10 Do’s and Don’ts of Power Purchase Agreements (PPAs) for renewable energy projects

PPAs are essential for the energy transition as they drive renewable energy deployment, provide price certainty, support corporate sustainability goals, reduce emissions, stimulate economic growth, and enhance energy security.

Do’s:

1. Do thoroughly research and understand the local regulatory framework and policies related to renewable energy and PPAs in your target market.
2. Do engage with experienced legal and financial advisors who specialize in renewable energy projects and have expertise in negotiating and structuring PPAs.
3. Do conduct a comprehensive due diligence of the off-taker’s financial stability, creditworthiness, and track record to ensure their ability to fulfill the PPA obligations.
4. Do negotiate favorable terms for project economics, including the PPA price, duration, and escalations, to ensure the financial viability and profitability of your renewable energy project.
5. Do consider incorporating flexibility provisions in the PPA, such as provisions for curtailment, force majeure, and change in law, to mitigate potential risks and uncertainties.
6. Do include clear performance metrics and reporting requirements in the PPA to monitor and measure the project’s operational performance and compliance with contractual obligations.
7. Do establish effective communication channels and mechanisms for dispute resolution between the project developer and the off-taker to address any potential conflicts or issues that may arise during the PPA term.
8. Do engage in continuous monitoring and analysis of market conditions, regulatory changes, and technological advancements to adapt the PPA structure and terms accordingly.
9. Do maintain good relationships with relevant stakeholders, such as government authorities, off-takers, and industry associations, to stay informed and influence favorable policy and market conditions.
10. Do ensure compliance with environmental and social standards throughout the project development and operation phases to enhance the project’s reputation and attractiveness to off-takers and investors.

Don’ts:

1. Don’t rush into signing a PPA without conducting thorough due diligence and assessing the long-term financial and operational risks associated with the off-taker and market conditions.
2. Don’t neglect to seek legal advice and review all contractual terms and conditions in detail to avoid potential pitfalls or unfavorable clauses that may impact the project’s profitability or operational flexibility.
3. Don’t solely focus on the PPA price without considering other important factors, such as payment security, contract duration, and terms related to curtailment, termination, or amendment, alignement between demand and generation curves (target 24/7) .
4. Don’t underestimate the importance of proper risk allocation and mitigation measures in the PPA, including provisions related to performance guarantees, insurance requirements, and default remedies.
5. Don’t overlook the need for accurate and transparent data monitoring and reporting mechanisms to ensure compliance with renewable energy certificates and other regulatory requirements.
6. Don’t disregard the potential impact of grid connection issues, transmission constraints, or changes in off-taker demand on the project’s revenue stream and operational performance.
7. Don’t rely solely on verbal commitments or informal agreements; ensure all terms and conditions are clearly defined and documented in a legally binding PPA.
8. Don’t neglect the importance of continuous stakeholder engagement and community involvement to address any potential social or environmental concerns related to the project.
9. Don’t ignore the potential benefits of seeking innovative PPA structures, such as virtual PPAs or green tariffs, to diversify revenue streams and enhance the project’s attractiveness to off-takers and investors.
10. Don’t forget to regularly review and update the PPA terms to reflect changes in market dynamics, regulatory frameworks, or technological advancements that may impact the project’s financial viability and competitiveness.

Remember, this is just a general guide, and it’s important to tailor the specific details of the PPA to the unique circumstances of your renewable energy project and local market conditions. Consulting with legal and financial professionals experienced in renewable energy projects is essential to ensure a robust and successful PPA.

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