.

In case of termination by Seller after Financial Closing Date due to Buyers’ default the formula for calculation of Liquidated Damages includes the contract value minus the market value of Buyer’s Percentage Entitlement of the Products for the remaining term using a discount factor of 8.0% plus penalties. (PPA-1 § 9.3 (b)(i,ii,iii)). The calculation of Damages is based on cover damages and takes into consideration the market value versus the contract value plus penalties.


Any Disputes not resolved through consultations and by senior management within a 30 day period, will be resolved by the Courts of the Commonwealth of Massachusetts. Right to trial by Jury is waived.

Choice of Law

The laws of the Commonwealth of Massachusetts without regard to its principles of conflicts of law.

Possible additional provisions that it might be appropriate to include:

Curtailment Risk is market specific – often a contentious matter, depending on the PPA bargain the risk of curtailment economical and/or physical may be borne by the offtaker who remains obligated to pay for the power that would have been produced and delivered based on wind conditions during the curtailment period, provided the curtailment did not prevent the facility from operating.

Provisions that may not be advisable to replicate/ may need further thought:

Many provisions of PPA-1 are specifically tailored to the ISO-NE administered bulk-power market, such as price provisions regarding the Forward Capacity Market, RECs and the delivery and scheduling provisions.  

PPA-1 requires Seller to post a fixed amount of "Development Period Security" ($4,680,000) immediately upon signing the PPA, and to maintain this security until COD.  This is somewhat atypical and could be onerous for Seller.  As discussed above, energy pricing under PPA-1 is projected to be at above-market rates, and therefore there is likely to be little direct economic damage to Buyer if Seller fails to complete the project.  However, we believe the purpose of this requirement is simply to provide a strong incentive for Seller to complete the project, given the "unquantified" benefits of the project, as described above, including compliance with state’s renewable portfolio standard and green gas reduction requirements and creating  additional employment.  For similar reasons, the "Operating Period Security" is simply a fixed amount ($4,680,000), rather than being tied to any specific calculation of economic damages to Buyer for Seller's failure to deliver.

PPA-1 contains various rights of termination for Buyer that are not typical in these types of agreements, but which we believe were the product of unique negotiations.  For example, Buyer may terminate if Seller fails to achieve COD by a fixed date, and Buyer may terminate due to various Seller defaults during the operational period (with termination payments potentially owed to Buyer), as described above.  These provisions could make the PPA more difficult to finance.


PPA-1 provides for an automatic 3.5% annual escalation of the "Bundled Price," as described above.  If inflation or market prices change, over time, in a direction wildly different than 3.5% per annum, then the economics of this PPA could develop very differently than expected.  A more common approach would be to fix periodic increases to market pricing or an inflation index.

Provisions of wider general use:

The Cape Wind Project would be the first large-scale off-shore wind project in the U.S. Given the uncertainties around cost, the conditional upward and downward price adjustments provisions may provide a valuable precedent for many renewable projects that are breaking new grounds in clean technology.  Prices may be adjusted to reflect the differences between the projected cost and the actual cost of a project. These provisions addressing market conditions including potential variations on debt financing and construction costs may represent cost savings to ratepayers at the same time that they provide incentives for developers to assume their share of risk. These provisions are well drafted and include examples to illustrate how the calculations will work.

Provision for reducing the PPA-1 price if the project’s internal rate of return proves higher than 10.75%. (PPA 1, § 5.1 and Amendment exh E, App X, § 4); and price adjustment for lower debt cost (PPA-1 Amendment exh E, App X, § 3). 

Extension of PPA-1 term at cost-plus pricing at Buyer’s discretion. (PPA-1, § 2.2 (f), and PPA-1 Amendment exh. E, App X, § 5)

The Most Favored Customer Pricing clause is broadly drafted to include future facilities that Seller may build within a fifty (50) miles radius from the geographic center of the original Facility, providing a price protection to Buyer against Seller offering better price and terms to a 3rd party after PPA-1 closing. (PPA-1, § 4.1(e))

Experience Since Coming Into Force (including any amendments)/ if draft form, whether it has been applied:

Energy supplier NSTAR and Northeast Utilities recently entered into a power purchase agreement to buy output and associated, capacity, RECs and other environmental attributes for 129 MW of the Facility – equivalent to about 27.5% of the Facility’s total capacity for a 15 year term. The deal was part of a package accepted by Massachusetts officials in return for allowing the 2 utilities to merge.  This power purchase agreement reportedly mirrors the material terms and conditions in PPA-1 and was recently filed with the MDPU for approval.

MDPU’s decision approving PPA-1 was upheld by the Massachusetts Supreme Judicial Court and may provide a valuable reference for evaluation of alternative energy supply arrangements. The MDPU acknowledges that PPA-1 prices are higher than market prices today and may also be higher in light of forecasted energy prices, as a result it will increase the bill of National Grid’s residential retail customers by roughly 1.3 to 1.7 percent and the bills of its large commercial and industrial customers by 1.7 and 2.2 percent. Nonetheless, MPDU cost-benefit analysis of PPA-1 balances the overall cost of the contract with “unquantified” benefits including (i) compliance with state’s renewable portfolio standard and green gas reduction requirements; (ii) enhancing electric reliability; (iii) moderating system peak load and (iv) creating  additional employment.


Tracking Number:

Cape Wind PPA


Updated: August 25, 2020