Presenting a live 90-minute webinar with interactive Q&A

Renewable Energy Projects:

Negotiating Power Purchase Agreements
Structuring Terms To Meet State and Federal Renewable Power Standards

THURSDAY, FEBRUARY 9, 2017

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

Today’s faculty features:

W. Bryce Chastain, Partner, Atkinson Andelson Loya Ruud & Romo, Pleasanton, Calif.

Darin Lowder, Partner, Ballard Spahr, Washington, D.C.

Kristen Thall Peters, Partner, Cooper White & Cooper, San Francisco and Walnut Creek, Calif.

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Renewable Energy Projects: Negotiating
Power Purchase Agreements

February 9, 2017
Kristen Thall Peters, Esq. Darin M. Lowder, Esq.
Cooper, White & Cooper LLP Ballard Spahr LLP
1333 N. California Blvd, Suite 450 1909 K Street, NW, 12th Floor
Walnut Creek, California 94596 Washington, DC 20006-1157
(925) 935-0700
Direct 202.661.7631
17th
201 California Street, Floor Mobile 571.251.1837
San Francisco, California 94111
(415) 433-1900
ktpeters@cwclaw.com
lowderd@ballardspahr.com
www.cwclaw.com www.ballardspahr.com
 Private versus
Public Utility PPAs
 Understanding Limitation of IOUs
 Renewable Auctions
 Energy Service Providers (ESPs)
 Community Choice Aggregators (CCAs)
 Municipal Electric Utilities
 Over the Fence Buyers
 Combinations of the Above

6
Other Project Contracts
o Land
o Turbine Supply

o Operations

o Permits

7
More Project Documents
o Warranty, Maintenance and
Service Agreement
o Renewable Energy Credit
Purchase and Sale Agreement
(may be integrated with Power
Purchase Agreement)
o Project Interconnection Agreement

8
More Project Documents (con’t)
o Transmission and Operating
Agreement
o Agency Agreements
o Engineering, Procurement and
Construction (EPC) Agreement
o Agreement Performance Guaranty
Agreement (in favor of power
purchaser)
9
Interconnection Agreements
 Construction
 Distribution
 sending energy directly to utility
 sending energy via utility’s system to 3P off taker
 Term & Renewals
 Point of Interconnection/Access
 Allocation of Responsibility
 PUC guidelines/tariff
 Disconnection of Unit
 Invoicing & Payment
 Security
 Governing Law

10
 Fundamental Role of PPA
(Project Finance 101)
o Most frequently used to support some form
of project financing
o PPA must be financeable
o Critical that PPA and related revenue
stream remain in place for term of
financing

11
 Key Issues for PPAs
o Credit of Offtaker
o Scale of Project
o IOU
o Commercial
o Residential
o Ownership/Sales Structure
o Seller – Project Company
o Third Party
o Joint Ownership – Tenancy in Common

12
Nature of Seller’s Obligation

o Obligation to sell delivered energy

o Capacity/Availability – applicable on
in limited circumstances
o Guaranteed Energy Quantities over
a rolling period of time
o Qualification for and transfer of
RECs
13
Nature of Buyer’s Obligation

o Must take and pay for energy delivered

14
 PPA: What is it?
Description of PPA
 Under a power purchase agreement, a private entity (or group
of developers, construction contractors, and finance
companies) typically installs, owns, operates and maintains a
renewable energy project “behind the meter” on a customer’s
site.
 Customer purchases electricity or thermal energy through a
long-term contract with fixed energy pricing (either fixed for the
term, or rising each year at a pre-determined rate). Payment is
only made for thermal or electric energy actually delivered.
 Private ownership of the renewable energy equipment enables
the project to qualify for federal and state tax incentives
unavailable to non-taxpaying entities.
15
 Incentives / Flow of Funds
Government

Tax-related
incentives

Electricity
Project Developer & Owner Host Customer
* Provides capital
* Constructs & operates project Payments * Hosts project on its land/roofs
* Sells electricity & renewable credits * Buys physical power from project

Payments
SRECs

Utility or Other Solar

Renewable Energy
Credit (SREC) Buyer

16
 PPA: What is it?
Obligations
 Provider typically has obligation to finance and
construct project, operate, and deliver energy
 Minimum outputs may be specified (failure to deliver
results in penalties or “make whole” provisions)
 Customer has obligation to take and pay for all power
delivered
 Ownership of renewable energy attributes (RECs or
SRECs) is negotiable, and may be sold separately
from energy output

