Talk:Power Purchase Agreement

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The previous definition falls woefully short on so many fronts: (1) PPAs are a staple of the energy industry and were not invented for renewable energy, (2) the PPA is not between the owner and the financier(!), it's between the asset owner and the offtaker for the purpose of raising financing, (3) the rest of my comments inserted in the entry below:

-x- A Power Purchase Agreement is a legal contract between a property owner and a financer. (Comment: This misses the key point, the PPA is between the asset owner and the offtaker for the purpose of securing financing from a bank or other counterparty. The offtaker entity may be a utility, electricity-user, or trader--the key thing is that they must have good credit in order to make the PPA finance-able.) It is sometimes also called Third Party Financing for power contracts. (Comment: Isn't financing always "third party"?)

For renewable energy projects the financer secures the funding for the renewable energy source , maintains and monitors the energy production and then sells the electricity to the site owner at a predetermined price for the term of the contract. Contract terms can range between 5 to 25 years with the option that at the end of the term the site owner can purchase the renewable energy equipment from the financer, can renew the contract with different terms, or can request that the equipment be removed. (Comment: Ovely specific or wrong on almost all points. The asset owner secures funding, owner not financer sells the power, price may or may not be pre-determined, term may be of any length, site owner may or may not have purchase rights).

The advantage of a Power Purchase Agreement to the property owner is that the owner does not need to invest in the high cost of renewable energy equipment and has a guaranteed price of electricy for the term of the contract. The site owner may be able to gain tax credits by selling renewable energy credits (REC), also known as Green Tags. (Comment: This sounds like it's from the point of view of someone who is only looking at this as an alternative to owning a renewable generating system. PPAs are used for all types of generating assets--without any preference for renewables. And the main point of a PPA is to secure the revenue streams associated with the sale of power/energy output to a credit-worthy customer as a basis for raising project financing. Tax credits and Green Tags are completely separate concepts and have no relationship such as that suggested by the last sentence.)

For the financer, a PPA provides a steady stream of income from the property owner. Generally governmental tax credits go to the financer to help determine a lower cost of electricity to the property owner. The contract can also be set up to allow the financer to sell the renewable energy credits to further reduce the cost of electricity to the property owner. (Comment: Just plain wrong. The PPA provides a defined stream of income to the project owner, thereby assuring the bank/lender that the project owner has sufficient revenue to cover financing obligations...eg debt service or distributions. Tax credits (are there non governmental tax credits?) may or may not be offered to the financer.)

A PPA usually includes many predetermined conditions that protect both parties of the agreement regarding the project development timeline, permitting, connection to the electrical grid, operation, maintenance, monitoring, cleaning, and payment terms. Since PPAs are very complex, it is advisable to include legal assistance when negotiating the terms of the PPA contract. (Comment: The term examples seem overly specific to certain types of solar PPAs. The rest seems obvious, particularly the part suggesting parties to a PPA get legal advice.)

With current levels of inflation, many power purchase agreements can benefit both the financer and the property owner, while also benefitting the world environement by replacing fossil energy use with renewable energy sources. (Comment: I reckon that when two parties sign an agreement they both think it will benefit them regardless of "current levels of inflation"--why else would they sign? Who benefits in a PPA under various inflation scenarios depends on how the price is modified over time. The part about benefiting the world environment seems entirely independent of inflation and of PPAs.)

-x-

Recommend striking the entire thing and replacing with the new entry.

--71.202.77.18 (talk) 05:38, 17 December 2007 (UTC)

[edit] Comment on last article replacement

Last critique was fairly harsh and left a very general statement which omitted many of the details. Could not find a definition for 'offtaker' and recommend replacement with 'purchaser'. Revision also used legal terms such as ‘non recourse financing’, and ‘counterparty’ that would benefit from links to definitions. Page could be further expanded in the future with examples or samples.

JROJAI (talk) 08:01, 6 January 2008 (UTC)JROJAI