With microgrids in place, doomsday preppers wouldn't need to worry so much about a zombie plague.
Structuring renewable agreements to survive change.
parties continue to struggle to find a competitive price when the actual costs of financing, development and ownership—after government incentives are considered—aren’t yet known. The types of mechanisms previously used and described above—alternative pricing schemes, extension dates and termination rights—now are being used again.
Determination of the payment due a seller as cover costs for a curtailment, or damages for a default by the buyer, is made more complex by the existence of government incentives. Where a buyer has agreed to pay a seller for curtailing, and the seller will be relying on PTCs, the cover price typically includes the contract price plus the grossed-up loss of the associated PTCs. But in the event of default, the seller’s ability to recover its potentially lost tax benefit varies. Some contracts provide for a termination payment upon buyer’s default that expressly includes the value of lost ITC and lost PTCs. Others expressly deny recovery for such losses. Other contracts avoid confronting this issue altogether by not specifying a termination payment or termination-payment formula. Instead such contracts merely provide that the non-defaulting party is entitled to its rights at law, often specifically limited to direct damages.
Another problem in the pricing of renewable contracts is realizing economies of scale. The first commercial installation of a new technology is likely to encounter novel issues and risks that must be reflected in the price. As the technology improves and is more widely deployed, prices likely will decline. Thus, the utility that agrees to purchase from a project using a new technology, for example to take advantage of the greater operational flexibility it might provide or due to a scarcity of more conventional renewable options in its geographic region, might pay a premium for the power.
Government incentives such as loan guarantees and grants may help some new technologies reduce their costs. However, other strategies to mitigate the price impact and risk of new technologies on the buyer should be considered. For example, a buyer can contract for power from multiple projects, or increments of the same project developed over time, from the same seller, bargaining for declining prices for each incremental block. Rights in future projects may be structured as an option for first offer or first refusal, to provide time to evaluate the performance of the initial project. To avoid concentrating the buyer’s risk exposure to the seller or the new technology and to spread the premium associated with the first project, the buyer might want to take only a small part of each of several projects, thus forcing the seller to find other purchasers with which to share the premium cost of the first commercialization. A buyer also can seek to recapture some of the premium it pays for power from that first commercial installation by securing a right to a share of royalties or licensing revenues or other equity-like return.
Commercial Operation Date
The typical contract for a new fossil-fuel unit anticipates a period of construction, a period of commissioning and testing, in which sometimes the buyer purchases the energy, a specific expected commercial-operation