Extended Discussion: PPA Production or Performance Guarantees Sample Clauses

Extended Discussion: PPA Production or Performance Guarantees. ‌ In private PV power sale contracts between a system owner and a commercial or residential customer, the goals of each party are usually straightforward: The customer seeks to reduce its energy costs, and the PV system owner hopes to take advantage of tax benefits, REC values, and power sale profits. In the government contracting realm, those goals may still be prominent, but they may also be joined by statutory mandates to improve energy efficiency and reduce energy costs through auditable contracts. To ensure a PPA is satisfying all of these potential mandates, some municipalities have negotiated Production or Performance Guarantees (e.g., the cited examples below in Massachusetts and New Jersey). Provisions of this type may be stated in slightly different ways, but ultimately they will typically be based on a conservative estimate of how much energy a facility will produce in each year of the contract. This estimate will implicitly take into account the expected degradation of energy production from the system over time. Some PPAs state the guarantee in terms of a percentage of estimated production (e.g., 80%), while others begin with a guaranteed first-year kWh output (again, likely a conservative estimate) and allow it to be reduced over time, typically at a rate of 0.5-1% annually. Either method is suitable for arriving at a guaranteed production level that can be stated in terms of kWh of annual energy production. Where a guarantee is used, the system owner is most often required to reimburse the customer for any “lost savings”, with exceptions for force majeure events or other losses in output that are permissible under the PPA (e.g., project downtime due to actions of the customer). Even when not required by law, the inclusion of a minimum performance guarantee provides the municipality and its citizens with greater certainty that the investment the government has made in renewable energy has demonstrable results, and the system owner is accountable for those. That said, the necessity or desirability of performance guarantees should be considered with counsel before an RFP is issued and any such requirement should be specifically set out in any RFP. With respect to necessity, on one hand, the customer is still only required to pay for the actual amount of electricity delivered, so any loss of production is mitigated by the fact that payments to the system owner are also reduced. The system owner therefore has a strong incentive to maximize the en...