Renewable Energy Purpose of the Power Purchase Agreement

Renewable Energy Purpose of the Power Purchase Agreement (PPA) Nebojsa Arsenijevic, BREP Manager 1

IFC – Internal Structure Advisory Services (AS) Investment Services (IS) IFC Provides Advice, Including to: • Businesses • Public-Private Partnerships • Supporting the Private Sector IFC Investing Solutions Include: • Loans • Syndicated Loans • Equity Finance • Structured Finance • Risk Management Products • Local Currency Financing • Private Equity & Invest. Funds • Trade Finance 2

Balkan Renewable Energy Program Component Activities C 1 Regulatory framework improvements C 2 Support to renewable energy sponsors (Market and company level) C 3 Support to financial institutions (Market and bank level) • • • Align national regulation with EU; Fulfill obligations in accordance to EC Treaty of SEE; Design appropriate incentive mechanisms; Increase transparency of concessions granting procedure (credibility); Design investment promotion tools and mechanisms for SHPPs; Increase “bankability” of projects and decrease collateral requirements; Make predictable cash flow analysis and conditions for project financing. • • B 2 B workshops, Support to Associations, Knowledge sharing Promotion of new technologies • • Designs cross-check, Business plan preparation, Finance modelling CDM projects registration • • Training material development Integration of Regulatory/ Budgeting/ Engineering and Risk in the Finance Manual Country Level Workshops • • • In-depth Training for SHPPs and PF Support in First SHPP Assessment Portfolio Analysis and Recommendation ( in the second year) • 3

PPA and Common Misunderstanding Opinion of Public Stakeholders: • Off-take price and subsidizing period are already defined in the law and decrees. Why to create such a long and complex contract Opinion of Private Stakeholders: • Why should I bother with several contracts (PPA, GCA, etc. ). All these companies are publicly owned, they should resolve all problem among themselves. 4

Main Role of PPA To allocate risks among contracting parties based on the following criteria: • Who is able to manage specific risk (sometimes it is only one party) • If both parties can manage specific risk – who can do it with lower cost. 5

Risks Public Stakeholders: Private Stakeholders: • Change in Law • Currency risk • Physical off-take (not linked with the PPA, but with the GCA) • Financial off-take • • • 6 Project development Financial closure Construction Operation and maintenance Risk of “fuel” availability (wind, solar irradiation, river flow, etc. )

Change in Law (example) Change in Law that with increase or decrease development / construction / operation costs (unlike market price, Fi. T price is fixed, so no room for producer to express that change in product price: • • Introduction of balancing responsibility for RE plants Introduction of G component Discriminatory law/bylaw/rule for RE Discriminatory law/bylaw/rule for electricity producer 7

Other potential improvements (no details) Additional improvements: • • • Guarantee of payment Termination events and Termination payment Dispute resolution Direct agreement Transfer of shares Force majeure • Deemed output (not part of PPA but GCA) 8