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Green Contracting

Structuring renewable agreements to survive change.

Fortnightly Magazine - November 2009

date, a grace period or cure period during which daily liquidated damages might be due if commercial operation isn’t achieved by the expected date, and ultimately a termination right if the facility isn’t completed by a date certain. However, renewable contracts sometimes require a different approach.

Most wind farms and some solar facilities are brought onto the grid in increments. As each section of a wind farm or photovoltaic (PV) installation is completed, the power is ready to start flowing proportionally to the number of MW installed. With a PV resource in particular, commissioning and testing is relatively brief. The seller typically wants to have each phase declared commercial as early as possible to increase its cash flow. To accommodate this preference, the contract must define the period over which commercial operations will be phased-in, address the consequences of a deficiency if only a portion of the expected project becomes commercially operable within the expected period, and for the portion of the facility that comes on line prior to completion of the entire facility, the appropriate price and performance measures to be applied during that pre-completion period.

Like their fossil-unit counterparts, many renewable contracts allow the expected commercial operation date to be extended for force majeure , but in the case of renewable contracts, a pre-COD force majeure may include insufficient wind or sun to complete testing. Also it’s increasingly common to see extensions allowed to complete the interconnection to the grid.

Transmission Risk

The need for new transmission capacity to support the development of renewable resources has received substantial attention. It has become a central issue in addressing the challenges of climate change. The stimulus act (The American Recovery and Reinvestment Act of 2009) , for example, added Section 1705 to provide federal loan guarantees to sponsors of certain transmission infrastructure investment projects and assigned a preference to otherwise eligible transmission expansions that support renewable energy generation. The Waxman-Markey Bill states that regional electric grid planning should “facilitate the deployment of renewable and other zero-carbon and low-carbon energy sources for generating electricity to reduce greenhouse gas emissions” and would require the Federal Energy Regulatory Commission (FERC) to establish grid-planning principles that meet these policy goals within a year. FERC also has taken measures to enhance the financial feasibility of transmission facilities needed for renewable resources. In April 2009, FERC approved rate incentives for a project that would deliver wind power from the upper Midwest to consumers in and around major metropolitan areas, despite significant opposition. In February 2009, FERC approved the first “anchor tenant” structure for merchant transmission, in order to facilitate the development of two transmission projects intended to deliver wind power from Montana and Wyoming to Nevada and the Southwest.

The appropriate allocation of costs of needed transmission for renewable resources, including the costs of interconnecting renewable resources to the grid, also is receiving attention. With regard to interconnection costs, FERC’s general policy assumes that generators “can choose where to interconnect and will do so in an economically efficient manner, so as to minimize costs of interconnection.” 1 However,

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