Capacity Building on Design of Bankable Power Purchase Agreements in Pacific SIDS

Power Purchase Agreements (PPAs) are long-term contracts between sellers and buyers of electricity, defining each parties’ rights and responsibilities, and defining mechanisms for dispute resolution. As these agreements lay out the contractual basis for risk allocation between the parties and represent risk hedging instruments for the seller, well-designed PPAs are key to ensure the bankability of generation projects and, therefore, to enable to enable their deployment.

Enhancing the capabilities of local regulators and utilities on the practical design of key clauses for risk allocation and pricing and enhancing their ability to negotiate these clauses is needed to enable the emergence and use of PPAs fit to drive the commitment of capital to renewable energy projects in the region. Local regulators and utilities can benefit from training on how risk allocation emerging from these contractual design choices, affect the remuneration required by project developers, the incentives they perceive to efficiently operating the plant, and the risks borne by the off-taker.

The project described aims at addressing the needs of the SIDS related to PPA design, development and negotiations. For that, it encompasses a two-part capacity building event, including: invitation-only round tables, to share with local authorities the concrete needs of project developers, investors and creditors; and a training event on the design of bankable PPAs for local regulators and utilities.

The capacity building event is expected to contribute to the improvement of PPAs in the region and enhance the capability of local utilities and regulators to design bankable contracts, with the final goal of contributing to effective commitment of private capital to the deployment of renewable energy projects in SIDS of the Pacific.

The need to increase the readiness of local regulators and state-owned utilities to design and negotiate bankable PPAs for renewable energy projects was identified in a meeting with the Pacific Power Association at the 9th IRENA Assembly. The Pacific Power Association identified the design of bankable PPAs as a priority area for capacity building in the region.