17
 Power Purchase Agreements: Why
and How?
Why
 Moves construction, development, operations & financing
burden to third-party
 Maximizes financial and tax incentives
 Public-private collaboration possible
 Facilitates renewable energy development that may not
otherwise occur, providing environmental, educational,
financial, economic development (e.g., green jobs) benefits to
the community

How
 Competitive procurement (RFP or RFQ/RFP)
 Specific project or open invitation to bid
 Add-on through master energy performance contracts
 Alternatives: customer may propose key terms or seek form
18
PPA from provider
 Power Purchase Agreements:
Risks
Risk-Sharing
 Risk to public property
 Project completion risk
 Schedule risk
 Losing financial incentives (grants, rebates)
 Change in law
 Loss of use of project site by Customer (convention
center)
 Decrease in solar resources (allowing a building to
block sun)
 PPA must continue through financing term
 Risk of lower future power prices
19
 PPA: Tax Issues
Tax Issues
 Who owns the system (according to the IRS)?
 Control, risk of damage, benefits & burdens of ownership

 Risk of Recapture of federal tax benefits

20
 PPA: Financing Issues
Financing
 Step-in rights for lenders to operate project

 Consent to assignment of PPA

 Results of customer default (requirement to

remain in place or be removed – at whose
cost?)
 Financing lien on system property (the project
– not the underlying real property, land, or
other improvements)
 Documents recorded in full or in
memorandum form 21
 PPA: Business Terms
Business Terms
 Energy pricing – output guarantee?
 System size variation
 PPA lease renewal (beyond normal 15-20 year initial
term)
 Purchase option pricing & timing
 Performance / completion bonds (construction,
removal)
 Costs of interconnection
 Customer-caused temporary outages (roof
replacement)
 Billing and payment
 Claiming/promoting green attributes of system 22
 Other Key Renewable
PPA Issues

o Pricing Methodology
o Power Production
o Term/Renewals/Extensions
o Completion Schedule
o Consequences for Failure
o Credit Protection
o Downgrade

o Adequate Assurances 23
 Other Key Renewable
PPA Issues
o Termination Payments
o Fuel Risk
o Maintenance Requirements
o Environmental Credits and other green
attributes
o Compliance with RPS

24
 Other Key Renewable
PPA Issues
o Facility Ownership
o Tax Ownership
o Option to Purchase Facility
o Decommissioning
o Access

25
 Other Key Renewable
PPA Issues
o Regulation and “reg out” provisions
o Change of Law
o Grid Access and Interconnection
o Transmission Risk
o Defaults

26
 “Corporate” PPA’s
o Brief Overview
o Applicability

o Variations

27
Corporate Renewable Deals
(2012-2016)

28
Corporate Procurement Growth

 From 1,180 MW in 2014 to 3,240 MW in

2015
 For wind, switch from mostly non-
corporate PPA’s in 2014 to Corporate
PPA’s in 2015 (17% of 2,750 MW’s in
2014 were corporate, v. 55% of 4,398
MW’s in 2015)

29
U.S. Wholesale Power Markets

Source: Federal Energy Regulatory Commission (www.ferc.gov) 30

Procurement Process – Corporate
PPAs

 Offtaker decision-making: how does it

compare to selling to a utility?
 Differences in negotiating with a
corporate versus a utility offtaker?
 Delivery Point or Settlement Point
 Term of Agreement
 Price
 Additionality

31
 Types of Transaction Structures
REC’s Only
(no power)
• Buyer purchases RECs but
never takes title to power at
any location
• Environmental Claims are key
• Power procurement /
redundancy not critical
• Where are these available?
Physical Delivery
• Direct procurement of power
from offsite generation source
• Transmission / Distribution /
Scheduling
• Firm Delivery
• Redundancy / certainty and
continuity of power key
• Long-term power price
certainty essential
• Where are these available?
Financial Delivery
• Often Contract for differences
(buyer retains RECs; power
sold into spot market) - Hedge
• Transmission / Distribution /
Scheduling unnecessary
• Firm Delivery not required
• Redundancy / certainty and
continuity of power already
addressed or not critical
• Long-term power price
certainty
• Where are these available?
• AKA Virtual, Synthetic or
Financial PPA’s
32
Financing Issues - Corporate PPA’s
 Requirements for tax equity and banks or higher-risk
lenders
 PPA Terms
 Credit Support Requirements
 Sponsor Role and Contracting Party Role
 Developer requirements for lenders / investors
 Key distinction – shorter PPA tenors
 Onsite v. Off-site
 Long-term financial benefits to offtakers
 Regulatory certainty

