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Power Purchase Agreements (USA)

2 Part Course  |  To provide participants with a foundation in thinking about the underlying theory behind structuring and analysing different kinds of PPA agreements

Power Purchase Agreements (USA) Training Course

A one-day course presented in two half-day live webinars

This course is a ‘must know’ for;
  • Potential project off-takers (e.g., owners of Datacenters)
  • Project developers
  • Project sponsors
  • Lawyers working on Corporate PPAs
  • Bankers – Credit Analysts
  • Bankers – Relationship Managers
  • Financial Modelers
  • Equity Analysts of energy companies

The PPA course combines theoretical analysis of PPA provisions and structure with industry trends to provide an understanding of Corporate PPAs that are sourced from renewable energy. The course begins with deep analysis of PPAs with government or utility off-takers that evaluate issues such as how the level of liquidated damages should be established in different types of contracts. Before addressing specific issues in corporate PPAs, the economics of renewable energy that affect PPA contracts are addressed.  As corporate PPAs generally incorporate some level of merchant price exposure, forward and spot markets are reviewed.  The course culminates with discussion of corporate PPA’s that can include merchant price risk, basis risk, shape risk and other factors. The course is unique in that actual examples of contracts are used together with financial models that illustrate risks and returns.

The objective of this course is to provide participants with a foundation in thinking about the underlying theory behind structuring and analysing different kinds of PPA agreements. The course will cover PPA contracts ranging from utility company off-takers to corporate PPA’s that provide renewable electricity for data centres. Issues addressed include what should be the level of liquidated damages for various problems to how other contracts (e.g. O&M contacts) are mirrored to the PPA. Explanation of how merchant prices and resource risk affects corporate PPA’s will also be covered.

 

Part One

Risk Allocation and Case Study of PPAs

  • PPA’s in the context of alternative policy frameworks including cost plus and merchant power
    • History of IPPs and Problems with Cost Plus Framework
    • Merchant Power Pros and Cons
    • Price Volatility to Consumers and Investors
  • Policy arguments for alternative PPA contracts
    • Acceptance of Fuel Price Risk
    • Inflation in Capacity Payments
    • Plant Dispatch and Target Heat Rates
  • Risk Allocation Concepts Between Off-taker and Investor
    • Notion of Risk that Investors Can Control
    • Risk Allocation Exercise – Thermal Power Plant
    • Risk Allocation Exercise – Renewable Energy
  • Project diagram and mirroring of construction and operating to the PPA contract
    • Proper layout of contract diagram showing Off-taker at the top and money inflow and outflow
    • Investor risks in PPA
    • Transfer of risks to EPC provider
    • Transfer of risks to O&M contractor or equipment supplier
    • Risk to lender
    • Cost of transferring risk
    • Political Risk and cost increase
  • Financing contracts that incorporate risk allocation in PPA contracts including target debt size and debt service coverage
    • Project finance theory in the context of PPA projects
    • Off-taker risks
    • DSCR, LLCR and PLCR to measure credit risks in PPA contracts
  • Financial model (completed) to evaluate risks in PPA contracts together with alternative financing from investor and bidding perspective
    • Effect of DSCR on investor returns from project with PPA contract in completed financial model
    • Illustration of risks in natural gas project with different gas prices and heat rate targets in PPA contract
    • Availability targets in PPA contracts
    • Real and nominal returns from PPA contracts with different inflation provisions

Wind and Solar Contract Structures

  • Background on renewable energy PPA contracts from feed-in tariffs to Utility PPA contracts to Corporate PPAs
    • History of Feed-in Tariffs
    • PPA Contracts compared to Feed-in Tariffs
    • Transmission risks in renewable contracts
  • Risk allocation of resource risk and reasons for different pricing structure for projects that have non-dispatchable energy
    • Multi-part tariffs and single price tariffs
    • Incentives for renewable energy projects for efficient location and energy production
    • Implications of taking output risk and using single price PPA contracts
  • Resource risks in wind and solar from resource and controllable risks
    • Resource assessment studies
    • P50, P90, P95 estimates in resource studies
    • Use of alternative resource estimates in contracts
  • Examples of PPA contracts with performance ratio issues and power curve issues
    • Analogy of performance ratio with target heat rate
    • Issues in measuring performance ratio
    • Arguments for including performance ratio target in PPA contract
    • Arguments for including performance ratio in contracts associated with PPA
  • Mirroring contracts with equipment suppliers
    • Solar equipment suppliers and output guarantees
    • Difficulty of verifying output
    • Power curve guarantee for wind projects
    • Difficulty in verifying power curve
    • Credit quality of equipment suppliers
  • Implied penalties for availability and maintenance in renewable single price contracts
    • Off-taker costs as drivers of penalties
    • Implied penalty for output with high feed-in tariffs
    • Implied penalty for delay in single price PPA contracts
    • Environmental penalties in PPA contracts
    • Implied penalties in low price PPA contracts
  • Structure of financing contracts that support renewable energy and differences between financing used for standard contracts
  • Financial model to illustrate the effects of different PPA terms and associated financing on investors and bid prices

