Category: Utility Scale Generation
Contract for Differences, ISDA-based power transactions, virtual PPAs, and other forms and subsets of price hedging in the renewable energy space is nothing new. However, the number of such transactions has increased in frequency over the past few years. With such increased frequency, the market has moved (and continues to move) from what was common and customary a few years ago to what it is today.
This SPI presentation will (a) briefly summarize the basic structure of a solar energy hedge for those unfamiliar with the structure, (b) identify the most recent market trends and points of contention within these solar hedges and (c) highlight the positions (and reasons for such position) taken by the hedge provider and the solar project company.
The following 10 issues commonly arising under renewable energy swap agreements that will be covered. (1) Basis Risk; (2) Security / Collateral Requirements; (3) Real-Time v. Day-Ahead Settlement; (4) Construction Milestones / Off-Ramps / Partial Unwinds; (5) Physical v. Financial Settlement; (6) Availability Requirements; (7) Change of Law Risk; (8) Permitted Additional Transactions; (9) Ownership of any future Capacity or Ancillary Services; and (10) Third Party Transaction Costs.
Anyone who is involved with solar projects has or will encounter solar hedges. This topic is often seen as an “exotic” contract structure; however, it should not be viewed with any mystery. It is simply one method for the project company to receive a guaranteed, steady and predictable price for its generated energy.
Dan Lynch– Counsel, Akin Gump Strauss Hauer & Feld LLP