33
 Three Issues that Often Stop Solar
PPAs in their Tracks
1. Sale or retention of solar renewable energy
credits (SRECs) and other environmental
attributes
2. Roof selection, replacement schedule, and
warranty
 Parallel issues with ground and parking sites
3. Understanding special purpose entities (SPEs)
and other contractual risk issues

34
 Issue # 1: Selling or Retaining Solar
Renewable Energy Credits
Why it is important?
 Can be a major (sometimes the largest) project revenue stream
 Can affect green energy accounting and communication

Why it can be overlooked?

 Can be complex and non-intuitive that solar projects produce
two distinct revenue streams (physical power and SRECs)
 Complicates the “sale” of a solar project

How it can stop or slow solar projects?

 Executive and Communications staff are not educated early
and, then, are told that agency is not buying green energy
under certain accounting, reporting, and communication
regimes and that communications language must be
circumscribed
 Tension between sustainability plans and financial goals of
35
solar projects
 Issue # 1: Selling or Retaining Solar
Renewable Energy Credits
Key (overlooked) stakeholders to involve early
 Executive
 Communications
 Finance
How and when to involve
 Discussion (before RFP issuance) among Executive,
Communications, Sustainability/Environment, Finance, and
Procurement staff on the best decision on SRECs for the
agency
 Sell all (to utility, private broker, regional procurement group)
 Retain all (to retire and be entitled to make green claims)
 Retain a portion
 Purchase substitute RECs or participate in other environmental
programs
36
 Issue # 2: Roof Selection, Replacement
Schedule, and Warranty
Why it is important?
 Roofs differ greatly in their “solar- readiness”
 Timing of roof replacement schedules is critical
 Facility roof repairs are often more expensive than solar projects
 Roof damage can affect property and people in building
Why it can be overlooked?
 Aggressive assumptions by non-engineering or non-facilities
staff about available roof space or lack of knowledge on roof
vulnerability
 It is always viewed as important, but often dealt with too late in
the process
How it can stop or slow solar projects?
 Not enough solar-ready roofs available to support RFP specs
 Insufficient time for facilities/engineering planning
 Inability to integrate solar projects with roof warranty
37
 Issue # 2: Roof Selection, Replacement
Schedule, and Warranty
Key (overlooked) stakeholders to involve early
 Engineering/Facilities
 Finance/Insurance
 Third-Party Project Provider
How and when to involve
 Conduct realistic internal or external assessment of roofs (and/or
parking and grounds) that are good candidates for solar in Year 1
 Assessment should be completed as part of pre-RFP project goals,
or RFQ process can support discovery from industry experts
 Consider roof replacement schedules, structural integrity, shading &
roof obstructions, zoning, pitch and orientation, visual impact, size,
distance to sufficient building electric load, etc.
 Make sure roof warranty issuer can integrate solar project into
roof warranty before transaction is finalized with solar owner
 Have substitute sites lined up
 Include solar planning in longer-term roof replacement planning
38
 Issue # 3: Understanding SPEs and
Other Contractual Risk Issues

Why it is important?
 15- to 25-year agreement with legal entity often created to
own agency’s projects and sometimes a broader portfolio of
renewable projects
 Liability of agency for SPE obligations
 Long-term outside ownership of equipment on government
agency’s roof, parking, and/or land sites
Why it can be overlooked?
 PPAs are an industry standard for government agencies
 Contracts are sold as, and intended to be, turnkey leases

39
 Issue # 3: Understanding SPEs and
Other Contractual Risk Issues

How it can stop or slow solar projects?

