While all of the information contained in the power purchase agreement (PPA) is important, Exhibit 1 summarizes certain key terms that are important to the Agreement. Make sure Exhibit 1 is completely and accurately filled out before signing the PPA.
The School District is obligated to purchase all of the electricity that the solar photovoltaic (PV) system generates. Since it is unlikely that the PV system will generate all of the electricity that theschool on which the system is installed requires for its operations, the School District will continue to purchase electricity from its local utility. In practice, the School District will receive two bills — one from the solar developer; and, one from its regular utility electricity provider.
The Initial Term of the PPA is 20 years from the date that the solar developer states in writing that the PV system is complete and ready to begin producing electricity
In addition to the electricity that the PV system generates, certain adverse environmental effects (such as emission of carbon or other air pollutants) are avoided by producing and using renewable energy. Depending on the market, avoiding these environmental effects (defined as "Environmental Attributes") can have monetary value separate from the value of the solar electricity produced by the PV system. For the length of the PPA, NYSERDA will own any Environmental Attributes derived from the use of the PV systems.
Similarly, Environmental Incentives refer to things like tax credits, rebates and subsidies that are available to owners of PV systems. The solar developer and its investors will own these Environmental Incentives, to the extent that they are available in New York, as the owners of the PV systems being installed at the School District's facilities.
The solar developer, as the owner of the PV system, is responsible for the system's on-going maintenance and any repairs that may be needed over the term of the PPA (except for damage that was caused by the school). Periodic servicing of the PV system is important and the solar developer will need access to school grounds from time to time. Since providing access to school grounds can be a sensitive issue, it will be important for the contractual Parties to agree upon a service plan and site access protocol so that the PV system can be serviced in a timely manner with minimal disruptions on school grounds.
It is common for a solar developer to engage a third party contractor to operate and maintain the PV system. If this is the case, the subcontractors are expected to be duly licensed and capable of performing the work. Since access to school grounds can be a sensitive issue, it will be important for the School District to communicate its requirements for access to school grounds so that the Parties can agree upon the standards that any such subcontractor must meet, and possibly also a list of pre-approved subcontractors. The solar developer will remain responsible for the work and conduct of any subcontractors it uses on-site.
The solar developer needs access to the school to construct, own and operate the PV system for the term of the PPA, and to decommission the PV system at the end of the contract term (if that is the option chosen by the School District). The site license included in Section 8(a)is the legal document that provides this right of access for the solar developer and spells out the terms and conditions of this access. This license is effective from the date of the PPA until 120 days after the last day of the term of the PPA. If the Parties would prefer, a lease or easement can be substituted for the site license.
Given that the solar developer gets paid by generating solar electricity and selling it to the School District, any time when the PV system is not producing electricity, the solar developer does not earn any money. Therefore, the solar developer wants to minimize the downtime when a system isn't operating. This clause gives each School District a total of 48 hours a year when the system can be turned off without penalty. However, if a School District needs to shut a PV system down for more than 48 hours, it will be obligated to pay the solar developer for the lost revenue including the loss of any Environmental Incentives associated with this incremental downtime.
PV systems need sunlight to generate electricity. Shade reduces sunlight and therefore reduces the production of solar electricity. Once the PV system is installed by the solar developer, anything (e.g. a new building next door, overgrown trees, etc.) that ends up shading the PV system becomes problematic. Therefore, shading should be prevented or avoided during the term of the PPA. If shading occurs as result of actions of the School District, the School District may be required to compensate the solar developer for the reduced production. If shading occurs due to actions of unrelated third parties the School District is obligated to assist the solar developer in preventing or mitigating such third party actions.
If for whatever reason, the School District shuts down and vacates the school during the term of a PPA, the School District agrees to work with the solar developer to find a comparable alternative site for the PV system. If the new site is inferior in terms of insolation (sunlight), the School District will be expected to compensate the solar developer for the loss in production as compared to the solar electricity that would have generated at the original site (including the value of any lost environmental incentives). The School District would also be responsible for paying the cost of relocating the PV system. If a new site cannot be found, the School District will be in default under the PPA, which would trigger termination and the payment of a Termination Payment (discussed below).
