Renewable PPAs/Valuation of PPAs

Two Programs: Renewable PPAs : Valuation of PPAs

Renewable PPAs

The course will begin with an introduction to the development and financing process. The instructors will (i) review the various general contract terms found in general PPAs , (ii) provide an overview of environmental and permitting matters that arise in the context of PPAs, (iii) discuss PPA structures and issues unique to on-site generation, community solar and projects that combine storage, and (iv) dive into corporate or financial PPA structures and issues.

This course will break down PPAs into matters that arise during the pre-commercial operation periods, topics related to the actual achievement of commercial operation, and issues that arise in the post-commercial operation period. Examples of problems that have arisen both before and after project completion will be given, and the solutions to these problems will be discussed. The topics covered will include risk allocation during curtailments, environmental considerations, managing change in law risk, the process and requirements for the declaration of milestone completion (especially the commercial operation milestone), liquidated damages, indemnification, and limitations of liability.  Special consideration will be given to issues arising with distributed generation projects, alternative structures to PPAs, and issues arising in corporate PPAs.

During the course the instructors will provide and review specific contract language, and will offer methods and practices for successful negotiations, as well as an overview of valuation and market trends in the context of corporate or financial PPAs.

Valuation of PPAs

This course provides a methodical review of financial and risk elements that influence the value of renewable energy power purchase agreements (PPAs).  It is a companion to the Renewable Energy Power Purchase Agreements seminar, which instead focuses on key provisions and central legal concerns associated with PPAs. 

The course will explore the many layers of financial considerations that confer value in these contracts for power.  It will devote a granular look at the dependent relationships that often make the difference between a PPA that accomplishes its objectives over an extended period versus one that can disappoint almost immediately.

The instructors will review and demonstrate multiple analyses and methodologies that provide important financial and risk guidance in the structuring of PPAs for project developers, off-takers, investors, lenders and other transaction parties.  

TUESDAY, OCTOBER 19, 2021

Overview of Project Development and Finance (The Role of the PPA)

• Development Process
• Basics of Project Finance
• Financeability Issues in PPAs
• Legal Considerations

General Contract Terms

• Limits of Liability
• Indemnification
• Boilerplate

Pre-COD and COD Issues

• Conditions to Effectiveness
• Development & Construction
• Declaration of Commercial Operation
• Permissible Delays
• Performance Security
• Liquidated Damages

COD & Post-COD Issues

• Sale of Energy & RECs  
• Metering & Payment 
• Curtailments 
• Typical Issues Arising during Operations 
• Defaults 
• Operations & Maintenance 
• Changes in Law 

Environmental Issues in PPAs

• Environmental Law: Definitions and Representations

Storage, Distributed Generation, Community Solar Net Metering

• Net Metering
• Combination Storage + Generation PPAs
• On-Site Generation
• Community Solar PPAs

WEDNESDAY, OCTOBER 20, 2021

Corporate PPAs

• Available Structures
• Financial PPAs and Contracts for Differences
• Provisions to Consider
• Marketing Claims
• Challenges
• Trends

Introduction to PPA Valuations and Financial Modeling

WEDNESDAY, OCTOBER 20, 2021 : CENTRAL TIME

1:00 – 1:20 p.m. :: Overview and Introductions

1:20 – 3:00 p.m. :: Market Trends and Externalities Influencing the Trajectory of PPA Prices and Practices

• Aggregate
  • Corporate green energy transactions
  • Merchant/marlet PPA transactions
  • Utility-scale PPA transactions

• PPA vs Virtual PPAs (VPPAs)
  • Similarities
  • Differences

Changing Market Fundamentals and Effects on the Valuation of Renewable and Storage PPAs

• How renewable generation affects electricity markets
• Understanding basis risk under mass renewable deployment
• Buyer motivations for renewable procurement
  • Annual RECs versus 24-7 clean energy
• Reliability and economic implications of storage paired with renewables

3:00 – 3:15 p.m. :: Afternoon Break

3:15 – 4:45 p.m. :: Finance & Risk Fundamentals of PPAs

• What is a PPA?
  • Capital stack
  • Riskless structure
• Why do they exist?
  • Cash vs PPA, show investor return
  • Tax
• What drives a PPA?
  • Economic value to investor, financial returns
  • Pro-forma
• What are typical returns?
  • Unlevered IRR
  • ITC
  • Depreciation
• What is in a pro-forma?
  • Revenue
    • PPA
    • SREC
    • Incentive
  • Expense
    • O&M
    • Insurance
    • Legal
    • Accounting
  • What drives returns? What are levers?
    • EPC
    • Production/Yield
    • PPA rate
    • Escalation
    • Term
    • Discount cash flows (time value of money)
  • Example
    • NJ TREC deal
    • CA, no incentive
  • What are investor concerns?
    • System size
    • Credit
    • Geographic location
    • Construction risk
    • Operational risk
    • Tax risk
    • Regulatory risk
  • Concept of risk and return
    • Interconnection
    • incentives
    • Construction timelines
    • Tax equity
    • ITC stepdown
  • Translating PPA legal terms into financial terms
    • Try to shift risk
    • Finance likes “belt & suspenders”
    • Indemnification
    • Production guarantees
    • Force majeur
  • Role of consultant(s)
    • Stuck between finance, legal, and YOU

4:45 p.m. :: Program Adjourns for Day

THURSDAY, OCTOBER 21, 2021

9:00 – 10:30 a.m. :: Economic Valuation of the PPA

• The process
• Engaging bidders and providing good information to get good bids
• Qualitative scoring
• Assessing developer/project delivery risk
• Quantitative valuation analysis
• Case studies
• Modeling example

10:30 – 10:45 a.m. :: Morning Break

10:45 a.m. – 12:30 p.m. :: Examining the Underlying Risk Factors that Impact the Value of a PPA

• Curves
  • How market projections impact contract economics
  • Traded curves (forwards) vs consultant curves (forecasts)
  • Components of curve generation
• Shapes
  • Timing of generation and delivery
• Hub
  • Types of contracts available
  • What happens when the same project offers to settle at a different hub?
• Penetration
  • Relationship of value to installed renewable generation base
• Timing
  • On-line date and tenor
  • Generation and delivery schedule
  • Relationship to other power generation in service pricing area
• Negative co-variance
  • How does historical back-cast impact contract value?

12:30 – 1:15 p.m. :: Lunch Break

1:15 – 2:45 p.m. :: Term Sheet Review: Key Commercial Terms

• Examples
• Business acquisition perspective
• Off-taker perspective
• Examining the Relationship Between Price and Value
• Price of the carbon benefit
• Net settlement
• Single project vs portfolio contract position(s)
• Mark-to-market (MtM) value of PPA over time as market conditions evolve

2:45 – 3:00 p.m. :: Afternoon Break

3:00 – 3:45 p.m. :: Impact on PPA Risk and Price of Project Production-Related Guarantees

• Availability
• Output and performance
• Forced curtailment

Impact on PPA Risk and Price of Standard Contractual Parameters and Terms

• Liquidated damages and termination rights
• Force Majeure
• Differences between wind and solar contracts

3:45 – 4:45 p.m. :: Panel Discussion: Innovations on the PPA Landscape

4:45 p.m. :: Program Adjournment

xxx

xxx