 Legal, Finance/Insurance, and/or Executive staff become
concerned about risks in PPA documents
 Final contract negotiation is not the best time to start thinking
about risk mitigation

40
 Issue # 3: Understanding SPEs and
Other Contractual Risk Issues
Key (overlooked) stakeholders to involve early
 Legal (ability to form entities, share risk, waive rights)
 Finance/Insurance (liability issues)
 Executive (PR impacts of corporate actions)
How and when to involve
 At initial project organization/feasibility meeting
 Contract structure and risk mitigation can affect fundamental
aspects of procurement process
 Whether a PPA is right for the agency, PPA size and duration,
favored provisions, types of owners desired by agency, etc.
 Ask for each solar bidder’s standard PPA contract during RFP
process and for its flexibility in meeting agency’s legal
requirements
 There can be significant differences among bidders in these areas
 Consider having Legal integrated into bid review at some level

41
 Commencement

“Synchronous Operations”
 Successful completion of construction
and testing of the Facility
 Facility has synchronized with Buyer’s
distribution system

42
 Commencement

 Seller has determined in accordance with

Prudent Electric Industry Practice that the
Facility is ready to deliver the Energy to
the Delivery Point in accordance with the
provisions of this Agreement
 Written notification

43
 Standard of Care
“Prudent Electric Industry Practice”
 Practices that, at a particular time, in the exercise
of reasonable judgment in light of the facts known
or reasonably should have been known at the
time a decision was made, could have been
expected to accomplish the desired result
consistent with good business practices,
reliability, economy, safety and expedition.
 Generally conform to operation and maintenance
standards recommended by the Facility’s
equipment suppliers and manufacturers,
applicable Facility design limits and applicable
Governmental Approvals and Applicable Law.
44
 Standard of Care
“Prudent Electric Industry Practice”
 Not intended to be limited to the optimum
practice, method or act to the exclusion of all
others, but rather to include acceptable practices,
methods or acts generally accepted.
 Includes, but not limited to, practices engaged in
or approved by a significant portion of the U.S.
electric power generation industry.

45
 Overview of Key Characteristics of
Renewable Technologies

o Wind PPAs
o Solar PPAs
o Geothermal PPAs
o Biomass PPAs
o Landfill Gas PPAs

46
 Key Characteristics
of Wind Technologies
o Wind
o Intermittent resource

o Incremental project size

o No fuel supply contracts

47
 Wind PPAs

 Intermittent resource
• “As-delivered energy” (timing/amount of
delivery not guaranteed; no
capacity/reliability value)
• Payments for energy only
 time-of-day/seasonal pricing

• Curtailment/transmission constraint
issues
 allocation of risk

• Transmission instability/upgrade costs 48

 Wind PPAs (cont’d)

• Availability/output guarantees
 ramp-up, rolling average, annual caps
 wind-adjusted
• COD issues
 no performance testing pre-COD
 Post-COD warranties are key

49
 Wind PPAs (cont’d)

 Incremental project size

• What is project size?
 project phasing for large projects
 shared facilities

• When is COD?

 RECs available for financing

• RECs: need to define ownership and
examine ability to separate them from
delivered electricity – state law issue
50
 Wind PPAs (cont’d)

 RECs
 PPA Damages should include tax and
other non-cash losses
 No fuel supply contracts
• No fuel pass-throughs
• Force majeure issues

51
 Key Characteristics
of Solar Technologies

 Solar
• Intermittent resource

• Incremental project size

• RECs available for financing
• No fuel supply contracts
• Current paradigms: customer PPAs and
utility PPAs

52
 Solar PPAs

 Intermittent resource
• Same issues as wind PPAs
 Incremental project size
• Same issues as wind PPAs
 No fuel supply contracts
• Same issues as wind PPAs

53
 Solar PPAs (cont’d)

 Current paradigms: customer (retail) PPAs

and utility PPAs
• Customer PPAs: rooftops and parking lots

 one option for financing project

 leaves ownership, operation issues to

seller
 end of term/transfer of underlying real

estate issues
• Utility PPAs
 mimics traditional wind PPA structures 54
 Key Characteristics of
Geothermal Technologies
 Geothermal
• Non-intermittent resource

• Resource degradation
• Station service requirements
• RECs available for financing

55
 Geothermal PPAs

 Non-intermittent resource
• Receive both capacity payments and
energy payments
• Must demonstrate capacity and other
performance measures at COD and
during contract (usually annually)

