(i) all debt outstanding (including outstanding principal, outstanding interest, prepayment fees, hedge break costs, and other charges) plus If the project is terminated following an event of default by the project company, the purchase price or termination payment might equal:
Although the core elements of the methodology usually remain the same, the amount of the compensation may differ – sometimes significantly – depending on which party terminates the power purchase agreement or concession agreement and the event that led to the termination.įor independent power projects and other projects in which substantially all of the capital expenditure takes place at the beginning of the project, the purchase price or termination payment may be calculated using a methodology that is similar to the methodology describe below. depending on the technology, the prolonged unavailability of fuel for a generation project.įor both termination payments and purchase prices, the methodology that will be used to determine the amount of compensation should be agreed at the outset of the project and clearly described in the PCOA, power purchase agreement, or concession agreement.the expropriation of a material part of the assets of the project company or of shares in the project company and.a prolonged political force majeure event.a prolonged natural force majeure event.an event of default by the host government under a government support agreement or implementation agreement.an event of default by the offtaker or contracting authority.
If this obligation is contained in a PCOA, the compensation payable to the project company (or sponsors) is generally referred to as the purchase price or the exercise price. If this obligation is contained in the power purchase agreement or concession agreement, the compensation payable to the project company (or sponsors) is generally referred to as a termination payment or as termination compensation and is usually guaranteed by the host government (or is a direct contractual obligation of the host government). The same is generally true for public infrastructure projects outside the power sector.Īs a result, sponsors and lenders typically require an offtaker, contracting authority, or host government to agree to purchase the project, or the shares in the project company, at an agreed price in the event the power purchase agreement, concession agreement, or other project contract is terminated. If the power purchase agreement is terminated, the project company may no longer be able to sell capacity or energy and may no longer generate reliable revenues. In virtually all countries in Sub-Saharan Africa, there is only one purchaser of electricity from utility-scale power projects. This article examines a few methodologies that can be used to calculate the purchase prices that become payable upon the exercise of a put option or call option under a PCOA, or the termination payments that become payable upon the termination of a power purchase agreement, concession, or other project contracts. In a previous article, we discussed the differences between a sovereign guarantee and a put and call option agreement (PCOA).
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