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Renewable Energies

Safe Investment or Dangerous Deal?

 

STUDENT PAPER

By Cyril Cojutti

SKEMA Business School

Lille, France

 



ABSTRACT

Renewable energies, nowadays, have a significant impact on the way we consider creating energy and affect all layer of society

One of the way, to have access to renewable energies on a project level is to contract a Renewable power purchase agreement with an energy supplier (Contractor).

However, it is accustomed in this field that the whole investment and building part of the power supply source of a RPPA should be taken care by the contractor himself. The said investment can represent a great amount of money that the contractor should have return on. However, in case of delays, the Renewable power purchase agreement contract often contains an “early termination right” which grants the Owner authority on the cancelation part.

How can we share the responsibility and how can mitigate the delays?

Incremental delivery and shared investment could be a good track to follow to diminish the identified risk and bring valuable knowledge to the Owner

Keywords: United Nations, Sustainable Development Goals, Renewable energy, Eco-friendly energy, Energy Seller, Energy Buyer, Power Purchase Agreement, Early termination right, Risk sharing

INTRODUCTION

Renewable Energy transition is one of the major stake of our century. Indeed, one of the Sustainable Development Goal number 7 set by the United Nations was to provide access to clean energy to everyone; one of the sub-objectives being that renewable energy share become more significant in the energy global mix. Improving their technology every year, eco-friendly energy providers proved the significant impact sustainable energies could have on an ecological and social level. Although, the efficiency of those latter is often source of concern compared to fossil fuel or even nuclear based energy it has become a necessity not to rely on them anymore in order to protect our habitat.

30% of the world GDP is invested on project every year and tends to 40% on 2020. Thus, it becomes important to increment as much and as soon as possible renewable energy and sustainable strategies to project. To provide energy to a project or a business, it is essential to make a Power Purchase Agreement, which is a legal contract between at least to parties, a seller (energy provider) and a buyer. With the increasing development of technologies such as Solar Panels or Wind Mills, a sustainable aspect of the PPA have been created.

Usually when contracting a Renewable PPA, the contract itself will be scaled from 5 to 20 years. The seller will take into his responsibility the whole project of creating, financing the energy farm and make sure the right amount of energy is delivered to the buyer. As you can see from this brief introduction of the PPA, the power and risk sharing balance between the two parties is not even. Beside this issue, Renewable energies are submitted to a major constraint which is the random aspect of the weather. Thus, it becomes difficult to insure a constant amount of energy. From all these risks, one seemed major to deal with. When facing a delay in delivering power, what happens to the contract? Many PPA contain a “early termination rights” clause which allows the contract Owner to terminate the contract if not delivered on time. As we mentioned it before, creating renewable energy require a huge investment supported by the Contractor and not reaching a return on investment can be critical to any company.

Therefore, it is essential to think of a solution that could share the risks and avoid such an unpleasant conclusion to the power purchase agreement which would be unfavorable for bother owner and contractor.

Objective statement

On this paper we will go through the following issues:

  • What are the risks of a Power Purchase Agreement?
  • Which one can be shared between the two parties?
  • What solution can be brought to avoid early termination of the contract in case of delays?

More…

To read entire paper, click here

 

Editor’s note: Student papers are authored by graduate or undergraduate students based on coursework at accredited universities or training programs.  This paper was prepared as a deliverable for the course “International Contract Management” facilitated by Dr Paul D. Giammalvo of PT Mitratata Citragraha, Jakarta, Indonesia as an Adjunct Professor under contract to SKEMA Business School for the program Master of Science in Project and Programme Management and Business Development.  http://www.skema.edu/programmes/masters-of-science. For more information on this global program (Lille and Paris in France; Belo Horizonte in Brazil), contact Dr Paul Gardiner, Global Programme Director [email protected].

How to cite this paper: Cojutti, C. (2018). Renewable Energies: Safe Investment or Dangerous Deal?, PM World Journal, Vol. VII, Issue XI – November.  Available online at https://pmworldjournal.net/wp-content/uploads/2018/11/pmwj76-Nov2018-Cojutti-renewable-energies-student-paper.pdf

 



About the Author


Cyril Cojutti

Lille, France

 

 

 

Cyril Cojutti is a student at Skema Business School in Master of Science Programme and Project Management and Business Development.  Being deeply interested in sustainable energies and eco-friendly technologies, he thought it wise to develop an analysis on Renewable Power Purchase Agreement as it is a cornerstone of the global energy transition which can apply to most projects. When graduating, I would like to engage myself in the development of clean energy and its promotion worldwide. It is a major stake of our century and will have an impact on our way of life tomorrow. He wants to play a role in it.

Besides, being passionate by Japan since my childhood, Cyril did an exchange program at Hiroshima University of Economics for one year which enabled him to enhance his understanding of the Japanese culture.

With the nuclear incident of 2011 in Japan, it became one of his objectives to be committed to increase the sustainable energy share in Japan.