Key Insights into Successful PPAs from a Developer's Perspective
PPAs (Power Purchase Agreements) in a municipal setting are gaining popularity due to benefits like risk reduction, efficiency improvement, and financial advantages. This content explores why PPAs are becoming common, dispels myths around them, and offers a recipe for successful PPAs based on real case studies like the one with Inland Empire Utilities Agency. Key factors for success include early planning, thorough bidder qualification, and fostering trust throughout the partnership.
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Presentation Transcript
How to make PPAs successful Developer perspective October 23, 2102
Content 1. Why PPAs 2. What PPAs are and are not 3. Suggestions for a successful PPA 4. Case Study Inland Empire Utilities Agency 2
PPA in a Municipal setting is still very new concept Let us get some more insight into why PPAs are becoming common Outsource non core operations DO WHAT YOU DO BEST Reduce ratepayer risk of new technology (Like Fuel Cells) Spread between private and public capital is reducing Drives highest level of efficiency NO KILL NO EAT (PPA provider only makes money on output, not idle time) Efficiency of a privatized operations Economies of Scale, Scope and Learning RAIL ROAD AND COAL MINE Other benefits Tax credits Depreciation etc. etc 3
Let us address a few myths about PPAs PPA = Outsource your headaches PPA is a long term Partnership PPA = Squeeze the juice out of the PPA provider and get a super cheap deal A financially weak PPA does not work DOUBLE EDGED SWORD A PPA with marginal DSCRs will not get financed or be hit with high hurdle rates Every PPA provider is trying to make a killing He ain t nothing but a hound dog PPA is a pass through transaction and fundamentals need to be strong Anyone can do a PPA = all you need is a contract Financial strength of PPA provider is the most important factor for success (NO MORE LIVERMORE) NOT ALL BIDDERS ARE CREATED EQUAL 4
Recipe for a successful PPA Start early ensure that the RFP does not have T&Cs that are not financeable No public funds at risk (Design build requirements need to be relaxed) E.g. Insurance and Bonding requirements Appropriations Clause, Termination for convenience etc. Uncapped LDs Do not develop RFP in isolation seek advise on balancing ratepayer risk and success of PPA Qualify experience and financial strength of bidders to increase chances of success (e.g. San Jose) Eliminate two men with a truck Monetization of credits, financial engineering, swaps requires skills and money not everyone can do it right provider is important Allow for healthy contingency and return for financiers a marginal PPA has little chance to get financed No two PPAs or site requirements are same Partnership and trust during the entire term is vital. 5
Case Study Partnership with Inland Empire Utilities Agency 2.8 MW Digester Gas Fuel Cell Project (Largest in the World) Previous attempts to do a PPA were unsuccessful because Project partners did not have a strong balance sheet RFP did not address financiablity properly Workshops, provided IEUA recommendations on structuring the new RFP Cost Rationalization Utility rates comparison Standby Charges Escalation (Fixed Versus Floating) Even though Anaergia pricing was marginally higher than other bidders IEUA chose Anaergia to do the PPA (More robust developer) 6 Privileged Limit Distribution
Case Study (Contd) Negotiated PPA Structure Pass through of risks (financeable),Reasonable delivery conditions, Capped LDs Technology Issues and Contracts Fuel Cell Escrow for major refurbishments Gas Conditioning Project Financing CMFA (Tax Exempt Bond Financing) Cooperation between Anaergia and Agency Project Delays 3 Months AQMD, 4 Months SCE, 3 Months Startup Issues Revenue loss not accounted for in financials Financial standing of PPA provider counts Delivered the project without single change order (accommodated many changes) Concessions on COD Revenue recognition 7 Privileged Limit Distribution
Questions? 8 Privileged Limit Distribution
