Ed Feo, Senior Partner of Milbank, Tweed, Hadley and McCloy LLP discusses Solartech's contract template for Power Purchase Agreement (PPA).
Interview - Contract Template for Power Purchase Agreement (PPA)
Edwin F. Feo | Global Power, Energy & Utilities Group
What motivated the project to develop a standardized PPA form?
I saw two concerns with contracting on smaller solar projects One is that the contracts are heavily negotiated but the deals can only withstand a low level of transaction costs. Second, because there is not an industry standard, customers of the PPAs have been somewhat suspicious of a draft contract served up by the seller-- they want to know if the agreement has been used by others. It occurred to me that both of these concerns could be addressed through the development of a standardized PPA.
The form is designed for distributed generation projects, and uses elements that we have seen in many contracts already in use. Our philosophy was to take a middle of the road position on issues so that the contract would be acceptable to customers. The contract has a set of standard terms, and then a cover page that is intended to set forth the specific details of the transaction-- where the project is located, its size, the price, schedule, etc
It will be helpful to the distributed generation industry by 1) creating a standard around which (hopefully) both buyers and sellers will recognize as having fair terms, 2) it will reduce the costs of each transaction by reducing negotiation time and expenses, and 3) it will help potential buyers become more comfortable with the PPA model through learning that there is a market standard.
The benefits are more business ands less cost, as outlined in the prior answer.
It is designed for distributed generation projects with commercial customers. While the project size is not limited in the contract, most of these types of projects will be under 1 MW although there will be larger projects. The contract is not designed for utility sales, nor is it designed for residential sales.
We started with a form we had developed over time, which frankly borrowed from other contracts in the market. So were not so much creating a new document as much as tuning up our own model, getting input from others, and making sure that the form reflected what we considered to be a fair deal for both sides.
I hope that it will be rapidly deployed-- it is really up to SolarTech to educate sellers and buyers as to the benefits of standardized contracts. I think the next challenge will be to get customer groups to endorse the form. we have so advised SolarTech. There are trade groups of customers- -shopping centers, industrial parks, large manufacturers, retailers-- and we think it would be very beneficial to have them bless the concept of the standard form agreement.
We did the initial draft and then coordinated with the Solartech team and Paul Hastings on comments and finalizing the form.
Ed Feo is a partner in the international law firm of Milbank, Tweed, Hadley & McCloy LLP. He co-chairs the Firm's project finance and energy practice. Mr. Feo represents sponsors and investors in the energy and infrastructure industries and specializes in renewable energy projects. Milbank is recognized as one of the leading renewable energy law firms in the world, most recently having been named “Legal Advisor of the Year” at the 2008 Euromoney/Ernst & Young Renewable Energy Awards, the lead arrangers firm of the year by New Energy Finance for 2008 and 2007, the leading firm for renewable energy project financing by Project Finance in 2008, and by Infrastructure Journal as the No. 1 global and U.S. renewable energy legal adviser for 2007.
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