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How to make PPAs successful – Developer perspective

How to make PPAs successful – Developer perspective. October 23, 2102. Content. Why PPAs What PPAs are and are not Suggestions for a successful PPA Case Study – Inland Empire Utilities Agency.

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How to make PPAs successful – Developer perspective

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  1. How to make PPAs successful – Developer perspective October 23, 2102

  2. Content • Why PPAs • What PPAs are and are not • Suggestions for a successful PPA • Case Study – Inland Empire Utilities Agency

  3. 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…

  4. 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

  5. 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.

  6. 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)

  7. 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

  8. Questions?

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