Power Purchase Agreement (PPA) (Example 3)

Region
South Asia

 

Sector:

Energy

 

Name of Agreement:

Agreement for the purchase of Electrical Energy by a state-owned utility (the “Electricity Board”) and a small power producer operating a ‘mini-hydro’ system (the “Seller”)

 

Type of Agreement:

Power Purchase Agreement - short form

Part of a suite of model documents comprising  fuel supply agreement, implementation agreement, and land lease agreement.

 

Region (if known):

South Asia

 

Year of Agreement/ Draft:

2003

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

Developed over a number of years for this type of project by World Bank staff and external lawyers.

 

Purpose and Context:

Agreement sets out terms on which Seller is to sell electricity from an mini-hydro generating station it is building to the state-owned Electricity Board

 

It is a short-form document particularly suited to small rural village hydro schemes.

 

Suitable for use in common law or civil law jurisdiction (subject to local laws).

 

Circumstances where this contract may be appropriate:

This is a simplified power purchase agreement for use particularly in mini-hydro projects, with low capital and operating costs.

 

It has been designed for a common law system but could be adapted to civil law environment.

 

Main Features

Term – 15 years from Commercial Operation Date.

 

 

Electricity Board to purchase all Energy Output that meets the specifications (5.1) (there is no capacity charge so cost of construction and other costs will need to be built into Energy Output.

 

Tariff is based on avoided cost of energy (although Tariff in any given year is not to be less than [ ]% of the First Year Tariff) (Appendix A) given that the capital and operating costs for these projects this should not be an issue.

 

Electricity Board with right to curtail or interrupt taking of Energy Output in the event of an Emergency or to aid restoration of service on Electricity Board’s system (2.2(d) and 2.4) There is no payment of fixed costs during this phase, which given that the costs of capital and operation should not pose a problem. In a more costly project it would be an issue, however.

 

 

Seller shall obtain and remain in compliance with all governmental and other environmental and other approvals, licenses, permits, and certificates necessary for the siting, construction, and operation of the Facility (4.1(a)

 

Seller to obtain all licenses, customs clearances, visas and work permits (4.1)

 

 

The Facility is a Must Run Facility (1). Seller to notify Electricity Board one month in advance of Scheduled Outages, including a non-binding estimate of expected length, and asap re unscheduled outages

 

 

5.1(h) – during construction, TEB shall supply and sell electricity to the Facility under normally applicable terms, conditions and rates]

 

Electricity Board to design and construct Transmission Line from Facility to Grid Point at the cost and expense of the Seller [IPPs are, frequently, asked to pay for such transmission line expenses, and, given the nature of the purchaser and the seller, the absence of sophisticated cost control mechanisms is not necessarily inappropriate under these circumstances. However, IPPs might find raise issues with this provision and seek some sort of cost sharing, at least] and operated and maintained by Electricity Board at its expense (4.7). ]

 

 

Meters – Electricity Board to procure, own and maintain metering equipment. Meters to be tested annually, at Seller’s expense.

 

TEB may set off amounts owed by TEB to Seller against amounts owed by Seller to TEB (5.2(e)) [this provision could cause concern in more costly project involving commercial lenders as it could give rise to uncertainty as to revenues – for a project of this size, however, it is a simple and effective provision]

 

 

Force Majeure (6) – specific list of events not within the reasonable control of a Party whose performance is adversely affected or becomes impracticable. The list of events goes well beyond what would normally be deemed to be Force Majeure – to capture failure for major suppliers to perform, break or fault in TEB’s transmission or distribution systems.

 

Late payment of money owed is not excused by FM. No event resulting from a failure of a Party to operate and maintain their respective plant and equipment in accordance with Prudent Utility Practices shall be deemed to be an event of FM (not clear how this links in with the list of FM events, in particular break or fault in TEB’s transmission systems).

 

Consequences of FM – no default shall occur and party excused to

extent necessary from whatever performance is affected by FM event to extent so affected.

 

Termination for extended FM of 3 years [this is a rather lengthy period specific to the environment of the host country]

 

 

After term of the Agreement, TEB with right of first refusal to electrical energy to be sold from Facility – on terms identical to those offered by a third party to the Seller.

 

 

Liability – limitation of liability no liability for indirect, consequential, incidental damages including claims for lost revenues, income or profits (7(c)).

 

 

Dispute resolution (8) – expert resolution and arbitration – this is a short-form provision appropriate for a small project of this nature

Possible additional provisions that it might be appropriate to include:

 

 

N/A

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

 

Provisions of wider general use:

 

 

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

 

N/A

Tracking Number:

Energy PPA 3

Last Updated : Tue,2017-07-04