Solar Energy & Corporate PPAs in Singapore

Solar energy has been hailed as Singapore’s “most promising renewable energy source” in the Singapore Green Plan 2030. This is largely because, firstly, sunlight is prevalent all year round (with an average of around 6 hours of sunlight daily)^[1] and, secondly, Singapore’s geographical limitations restrict the deployment of other types of renewable energy sources.

Singapore is presently regarded as one of the most solar-dense cities in the world,^[2] with solar panels deployed throughout the city from rooftops, open fields, vacant lands and even reservoirs. Some noteworthy projects are:

• the SolarNova programme, which involves installing solar photovoltaic system systems on the rooftops of HDB flats and public sector buildings;
• a 60 megawatt-peak inland floating solar photovoltaic system (about the size of 45 football fields) at Tengeh Reservoir; and
• a 285 megawatt-hour Energy Storage System on Jurong Island to mitigate the intermittency of solar power.

With dedicated efforts from the public and private sectors, Singapore is already well on track to exceed its goal to achieve at least 2 gigawatt-peak of solar energy deployment by 2030.^[3]

Projects to deploy solar energy via onsite solar panels or arrays, as well as offsite commercial arrangements are commonly facilitated by corporate power purchase agreements (“PPA”). In essence, corporate PPAs comprise a range of commercial agreements which govern the sale of green electricity (for onsite PPAs) or govern the sale of financial attributes and energy price hedging (for offsite PPAs).

Different Types of Power Purchase Agreements (“PPA”)

Substance trumps form, so the name or label attached to a PPA could be misleading. There is a proliferation of PPA models in Singapore as there are no fixed templates. The structures of PPAs depend on factors such as the physical distance between the power-producing facility and the electricity consumer, the ability of the consumer to foot the capital expenditures (“CapEx”) upfront and the confidence of the consumer in entering long term commitments. The most common solar contracts in Singapore are: Traditional EPC, Onsite PPA, Solar Lease and Virtual PPA.

The following descriptions are only generalised versions of the common variants. Most PPAs are designed and negotiated to suit the consumer’s requirements without prejudicing the solar developer’s need for the PPAs to be fully bankable.

Traditional EPC: The traditional EPC (Engineering Procurement Construction) is also known as the CapEx model. The consumer (“Property Owner”) has the means and the desire to fund the construction of the panels on its site. An EPC Contractor provides a turnkey solution to deliver a fully operational solar project to the Property Owner on the site and both the CapEx and operating expenses (“OpEx”) are borne by the Property Owner. The term of an EPC project rarely exceeds 6 months. In the post-construction period, the Property Owner may require O&M (operations and maintenance) support and may engage the EPC Contractor or a third-party O&M Contractor for this purpose. It is important to note the Property Owner will need to deal with the solar panels at the end of the panels’ lifetime (around 25 years).

Onsite PPA: The earliest onsite PPA contracts are usually adaptations of US- or UK-based PPA templates and such contracts are often highly convoluted and not fit for the Singapore solar regime, which is a simplified regulatory regime to accelerate solar adoption, but there are no feed-in tariffs or government subsidies for renewable energy use. In an onsite PPA model, the Solar Developer typically installs and operates the solar project on the Property Owner’s site and bears the CapEx and OpEx. The electricity generated by the solar panels is sold to the Property Owner and the Property Owner pays a fixed tariff based on the green energy delivered. The PPA term is also fixed, typically between 10 and 20 years and the Property Owner will incur termination fees akin to liquidated damages if it seeks to pre-terminate the PPA prior to the expiry of the PPA term (e.g., sale, relocation, termination without cause). On the expiry of the PPA term, the Property Owner has the option to purchase the solar panels or get the panels removed by the Solar Developer.

Solar Lease: For Property Owners that intend to harvest the full benefits of ownership but need a wade-in period, a solar lease (also sometimes known as lease-to-own) model provides a customised solution which operates like an equipment lease. The Solar Developer installs and operates the solar panels on the site. There is zero downpayment by Property Owner and the Property Owner makes variable regular “instalment” payments for the panels. The Property Owner enjoys 100% energy savings from panels from day one, which helps to offset the instalment payments. The term of a solar lease or lease-to-own contract could be only 5 to 8 years, at the end of which ownership of the panels is transferred to the Property Owner. The Property Owner takes on the operational risks to maintain and decommission the panels at the end of the panels’ lifetime or if the Property Owner needs to relocate.

