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Renewable Energy

Purpose of the Power Purchase Agreement (PPA)

Nebojsa Arsenijevic, BREP Manager

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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

IFC – Internal Structure

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Balkan Renewable Energy Program

Component

Activities

C1 Regulatory framework improvements

C2 Support to renewable energy sponsors (Market and company level)

C3 Support to financial institutions (Market and bank level)

• B2B 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)

• 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.

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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.

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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.

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Risks

Public Stakeholders:•Change in Law•Currency risk •Physical off-take (not linked with the PPA, but with the GCA)•Financial off-take

Private Stakeholders:•Project development•Financial closure•Construction•Operation and maintenance•Risk of “fuel” availability (wind, solar irradiation, river flow, etc.)

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Change in Law (example)

Change in Law that with increase or decrease development / construction / operation costs (unlike market price, FiT 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

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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)