Renewables IPP frameworks for successful PPAs Dr Muriel Watt Head, Energy Policy & PV

Outline Fair and transparent Independent Power Producer Investment Frameworks Renewable energy program design, implementation and evaluation Frameworks for Power Purchase Agreements

Program Design, Implementation & Evaluation Design Implementation Evaluation Source: Passey et al, 2008

Framework implementation Complete separation of powers may not be possible on Pacific islands Governance and Administration bodies may be combined Overlap possible between Governance body and Regulated industry participant In all cases it is most important that the Regulator is independent so it can effectively evaluate the scheme

PROGRAM EVALUATION IPENZ 2009 Pickering Lecture Series

Evaluation Stages Monitoring of uptake, issues and outcomes Assessment of monitored results - trends, costs etc Recommendations for revision and adaptation of programs –based on assessments –to ensure they remain relevant –lessons learned are acted upon –to respond to changing circumstances, including prices, new technologies or information

Assessment Criteria Effectiveness: How effective is the program at deploying plant that generate the expected amount of renewable electricity over a given timeframe? Efficiency: Is the program able to deliver renewable energy at low cost, and are there any other cost impacts? Equity: Are the costs and benefits of the scheme distributed fairly? Administration: Is the program difficult to administer, including any relevant auditing and compliance requirements?

Example – Reverse Auction for Central Grid Services Generation and/or network services, such as storage or voltage support, are called for, based on electricity system needs Complementary mechanisms  Supportive grid-connection arrangements  Network maps  Training and accreditation  Resource monitoring  Tax benefits

Responsibilities for a Reverse Auction RoleResponsible partyComment Governance (design) Funding body or Government designs the auction process, with input from others Overlaps may occur between Governance body and Regulator, Administrator or Regulated industry participant Administrator (implementation) Administrator (e.g. Government Agency) runs the auction Transparent process for technical and financial requirements, capacity sought and timelines. Reasons for selections & rejections provided Regulator (evaluation) Regulator evaluates outcomes against aims Independent, for effective evaluation of both scheme design and outcomes Regulated industry participant UtilitySets volume, location preferences and connection requirements Independent industry participant Independent parties bidding in projects Need fair process and all relevant information to minimize participation costs. Need to provide financial credentials and be held to bid prices and timelines.

Evaluation Criteria EffectivenessDesired amount of generation capacity or output. Efficiency Electricity generation cost ($/MWh) compared to generators currently operating in similar areas. EquityType of impact on electricity prices. AdministrationCost of designing and implementing the auction and selecting the successful IPP(s)

PPA TEMPLATES

The Role of PPAs in Modern Energy Economies Robust PPA frameworks - with progressive and stable policy - are the critical de-risking ingredients to inducing private sector investment They must balance Counterparty Risk and Reward –the underlying legal framework must support a level ‘playing field’ in terms of risk management and commercial reward

Key PPA Considerations Term and termination Term of Supply - Commercial Operations Date, renewal options, termination conditions. Supply Quantity of electricity to be supplied and how it is to be measured – e.g. Net Energy Output, Deemed Monthly Quantity Purchase Price and purchasing arrangements, escalation, review mechanisms, creation & ownership of environmental credits Conditions Precedent to Supply Conditions to be fulfilled by the IPP before the Commercial Operations Date, testing and commissioning requirements and responsibilities Interconnect Requirements For management of interconnection and transmission

PPA Considerations cont. Metering Arrangements Responsibilities and obligations re testing, maintenance Control and Operating Procedures Relevant process and responsibilities Dispute Resolution Emphasis on cost-effective resolution rather than litigious pathways to settlement Insurance Arrangements Parties should be adequately covered and comply with any regulatory requirements Liability and Indemnification Limitation on liability and indemnification arrangements. Force MajeureResponsibilities of both parties if events occur beyond the control of either party.