Basic knowledge of power: what is PPA
During the operation of a power plant, an agreement is often encountered. It is a text describing the rights and obligations of each power producer and power purchaser to ensure the successful operation of the project and the interests of all parties.
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The PPA agreement is the Power Purchase Agreement.
In the project financing process of a power station project, the Power Purchase Agreement (PPA) is the most important agreement, which determines how the risk is allocated between the generator and the power purchaser. At the same time, the agreement is also the main source of cash flow of the project.
Whether the power purchase agreement can generate sufficient and stable cash flow is the key to determining the feasibility of the project, so a comprehensive and detailed analysis of the power purchase agreement is required. For a power purchase agreement to be feasible, in addition to meeting the basic requirements of a power purchase agreement that is no shorter than the project financing period and the power purchaser's creditworthy, at least as follows:
1. Under the normal power generation of the power station, the electricity fee income (Tariff) can cover the principal and interest of the loan (Debt service) and operating cost (OPEX), and various risks affecting the normal power generation of the power station can be properly arranged and dealt with, and can be obtained when power generation is not possible Compensation such as insurance compensation and breach of contract compensation can still cover the principal and interest of the loan.
2. Termination Events are limited and controllable, and the Compensation Amount when the contract is terminated is sufficient to cover the principal and interest of the bank loan.
3. There is an appropriate compensation mechanism.
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Posted by: Zhang Jianlong
Reviewed and translated by: Kailon Chung