56
 Geothermal PPAs (cont’d)

 Resource degradation
• Must be incorporated into capacity/output

guarantees
• Force majeure for unexpected depletion
of resource

57
 Geothermal PPAs (cont’d)

 Station service requirements

• Can be significant in order to use
geothermal resource, need to ensure
associated RECs run to project
 RECs available for financing

58
Key Characteristics of Biomass
Technologies
 Biomass
• Non-intermittent resource
• Fuel shortage and supply issues

59
 Biomass PPAs

 Non-intermittent resource
• Same issues as geothermal PPAs

 Fuel storage and supply

• Supply logistics extremely complex

• Shortage requirements can be

burdensome
• Ability to claim force majeure for third
party supplier acts/omissions critical

60
 Key Characteristics of Landfill and
Digester Gas Technologies

 Landfill Gas
• Non-intermittent resource
• Resource degradation
• RECs available for financing

61
 Landfill and
Digester Gas PPAs
 Non-intermittent resource
• Same issues as geothermal PPAs
 Supply Issues
• Logistics can be extremely complex
• Shortage requirements can be
burdensome
• Ability to claim force majeure for third
party supplier acts/omissions critical
(quality and/or quantity)
 Resource degradation for LFG 62
Strategies For Negotiation

 What is the Market for Renewable

Energy?
 RPS and other Required Standards
 Green Building/LEED Certification
 Voluntarily Green
 Why does the lessor/seller/grantor what
to contract with you?
 Royalty
 Recipient of clean energy

63
 Strategies For Negotiation
 Initial Stage of Development vs. Established
Facility
 Who is the Off taker? And will the Off taker help
you?
 IOU
 Local power company
 Private User
 Long Term v. Short Term - Guessing Future
Markets
 REC prices
 Energy Prices
64
 Post-PPA Discussion
The slides that follow address project finance
considerations that are not PPA-specific.

65
 ESP Agreements
 Energy Service Provider (“ESP”)
contracts directly with its customers to
provide electric supplies
 Used in jurisdictions that do not allow
direct access service

66
 ESP Agreements
 Power producer sells power to ESP which,
concurrently, sells power to power
purchaser, most often at same price
 ESP is often signatory to PPA, as buyer,
as well as to separate ESP agreement
with ultimate customer
 ESP agreement terms must match those
of PPA

67
 Project Documents
o Good Standing Certificate
o UCC Searches
o Certified Copies of Insurance Policies
o Balance Sheet and Financial Statements
o Project Budget
o Project Schedule
o Notice of Establishment of Accounts and Account
Numbers from Depository
o Notice to Proceed
o USDA Loan Guarantee Materials
o USDA Grant Materials

68
 Land Contracts
 Purchase & Sale Agreement
 Site Lease
 Real property interest
 Ability to obtain title insurance/lender
security
 Leasehold Mortgage/Fixture Filings

69
 Land Contracts (con’t)
 License
 Personal property interest
 Sublease or sublicense
 Often used for tax purposes
 Access, ROW and Easement Agreements
 typically non-exclusive
 supply
 operational

70
 Lease vs. License
 Lease is real property interest
 Can be secured by a leasehold
mortgage
 Eligible for leasehold title insurance
 Notice of lease can be recorded
 License is personal property interest
 Contractual right only
 Can be secured by UCC lien

71
 Mortgages
 Mortgages can be granted on any real
property interest
- Fee ownership
- Leasehold interest
 Underlying interest must be recorded
in official records in order to encumber

72
Financing and Security
Documents
o Financing Agreement
o Promissory Note
o Depository Agreement
o Security Agreement
o Membership Interest Pledge Agreement

73
Financing and Security
Documents
o Real Property Security Documents
o Inter-creditor Agreement
o Consents
o UCC-1 Financing Statement
o Guaranty Agreement (in favor of
Lender)
o Forbearance and Non-disturbance
(SNDA) agreements

74
 Supply
 Solar & Wind are Free
 Easement to ensure non-interruption
 Lease or License
 e.g. landfill gas, geothermal
 Purchase Agreement
 e.g. biomass, digester gas

75
 Operations
 Construction Agreements
 Operation Agreements
 Maintenance Agreements
 Interconnection Agreements
 http://www.ferc.gov/industries/electric/indus-
act/gi/small-gen/agreement.doc
 Transmission/Distribution Agreements

