Anatomy of a Utility-Scale PPA for Solar or Wind
Utility-scale renewables’ power purchase agreements (PPAs), the LA Times recently wrote, are “confidential agreements between solar developers and utilities” that “lock in power prices two to four times the cost of conventional electricity” which ultimately “line the pockets of banks, insurers and utility companies.”
What such reports miss, said Milbank, Tweed Partner Karen Wong, is how competitive the PPA bidding process has become. Utilities’ requests for proposals and request for offers (RFPs/RFOs), Wong said, “are typically closer to ‘take it or leave it’ offers.”
In today’s California market, the utility has the leverage, Wong said. “There is a huge market of parties who want to sell power and a virtually monopolistic set of buyers who can name the terms and pick the price.”
Utilities say “this is the power purchase agreement you will be bound by. Name me a price on these terms. If you want to change any of my terms, please red line what you want to change.”
But a bidder doesn’t “want to come across as being difficult,” Wong said. A redlined bid “may not be considered as favorably as one signed on the dotted line without any changes.” Some bidders, she explained, accept the utilities’ standard, just to get a PPA, “without knowing what’s financeable.” This makes it, she added, “difficult for someone who is a real player.”
Wong described six key PPA items: (1) price, (2) certainty of revenues, (3) curtailment, (4) conditions precedent and timing, (5) cure and lender step-in rights, and (6) interconnection.