Power Purchase Agreement (PPA) for Small Scale Rural Power Projects

Region
Latin America and Caribbean


Sector:

Energy

Name of Agreement:

Power Purchase Agreement

Type of Agreement:

Power Purchase Agreement. Part of a suite of documents comprising implementation agreementfuel supply agreementlease prepared in connection with sector reform. Developed as a sample agreement for a country in South East Asia.

Region (if known):

South East Asia

Year of Agreement/ Draft:

2003

Author of Agreement (if known):

Suite of documents prepared by leading international law firm with extensive experience of energy sector infrastructure projects and of the developing world.

Annotated by:

Victoria Delmon/ Mark Moseley (LEGPS)

Purpose and Context:

Agreement sets out terms on which Seller is to sell electricity from an electric generating station it is building and the state owned energy provider (Purchaser) undertakes to purchase capacity and delivered energy.

The Seller is being provided with assistance and other protection by the Government in relation to the project under the Implementation Agreement.

This agreement was developed for a civil law jurisdiction but could be adapted for use in other civil law or common law jurisdictions – subject to advice from local lawyers.

Circumstances where this contract may be appropriate:

This is a simplified power purchase agreement for use particularly in rural electrification projects, whether hydro-electric or thermal.

Purchaser has exclusive right to capacity and energy of seller for duration of contract (this will not be appropriate where wish to maintain possibility of future bilateral trading).

MainFeatures:

Seller undertakes to develop, design, build, finance, operate and maintain the Facility in accordance with Schedule and Prudent Utility Practice and to deliver Net Dependable Capacity and Delivered Energy to specified Point of Delivery (3)

 

Seller to pay liquidated damages to extent that Dependable Net Capacity is less than Rated Capacity (no cap on liquidated damages)(3.4)

 

Term – construction period plus 15 years operating period (2.1.2), with right for Purchaser to extend (2.2)

 

Seller is to procure that an Environmental Impact Assessment is conducted on the Site (4.3.1)

 

Purchaser leases site for Facility to Seller under a separate lease agreement

 

Seller provides a Development Security in the form of a standby letter of credit with a term of at least 364 days (4.16)

 

Purchaser responsible for paying capacity payment and energy payment (11.1). Capacity payment based on Reported Availability.

Purchaser to operate and maintain Transmission System (7.2) so as not to cause damage to the Facility and in accordance with Law, Purchaser’s Licence and Prudent Utility Practice.

Interconnection facilities to be subject to separate agreement.

 

Changes in Law (Schedule ) result in upward or downward adjustment to Capacity Payment and Energy Payments (subject to de minimis)

 

Purchaser has right to require Refinancing (11.3.2) and Purchaser to benefit from 50% of any savings

 

Coordinating committee (12) for interface and coordination between the parties. Costs borne equally by parties.

 

Purchaser has step-in rights in limited circumstances of Seller breach (8). [There is no provision for returning operation to the Seller thereafter.]

 

Purchaser may require that the Facility be withdrawn from service, following 9th anniversary of Commercial Operation Date, provided that continues to pay the Capacity Payment until the end of the agreement less savings to Seller in fixed costs of operation and maintenance etc (10.1)

 

Purchaser may require that the Facility be permanently retired from service and/ or terminate the agreement, in the case of a Relevant Change in Law or decision of the planning department of the Purchaser/ Government by 3 years notice following 9th anniversary of Commercial Operation Date, provided that it continues to pay the Capacity Payment until the end of the agreement less savings to Seller in fixed costs of operation and maintenance etc (10.2)

 

Transfer of facility under certain circumstances to Purchaser on termination of agreement (10.4) on payment of sum set out in 10.4.2

 

Schedule 10 – comprehensive list of representations and warranties

Insurance (14) – well-drafted and clear. In the case of Total Loss Lenders with right of election to have proceeds applied to repair or replacement or not (14.5); if Lenders choose not to apply proceeds to repair, Purchaser may terminate agreement (14.6). There are a number of endorsements to be applied to the insurance set out in Schedule 7 (part 2) and care should be taken that these are available in the particular jurisdiction.

 

Force Majeure (16) – events which materially and adversely affect performance of party of its obligations, provided that such effect could not have been prevented by diligence and reasonable care.

FM events divided into Political FM Events and Other FM Events. Political FM Events are extensive (include events outside the host country that directly involve the host country).

Inability of Transmission System to accept electricity generated by Seller, unless due to unlawful act of omission of the non-affected party, lack of flow of water to Facility or electric output from Facility (unless caused by an FM event itself), lack of funds are not to be deemed to be FM Events.

Consequences of FM – Affected Party not liable for failure or delay, and time limits and deadlines shall be extended. If it is a Political FM Event then where Reported Availability is below the latest Reported Availability of the Facility, the Reported Availability shall be deemed to be the latest Reported Availability prior to FM event occurring for calculating Capacity Payment.

 

Seller not to merge without consent of Purchaser (17.1.1(a) – merger is a seller Event of Default giving rise to a right to terminate

 

Seller not to assign rights under Agreement other than to Lenders

 

In the event of termination of Agreement, Seller has right to enter agreements to sell capacity and electricity to any persons and Purchaser to provide access to Transmission System on reasonable terms and conditions.

 

Liability – limitation of liability no liability other than for loss for breach of this Agreement. No liability for indirect, consequential, incidental, punitive or exemplary damages (18).

 

Double jeopardy (17.6) – to extent that Government settles a dispute with Seller or an award has been issued against seller under Implementation Agreement, Purchaser shall be precluded from pursuing any claim that would otherwise have against Seller based on same facts and acts or omissions by Seller for breach of substantially the same or related obligations.

 

Dispute resolution (Schedule 9) – comprehensive provision

Resolution in good faith by parties

Technical Disputes to go to expert determination (to be binding and final)

Other disputes, or where expert fails to make a determination, to Arbitration to a single arbitrator under [Singapore International Arbitration Center ] rules.

Possible additional provisions that it might be appropriate to include:

None

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

N/A

Provisions of wider general use:

Agreement clear and well drafted.

Termination and transfer payment calculation clearly drafted (10.4.2), together with apportionment of liabilities on termination (10.9) etc

Schedule 10 – comprehensive list of representations and warranties

Insurance (14) – well-drafted and clear. In the case of Total Loss Lenders with right of election to have proceeds applied to repair or replacement or not (14.5); if Lenders choose not to apply proceeds to repair, Purchaser may terminate agreement (14.6). There are a number of endorsements to be applied to the insurance set out in Schedule 7 (part 2) and care should be taken that these are available in the particular jurisdiction.

Double jeopardy clause (17.6) is a useful precedent.

Indemnification clause (18.2 – 18.8) is comprehensive

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

N/A

Tracking Number:

PPA Small Scale Rural Projects_2007_English

back to top

Last Updated : Tue,2017-09-26