Part Two

Spot and Forward Merchant Markets in the Context of PPAs

  • Review of merchant prices in different markets including effects of gas prices and renewable energy production
    • Survey of different merchant prices
    • Merchant prices and wind production – case study of Denmark
    • Potential for low merchant prices in high renewable energy production periods
    • Case of UK and merchant financial failures
  • Forward energy prices in merchant markets and forward natural gas contracts
    • Forward prices in NYMEX
    • Use of forward prices as alternative to PPA
    • Forward price brokers and off-taker risk
  • Why swap contracts do not apply in merchant markets and the difference between contract for difference contracts and swap contracts
    • Swap contracts and volatile prices
    • Swap contracts for natural gas
    • Problem of notional quantities in renewable energy
    • Contracts for differences versus swap contracts
  • Quantity to use in forward price contracts
    • Use of P99 or P90 contracts to set quantity
    • Merchant price exposure of P50 versus P90
    • Merchant prices during high renewable production periods
    • Issues with ancillary services from renewable energy
  • Length of forward price contracts
    • Liquidity in NYMEX contracts
    • Length of Natural Gas contracts
    • Problem of Natural Gas and forward price contracts
  • Forward price risk for renewable energy relative to natural gas projects and natural hedge
    • Market heat rates in merchant markets
    • Sensitivity of natural gas projects to changes in gas price
    • Sensitivity of renewable energy projects to natural prices
  • Location price differences in different energy markets
    • Markets with locational prices
    • Theory of locational prices
    • PPA risk allocation and basis price risk
    • Example of locational price differences
  • Simple forecasts of merchant prices after forward price hedge
    • Classic hockey stick forecast
    • Natural gas as marginal plant
    • Inconsistent logic with profits of future projects

Structure of Corporate PPA’s

  • Alternative structures of PPA contracts in the context of merchant markets and renewable energy
    • Revenue swap with no revenue risk
    • Standard fixed price PPA contracts with resource risk and no merchant risk
    • Use of forward contracts at hub price with allocation of basis risk to investor
    • Use of forward contracts with alternative amounts of hedge using P50 or P90 or P99
    • Other contract structures
  • Issues with credit quality of off-taker and use of brokers in corporate PPA’s
    • Examples of intermediaries for forward contracts
    • Cost of allocation of credit risk
    • Examples of hedge prices
  • Case study of alternative language in Corporate PPA including use of contracts for differences, shape profiling and defining the hub price location
    • Mechanics and contract language
    • Tracking accounts and settlements
    • Examples of settlement mechanics
    • Risk associated with settlement accounts
  • Financing structure of corporate PPA’s given merchant risks
    • Tax equity structures in U.S.
    • Back leverage DSCR targets
    • DSCRs during merchant period
    • Resulting leverage
    • Credit Spreads
  • Financial model to illustrate risks and investor returns in projects with corporate PPA’s
    • Incorporation of merchant power prices during PPA period
    • Locational basis differentials – history and volatility
    • Resource uncertainty
    • Forward electricity markets after the PPA term
  • Evaluation of risks to debt and equity investors with financial model to evaluate basis risks, merchant risks after PPA term and resource risk

The trainer is a world leader in financial modelling, project finance analysis and corporate valuation theory and practice. He has been a financial advisor for many project finance and M&A transactions around the globe and he has taught hundreds of courses on an assortment of financial modelling, financial analysis and energy analysis topics.

The trainer’s teaching involves directing professional development courses for finance and energy professionals in Africa, South America, Asia and Europe. His principal courses include the economics, financing and resource analysis of renewable energy, project finance modelling, corporate modelling and M&A valuation, energy storage analysis, analysis of contracts associated with independent power, electricity power economics and corporate valuation theory. He has taught customized courses for Goldman Sachs, EDF, MIT’s Sloan Business School, UBA Nigeria, Santander Bank, General Electric, CapitaLand, Tenaga Nasional, the Korea Banking Institute, Shell Oil, Engie, Society General, HSBC, Citibank, CIMB, Linklaters, Saudi Aramco, Saudi Fransi Bank and many other energy and industrial clients.

He has created a unique modelling framework to address complex project finance sculpting, difficulties with copy and paste solutions to circular references, and consistent model verification and as well as unique financial modelling methods that solve classic project finance issues. He has provided financial advisory services and developed the financial model for a 5,000 MW electricity project costing USD 28 billion.

The course covers the risk allocation in alternative contracts and underlying policy objectives; PPA’s for renewable energy plants as contrast to fixed price contracts and background for Corporate PPA’s; PPA’s in the context of merchant power, and Corporate PPA contracts for renewable energy with partial merchant risk.

Actual PPA contracts will provide the basis for case studies in the course. The contracts will be used together with financial models that illustrate risks inherent in different PPA structures. The case studies include review associated contracts associated with the PPA including the financing contracts. The PPA risks together with the EPC, O&M and financing contracts are evaluated with completed financial models (participants will not be forced to construct model equations in excel).

  • Working through the examples and understanding the approach to Power Purchase arrangements across different jurisdictions was great

Number of places:
Part 1
Number of places:
Part 2

$1150.00

Per participant per part
Discounts available for multiple place booking find out more
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