76
 Construction, Operation &
Maintenance Agreements

 Turn-key facility vs component

construction
 Well field O & M

 Pipeline O & M

 Turbine O & M

 PV O & M

77
 Engineering, Procurement &
Construction Agreement
 Scope of Work/Project Schedule
 Compensation
 Terms of Payment
 Warranties
 Indemnification
 Insurance
 Termination and Cancellation
 Completion and Transfer
 Guarantees
 Dispute Resolution
78
 Permits
 Building Permits
 CUPs/LUPs
 Environmental
 Special Disposal Requirements

 Emissions

 Generator/USTs

79
 Permit Process
 What is the timeline for issuing permits?
 Do all timelines match those of leases,
PPAs and loan documents?
 Are public hearings required?
 Are hearings necessary to gain public
support?

80
 Thanks for Listening!
LICENSE: The text of the foregoing is licensed under the Creative
Commons Attribution http://creativecommons.org/licenses/by3.0.
Pursuant to this license, you may copy this PowerPoint presentation as
long as you give attribution.

DISCLAIMER: The information contained in this presentation has been

prepared by Cooper, White & Cooper LLP (“Cooper”) and is not
intended to constitute legal advice. Cooper has used reasonable
efforts in collecting, preparing, and providing this information, but does
not guarantee its accuracy, completeness, adequacy, or currency. The
publication and distribution of this presentation is not intended to
create, and receipt does not constitute an attorney client relationship
COPYRIGHT © 2014, Kristen Thall Peters & Darin Lowder. All rights
reserved.

81
Power Purchase Agreements
— Best Practices and How to
Avoid Pitfalls, Snafus and
Faux Pas…

Presented by:

Bryce Chastain, Esq.

Cerritos • Fresno • Irvine • Pleasanton • Riverside • Sacramento • San Diego

What is a Power Purchase Agreement or
“PPA”?
A Power Purchase Agreement (“PPA”) is a legal
contract between a power generator and a power
purchaser under which the power purchaser
purchases energy from the power generator.

83
Who are the Players in a Typical PPA?
1. Owner/Host — Almost anyone… Companies,
Public Entities (i.e., City, County, School District,
College, etc.)

2. Vendor/Provider (PFMG, SolarCity, etc.)

3. Financier (Constellation, Onyx, etc.)

4. Utility (PG&E, SoCal Edison, etc.)

84
Power Purchase Agreements
The Power Purchase Agreement (PPA) is one alternative
to financing and owning an energy generating system.

Advantages:
- It offers the owner an opportunity to obtain power
without paying upfront costs
- Owner usually doesn’t have to worry about system
operation and maintenance.
- Provides 15-25 years of predictable, pre-set power
prices.

85
Alternatives to
Power Purchase Agreement
1. Direct Purchase Model

2. Lease/Purchase Option

86
Alternatives to
Power Purchase Agreement
An owner can purchase a system outright or through a lease-purchase
transaction utilizing a combination of bonds, credits, grants, loans,
rebates and cash reserves

Advantages:
- Increases the value of the owner’s facility
- May make better financial sense

Disadvantages:
- Requires operations and maintenance expertise
- Retains all costs and risks of ownership, i.e. component failures

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Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
10. Failing to Comprehend their Actual Power Usage
Before Pursuing an Alternative Energy Solution
– Energy Audits and Assessments
– Free and low costs assessment resources
– The California Energy Commission can provide free or
reduced cost assessment if certain conditions are met
(http://www.energy.ca.gov/)
– The Center for Sustainable Energy can also provide free or
reduced cost assessment (http://energycenter.org/)
– The California Energy Commission's existing Energy
Conservation Assistance Account Program (ECAA) makes
low interest loans available for investments in energy
efficiency and carbon emissions reduction
– Local utilities have various programs that provide free or
subsidized energy auditing

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Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements

• Deliverables from the Owner

–Historical Utility Usage and Cost Data
–Projected Future Energy Requirements – Master
Planning Issues

• Access to Records and Sites

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Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements

9. Failing to implement energy efficiency

measures prior to determining system size
– The more energy efficient your facilities are, the
smaller (and less expensive) the system will need to
be.

