Virtual Power Purchase Agreements in Singapore & More News Here

Rising stress to maneuver in direction of net-zero carbon emissions has resulted in an growing variety of giant firms coming into into bodily energy buy agreements (PPA) and/or digital energy buy agreements (VPPA) for renewable power.

In resource-scarce Singapore, photo voltaic power stays the principle supply of domestically generated renewable power. Recently, Singapore unveiled one of many world’s largest floating photo voltaic panel farms, however because of Singapore’s land constraints, nearly all of the photo voltaic photovoltaic programs are deployed on constructing rooftops. Under a PPA association, a company with rooftop area enters right into a long-term offtake settlement to buy energy from a photo voltaic generator at a pre-agreed value primarily based on a particular supply schedule. This association is usually known as “solar leasing” in Singapore for the reason that challenge developer will sometimes lease the rooftop from the company to put in photo voltaic panels.

However, PPAs are sometimes not possible when coping with constraints like restricted rooftop area or the place power calls for are in extra of rooftop power era. In such conditions, we’ve got seen extra firms flip to VPPAs to satisfy their sustainability targets. We set out under a short overview on VPPAs, together with a number of the key points that, in our expertise, events to a contract typically encounter.

Virtual Power Purchase Agreements

A VPPA is usually understood as a purely monetary instrument the place no renewable power generated from a challenge is bodily delivered to the offtaker. It consists of:

• A value hedge mechanism for the renewable power produced and offered to the grid by the challenge developer; and
• The sale of environmental attributes related to the renewable power produced, most frequently in the type of Renewable Energy Certificates (RECs).

Under the worth hedge mechanism, a hard and fast value and a floating value are agreed upon between the events, with the floating value decided primarily based on a sure value index, such because the Uniform Singapore Energy Price. The settlement quantity is then decided by taking the floating value and subtracting it from the mounted value.

Given the character of RECs, the offtaker has the pliability of retiring the RECs to permit them to be counted in direction of their sustainability targets or to promote them in the REC market.

VPPAs have gotten more and more widespread for company entities trying to fulfil their sustainability and climate-change targets in change for offering the renewable power challenge developer value safety. It is certainly a win-win scenario for each events.

Key Issues for the Offtaker

Given that an offtaker just isn’t required to take supply of the power produced by the challenge, no modifications are required to the offtaker’s operational preparations with regard to its buy of electrical energy from its current supplier. Unlike on-site choices or PPAs, with a VPPA, the challenge may be positioned in a unique area from the place the offtaker’s operations are positioned.

Some of the provisions in a VPPA that an offtaker ought to be conscious of are as follows:

• Project timelines: Project timelines ought to be set out clearly to offer certainty on when the challenge achieves monetary closing and commences industrial operations, particularly when the challenge has but to be constructed. To mitigate construction-related dangers, the offtaker ought to negotiate satisfactory termination and withdrawal rights in addition to damages payable by the challenge developer to the offtaker for vital delays incurred in that respect. Offtakers also can require safety in the type of a assure from the challenge developer’s holding firm or a financial institution assure to make sure satisfactory protections are in place in the occasion of delays.
• REC necessities: RECs ought to be fastidiously outlined to align with internationally recognised REC requirements (e.g., the International REC Standards). The challenge developer ought to (i) undertake to create and register all RECs generated from the challenge well timed and repeatedly, and (ii) guarantee it obtains and maintains all authorisations or accreditations required to allow the creation of RECs.
• Excess RECs: If the offtaker solely commits to purchasing a specified share of the RECs created from a challenge, buy rights to the steadiness RECs generated from the challenge is also negotiated. This can present the offtaker with the pliability to have a proper of first refusal to buy the steadiness RECs.
• Assignment rights: Assignment rights of the events underneath the VPPAs ought to be reviewed fastidiously because the challenge developer is usually allowed to assign and switch its rights and obligations underneath the VPPA for the needs of acquiring challenge financing with out having to acquire the offtaker’s prior consent.

Key Issues for the Project Developer

VPPAs are sometimes long-term contracts spanning 12-20 years, which provides the challenge developer the power to safe the financing required to construct the challenge. A agency, long-term VPPA with mounted contracted costs permits for a dependable methodology of producing the funds {that a} challenge developer must repay its loans.

Some of the components that the challenge developer ought to take into account in phrases of making certain the bankability of a VPPA embody the marketplace for the challenge’s output, the worth at which the power generated shall be offered (together with how the floating value is to be decided and the worth index to which it’s pegged) and the way the offtaker’s obligations underneath the VPPA are secured.

In addition, a number of the provisions in a VPPA {that a} challenge developer ought to be conscious of are as follows:

• Project timelines: Project builders ought to be certain that any milestones in the challenge timeline comprise adequate buffers, with the power to increase deadlines in the occasion of pressure majeure and/or modifications in regulation.
• Energy output assure: Generally, challenge builders shall be required to offer minimal era commitments in relation to the power output of the challenge through the time period of its industrial operations. Any shortfall in assembly the extent of power output assured might consequence in damages payable to the offtaker by the challenge developer. If such ensures are agreed to, challenge builders ought to guarantee the necessities are fairly achievable and that the VPPA gives for remedy rights.
• Force majeure: Having a clearly outlined pressure majeure provision that units out pressure majeure occasions, excluded pressure majeure occasions (e.g., sure sorts of development delays) and the ensuing termination rights of the events following a pressure majeure occasion. This would cowl challenge delays in relation to the graduation of economic operations, in addition to delay or failure by the challenge developer to ship on the contracted power capability.
• Material contract dangers: Project builders might take into account together with a provision for materials contract dangers, that are particular to the sale of RECs, comparable to (i) vital will increase in the prices of making, promoting, supplying, registering or transferring RECs and (ii) modifications to relevant legal guidelines regarding laws regarding the sale and buy of RECs, which adversely have an effect on the efficiency of the challenge developer’s obligations underneath the VPPA.
• Financing preparations: Assessing the creditworthiness of offtakers is a vital facet for the challenge builders. While an offtaker might not be required to offer any type of safety in direction of its obligations, it’s all the time advisable to barter materiality thresholds which will set off the necessity for an evaluation or an obligation for the offtaker to offer safety on its fee obligations.
• Change of management: It is extraordinarily necessary for challenge builders to be nicely suggested (from each a tax and authorized perspective) on satisfactory company constructions from a bankability perspective previous to coming into right into a VPPA. In explicit, because of customary restrictions on task rights in VPPAs, satisfactory carveouts ought to be thought of to seize assignments to associated entities or any change of possession (direct or oblique) arising because of any foreseeable financing association.

Conclusion

While VPPAs in the Southeast Asian area are a comparatively new idea, we’ve got seen growing curiosity in the adoption of such preparations as firms search to construct on their environmental and sustainability targets. In mild of the sensitivities concerned for company offtakers and challenge builders, this can be very necessary to have fastidiously drafted VPPAs to seize the industrial and environmental targets of the events.

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