At the end of the term of the PPA, and possibly at certain times during the term of the PPA, the School District will have the option to buy the PV system from the solar developer. The purchase price is based on what is called Fair Market Value (FMV) — basically, what the PV system is worth at that point in time. If the parties can't agree on a price, a qualified, independent solar appraiser will be brought in to calculate the FMV on behalf of the parties. Of course, the School District can also decide not to buy the PV system, and instead ask that it be removed by the solar developer at the expiration of the Agreement.
Assigning a contract means transferring the rights and obligations under the contract to a third party. Assigning contracts related to PV systems is a common industry practice. The solar developer and the School District are each allowed to assign the PPA to third parties under certain conditions, but in most cases, the assignment is subject to the consent of the other Party (the one not doing the assignment). Usually, it is the solar developer who would be requesting assignment and not the School District. In certain stated instances, the solar developer will not need the School District's consent to assign the PPA, for example, as it relates to getting project financing or if the PPA is being assigned to a party related to the original solar developer.
Given that the PPA represents a long term agreement between the Parties, both sides should coordinate and sign off on any public announcements made by either party about the PV system. This is particularly important as it relates to any claims made by the School District related to 'going solar' or being 'solar powered' etc. Since the School Districts do not actually own the PV systems or the Environmental Attributes, the parties want to ensure that the proper representations are being made in these public statements.
When entering into a PPA with a public entity, the solar developer faces a risk that funds necessary to pay for services provided under the PPA are not appropriated during a budget period. Under the PPA, if funds aren’t appropriated, the solar developer does not have to deliver the electricity to the School District unless or until the funds are appropriated again. During this time, the solar developer may sell the solar electricity generated by the PV system to any third party. If funds are not appropriated for the PPA within 180 days, the solar developer may terminate the PPA. To mitigate the risk to the solar developer during the time when no funds are available to pay for the PPA, the School District agrees not to pay any other utility for electricity used at the School District’s facilities. During this time, the School District is also prohibited from signing a new PPA with a different solar developer for the same schools. Finally, the School District agrees to do whatever it is legally permitted to do to obtain funding through appropriations in order to resume payments to the solar developer.
When there is an event of default by one of the Parties to the PPA, that Party may owe a “Termination Payment” to the other Party. Termination Payment values owed to the solar developer upon default by the School District are pre-calculated and are listed in Exhibit 4. These pre-calculated values are based in part on what the solar developer would have earned for the remainder of the PPA if the school district did not default, and in part on lost or recaptured Environmental Incentives. If the solar developer defaults, the termination payment owed to the School District is based on the cost that the School District is expected to incur by having to buy replacement electricity elsewhere, plus certain other expenses associated with switching providers. Termination Payments payable to the solar developer are high in the early years of a PPA in part due to the tax implications of ceasing production within the first 5 years of initiating operations.
The School District is only obligated to purchase the solar electricity that the PV system produces. But at the same time, the School District wants to get as much solar electricity from the PV system as possible. As a result, the solar developer will agree to a performance guarantee that establishes a minimum amount of electricity that the PV system can be expected to produce over five year increments. In other words, every five years, the Parties will calculate the actual amount of electricity actually produced in the past five years (which is adjusted to reflect usual weather conditions) versus what was guaranteed. If the guaranteed amount exceeds what was actually produced, i.e., there is a shortfall, the solar developer will compensate the School District for the difference. If the actual amount produced exceeds the guaranteed level, the solar developer can roll this difference into the next 5 year period as a credit.
This Purchaser Credit Agreement provides a mechanism to guarantee that the rate of electricity from the solar system is at least equal to or less than the rate of electricity from their non-solar electricity provider. This mechanism is used to comply with Article 9 of the New York State Energy Law. At the end of the initial term, the School District will be provided a comparison of their total cost for electricity generated by their solar system compared to what they would have paid for the same amount of electricity from their non-solar electricity provider. If there is a cost premium for the electricity generated by their solar system, the School District will receive either solar electricity at no charge or a direct payment to settle the difference.
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This site (“Site”) contains a narrative explanation of certain key provisions in the K-Solar Power Purchase Agreement (“Content”) developed by the National Renewable Energy Laboratory and the New York Power Authority (“NYPA”). The Site is made available by the Alliance for Sustainable Energy, LLC, the operator of the National Renewable Energy Laboratory (“Alliance/NREL”) for the United States Department of Energy (“DOE”), and may be used only under the following terms and conditions.