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Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
Energy Efficiency Contracts

• Use Results of Energy Efficiency and Projected

Energy Requirements Analyses
• Analyze Cost of Solution
• Analyze Cost of Energy Post-Solution

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Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
8. Failing to make prospective vendors compete by
utilizing a competitive RFQ/RFP process

– Don’t just use the first vendor that approaches you. In this
highly-competitive environment, you’re better served in
requiring the vendors to compete for your business.

– Don’t worry about having every last detailed engineering

aspect sorted out prior to the RFP. Let the vendors provide
different options to give you ideas on how best to structure
the transaction.

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Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements

7. Failing to retain appropriate expertise

The Right Power Company
Whether it’s solar, wind, geothermal or
other alternative energy source, consider
the company behind it:
- Corporate History
- Record of Past Performance
- Good References
93
Engineer/Construction Manager

- Installation Experience

- Relevant Private or Public Project Experience

- Successful past collaboration with Alternative

Energy Provider and Installers

94
Financial Consultant

- Aggressive and independent verification of

financial and cost escalation assumptions
provided by Vendor

- Experience with financing of similar systems

under PPA and Direct Purchase Models

95
Legal Consultant

- Experience with all phases of project, from

initial consideration, through RFP selection
process, through PPA negotiation and
construction and operation of project

- Demonstrated ability to effectively coordinate

owner’s team

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Environmental Consultant

• Familiarity with the particular environmental

conditions where system installation is
proposed

• Past experience with applicable

environmental regulatory schemes and their
impact on the particular energy source and
apparatus (i.e., NEPA, CEQA, etc.)

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Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
• Assembling the right team with the right expertise
is critical to insuring you obtain the best
arrangement possible.

• Alternative energy PPAs involve complex financial,

legal, environmental and construction
considerations.

• The vendor’s job is to look out for the vendor.

Who’s looking out for you?

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Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
6. Failing to obtain aggressive energy
production guarantees

Guarantees That Preserve the Economic

Benefit Enjoyed By The District

- Minimum Production Guarantees

- Metering Accuracy Guarantees

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Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
5. Failing to conduct proper project analysis under
the applicable environmental and other legal and
regulatory schemes

Many PPA projects generate light, wind, or heat and their

installation in some cases may displace or harm
threatened wildlife species.

In some cases, failing to conduct appropriate

environmental review leaves the project vulnerable to
legal challenge.

For public owners, funding source may dictate a specific

and/or competitive process to qualify for funding, i.e.,
Proposition 39 in California
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Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements

4. Accepting a PPA term that is too long.

As technology in the advances, we will see

more efficient and less expensive equipment,
which in turn, will have a significant impact
on the current economics of the PPA.

101
What were cell phones like
25 years ago?

102
How About Computers?

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Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements

3. Failing to Insure that the anticipated cost to the Host of

the energy services will be less than the avoided costs if the
services were not utilized.

In some states, like California, this is a legal requirement for

publically-owned facilities that wish to contract outside of a
competitive low-bid procurement process.

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Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements
2. Failing to consider direct purchase as an
alternative to a PPA

Because of the falling costs of some systems and the

availability of credits, rebates, grants and
opportunities for selling bonds and obtaining other
financing, the economics of ownership may be a
preferred option for.

The right financial consultant can help you

understand the “true” cost difference between
ownership and a PPA.
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Top 10 Mistakes Owners Make When
Pursuing Power Purchase Agreements

1. Failing to look into alternative power

arrangements now…
Given the long-term savings opportunities
achieved through lower system costs coupled
with the availability of rebates, credits and
grants, given the current challenging fiscal
environment, owners should look into
alternative energy solutions as a part of its
long-term fiscal strategy.

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Do’s and Don’ts for Approaching
Public Owners for PPA Projects
DO’S
- Understand the legal framework under which the owner
has to operate in pursuing such projects

- Get to know the particular challenges unique to public

owners in their pursuit of alternative power
arrangements
- Figure out the local politics around the issue
- Understand who the decisionmakers are and how they
make decisions.

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Do’s and Don’ts for Approaching
Public Owners for PPA Projects
DON’TS
• No hard sells — Don’t come across as a used car
salesperson
• No end run around the decisionmakers
• No violation of conflict of interest laws — i.e., taking
board members or council members out on golf
junkets then failing to report
• Failing to understand the framework (and restrictions)
inherent in public works projects
•
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 Thank You
For questions or comments, please contact:

Bryce Chastain
(625) 227-9200
bchastain@aalrr.com