PPAs - Step by step for the German market

At the end of 2020, the funding by Feed-in-Tariffs of the first power plants under the EEG1-program will terminate – yet due to the phase out of nuclear and coal power plants the demand for highly efficient regenerative production capacities will increase substantially. Rising electricity prices in the coming 5-20 years will ensure the profitability of decentralized generation plants without the need of additional funding. Hence, in the following a step-by-step analysis will illustrate a procedure applicable by project operators to examine the relevance of a PPA-commercialization model for their business.

The Plant / Profitability

EEG – Termination of funding or profitability without support is foreseeable – Which contract starting date should be chosen? To be able to assess possible conditions of post-EEG sales of power at an early stage, an early initiation of the process is recommended. Contact to industry enterprises, energy utilities, electricity traders or investors needs to be established. A registration on platforms such as from Greenpeace or WPD, etc. should be considered as well.

LCOE: Furthermore, in terms of profitability sensitivity analyses of the levelized cost of electricity and the integration of diverse tariff structures (see check list below) should be conducted;

Maintenance contracts & operation costs: Maintenance conducted during operation time under EEG or KWKG2 should be evaluated from a technical and economic perspective to determine a long-term offer price of the electricity; in general, operation costs should be analyzed before the conclusion of a PPA by means of a projection on the 3rd decade of the generation plant. Additionally, a clear maintenance or overhaul concept can be attached. Together with insurance and land lease these costs represent the basis for the individual calculation of the electricity price necessary to ensure (the continuation of) a feasible operation.

Type assessment: (for wind energy plant with post-EEG PPAs) – commonly for older wind energy plants a type analysis is available for 20 years only, thus, after this period an assessment and analysis of wind energy plants is required before operation can be continued. This is necessary to determine the possible operation period after EEG for the commercialization of wind energy. Even if not explicitly demanded by permit authorities, this analysis should be conducted for liability and insurance reasons.

Proof of statics: shortly on PV: In terms of the continuation of operation, statics will play a role together with the electric testing (not required but common practice). In the case of new projects, it is part of usual technical documentation.

Project site: Furthermore, in case of the continuation of plant operation, all relevant properties should be secured for the post-EEG period as well.

Contractual Design of the PPAs

The contract texts of the PPA are a crucial part of the project development. Consequently, the contractual design is subject to a continuous development and negotiation process highly dependent on the individual project requirements. The contractual requirements (see Held/ Koch, „ER EnergieRecht” Ausgabe 1/2019, PPA für Erneuerbare Energien und KWK - Typologische Einordnung und rechtliche Rahmenbedingungen marktfähiger Energieerzeugungsanlagen https://www.erdigital.de/ce/ppa-fuer-erneuerbare-energien-und-kwk/detail.html) can be completed step-by-step as minimum required regulation by means of the following contract checklist:

Checkliste – Power Purchase Agreement (PPA)

Determination of the function of the PPA and the roles of the contracting partners (preamble): Corporate / Merchant / Utility PPA; On- Site / Off -Site PPA; Financial / physical PPA; Post-EEG PPA

Power plant: Description of the plant, links to plant construction contracts

Scope of supply: Extent of supply and service; availability; management of power generation; coverage of demand; minimum purchase quantity („take-or-pay”)

(Ecological) Quality of delivery: Certificates in the context of renewable
energy and proof of origin

Obligations of plant operators: Technical regulations in terms of construction, maintenance and operation; information duties and deadlines; terms of coordination regarding planned or unplanned interruptions; bonus/malus-regulations as an incentive for high availability

Public law permit, obligations in terms of announcements, reporting and information deriving from the energy legislation: BImschG , EnWG, REMIT, etc.

Rights of electricity purchasers: control and inspection rights; market and grid intervention rights; reimbursement claims against third parties

Obligations in terms of commercialization and utilization: Procurement of reserve power supply and surplus electricity commercialization, place and type of commercialization, profit and risk-sharing, consumption of own generated electricity, prohibition of redirection

Price: Fixed price; working price and capacity rate; balance payment; market price; securing of quantities; coordination of electricity remuneration – proceeds EEG/KWKG or levies/ tax law privileges (Delivery at customer’s site/ Contracting delivery, etc.)

Price adjustment: one-sided; price adjustment clause; gliding price scale; clauses on taxes and levies; clauses on feasibility

Measuring, clearing and payment conditions: Grid connection; operation of measuring sites – and concept; installments or prepayments; accounting; maturity; delay

Start of contract/ supply: Deadlines plan as necessary

Contract duration & cancellation: Coordination plant construction – external financing – operating duration – refinancing; initial contract period; extension; extraordinary cancellation reasons