Anatomy of a Singapore Corporate PPA

Overview

In land scarce Singapore, which lies just one and a half degrees north of the equator, solar power has emerged as the most viable renewable energy option for corporate consumers committed to sustainability. In general, on-site power purchase is the simplest option, whereby a corporate with rooftop space simply enters into a long term offtake agreement to purchase power from a solar generator at a pre-agreed price. As the solar generator will usually lease the rooftop from the corporate to install the solar generating units, this model is commonly referred to as "solar leasing" in Singapore.

An onsite power purchase agreement may not be feasible for corporates with limited rooftop space or with energy demands in excess of rooftop generation. In such scenarios, the offsite power purchase agreement or corporate power purchase agreement ("Corporate PPA") becomes an attractive option.

What is a Corporate PPA

A Corporate PPA is largely a financial transaction with no physical flow of power. The corporate pays the solar generator an pre-agreed price for the power produced and in return receives the renewable energy certificates ("RECs")[1]  or "green products" such as environmental credits, offsets, allowances, benefits or certificates obtained or owned by the solar generator.

There are many interesting contractual variations and bespoke options in the Singapore market, but in our experience, most Corporate PPAs will contain the following salient provisions:

• The solar generator will construct, own and operate a solar project which will generate electricity and the RECs. As co-location is not necessary, the project can be located in a different geography from the corporate. There are timelines for the project to achieve financial close and commence commercial operations.  There are also usually minimum generation commitments by the solar generator, which are based on power generation projections and modelling.
• The RECs are carefully defined to align with established renewable energy certificate criteria. RECs are tradable on specific registries. The solar generator must create and register or procure the creation and registration of all RECs regularly and timeously (e.g. within 7 business days after the end of each month).
• The solar generator must ensure that it obtains and maintains at all relevant times any registration, accreditation or authorisation required under the applicable green product scheme to enable the creation of RECs. This is sometimes backed by a specific guarantee from a third party.
• The corporate will commit to buying all or a specified percentage of the RECs created from the Project for a specified term of years (usually commencing from the commercial operation date of the project).
• The price of RECs is always negotiated and could be based on a complex matrix of factors such as:

– Volume and committed term of purchase;
– Supply and demand;
– Geography;
– Size / age / reliability of project and generation capability; or
– Accreditation or certification status of the RECs.

• The corporate may negotiate for exclusive purchase rights or a right of first refusal to purchase the balance RECs generated from the project.
• The parties need to allocate the material contract risks, which are specific to a sale of RECS, for instance:

– Net increase or decrease in the solar generator's costs of creating, selling, supplying, registering, or transferring RECS; or
– Change of law (usually a subject of intense negotiations).

• Finally, the events of default which will entitle the corporate or the solar generator to terminate the Corporate PPA should be set out in the Corporate PPA.
  
  

The "Synthetic" Corporate PPA Structure Prevalent in Singapore Market

The Singapore Corporate PPA Landscape

On-site PPAs were very much in vogue in Singapore over the past 5 to 7 years, as corporate owners of large industrial or other real estate contracted with solar companies to install, manage and operate solar PVs for on-site use. There are many success stories including on-site solar PV generation at Sports Hub, the Rolls Royce Aviation factory, Marina Bay Sands and numerous other large sites.  

As the market has matured, almost all industrial and large real estate sites have locked on to the benefits of on-site solar PPAs. Now, corporate offtakers who take up large office or retail space in the city have started to look at "synthetic" Corporate PPA options. This is because these offtakers do not own or lease premises with large rooftops, given that most office and retail space are located in high rise buildings and skyscrapers. The corporate real estate market in Singapore is primarily a tenancy market, with most corporates leasing from developers rather than owning their own buildings. Leases tend to run for 2-4 years as well. As such, even if a corporate were interested in on-site generation, there is a lack of access to usable space to place the solar PVs.

Singapore's Corporate PPA model today has developed in a manner that resembles the USA, where the contractual arrangement is known as a Synthetic PPA. The Synthetic PPA model is generally more prevalent in the USA based on Bird & Bird's market-leading research: more information can be found here, where we compare Synthetic and Sleeved PPAs. 

Under synthetic arrangements, power and attributes can be sold "virtually" across separate energy markets. This is crucial, especially in Singapore where generation capabilities may be limited due to its small size. Moreover, the Energy Market Authority recently announced concrete plans to enhance co-operation with energy regulators in Malaysia, Hong Kong and the United Kingdom at the Singapore International Energy Week 2020. In this way, the Corporate PPA model that is gaining traction in Singapore bodes well for future cross-border energy trade and trade in green products. Looking to the future, Corporate PPAs of this nature are expected to gain even more traction. 

This article is produced by our Singapore office, Bird & Bird ATMD LLP, and does not constitute legal advice. It is intended to provide general information only. Please contact our lawyers if you have any specific queries.

[1] RECS are market-based instruments certifying that the bearer owns one megawatt-hour (MWh) of electricity generated from renewable energy. Once the solar generator has injected the renewable energy into the grid, the REC received by the solar generator can then be sold on the open market as an energy commodity.