Virtual PPA: The preceding models are largely variants of the onsite PPA. In many situations, the Property Owner is unable to accommodate solar panels on its site but has a mandate to “go green” or a timeline to meet its Net Zero Emissions (NZE) commitments. In such cases, the Solar Developer generates electricity from its remotely located solar project and delivers electricity to the Singapore grid. The Virtual PPA (also sometimes known as Offsite PPA or Synthetic PPA) functions as a commercial arrangement without any actual flow of electrons (i.e., physical delivery of electricity) from the solar project to the Property Owner’s site. The Property Owner receives Renewable Energy Certificates (RECs) in lieu of electrons, and in some cases, the RECs are bundled with a financial hedge where the Property Owner hedges the price of electricity delivered to the Singapore grid via Contract for Difference (CfD). The Property Owner is essentially assigned the RECs associated with the delivered electricity. Such Offsite PPA/Virtual PPAs are usually for a fixed term of between 15 and 20 years and feature fairly complex documentation.

Considerations for embarking on the solar journey

Site Assessment and Technology Design: Prior to entering into an onsite PPA, the Property Owner needs to undertake a sensible self-assessment of why it is going solar in the first place and whether it can physically accommodate solar panels on its site. A feasibility study will be useful to assess factors such as site conditions, insolation and resource availability to negotiate and administer the PPA. It may also be useful to determine if the solar facility may interfere with future redevelopment or relocation plans.

Legal and Regulatory Compliance: The parties should ensure compliance with relevant regulations and obtain the necessary permissions and licences from government authorities. This may include environmental permits, planning permission, construction permits, and licences to generate electricity.^[4]

• Non-residential installations and all installations that are 1MW or greater may require an Electrical Installation Licence or Electricity Generation Licence.^[5]
  • Electrical Installation (EI) Licence:All non-residential electrical installations, including solar photovoltaic (PV) systems, with a load demand of more than 45kVA will necessitate an Electrical Installation Licence.
  • Wholesaler Licence: Companies or contestable consumers must obtain a Wholesaler Licence to: (a) sell electricity in the Singapore Wholesale Electricity Market (SWEM) for generating units with individual nameplate ratings of below 10MW but equal to or exceeding 1MW; (b) offer ancillary services or any electricity-related product or service by means of a load reduction; or (c) deliver electricity from embedded generators, at Specified Premises,^[6] for the (offer for) sale to consumers at those very premises.
  • Generation Licence: Any electricity-generating company must obtain a Generation Licence if it has a generating unit with an individual nameplate rating equal to or exceeding 10MW.

Grid Connection: If an onsite solar energy facility is projected to generate more energy than the consumer will use, the parties might consider exporting the excess electricity to the grid. In order to facilitate smooth connection to the grid, the onsite solar facility should comply with national grid standards and procedures, as regulated by the Energy Market Authority, SP Services, and Energy Market Company.^[7] In brief:

• A Non-Contestable Consumer (“NCC”) with less than 1 MW of embedded solar capacity has to register with SP Services under the Simplified Credit Treatment Scheme to sell excess electricity to the grid.
• A Contestable Consumer (“CC”) with less than 10 MW of embedded solar capacity has to register with SP Services under the Enhanced Central Intermediary Scheme to sell excess electricity to the grid.
• A CC with more than 10 MW of embedded solar capacity has to register with the Energy Market Company to sell excess electricity to the grid. Such a CC would also have to register as a Generation Facility with the Energy Market Company.

Legal liabilities and risks: The PPA is usually negotiated to apportion the risks between the parties. Unanticipated changes such as change in law, force majeure and insolvency events pose major legal, financial and operational risks to both the Solar Developer and the Property Owner in a long-term contract and these need to be sensibly addressed in the documentation. The Solar Developer will also typically seek fair and quantifiable compensation if the Property Owner fails to offtake as anticipated (e.g., downtime) or if the Property Owner terminates the PPA when there is no default on the part of the Solar Developer (e.g. termination of the site’s lease, relocation of business or redevelopment of site).

Conclusion

The circumstances for adopting solar energy in Singapore are opportune, driven by net zero commitments and government initiatives in support of the Singapore Green Plan 2030. PPAs serve as essential contractual mechanisms for facilitating the adoption of solar energy, enabling both onsite and offsite deployment options. Virtual PPAs offer another avenue for consumers to support renewable energy without physical installation. However, successful implementation of solar projects requires careful consideration of construction, operation, and legal aspects, including site assessments, regulatory compliance, and risk management.

Saliently and concisely drafted PPAs can help to ensure project efficiency and to mitigate risks for the parties involved. Stakeholders should remain vigilant about legal risks, such as regulatory changes and insolvency, and take proactive steps to safeguard their interests. Overall, solar energy offers significant opportunities for sustainable development in Singapore and offers eco-conscious electricity consumers a viable means of reducing their carbon footprint.

If you have any questions or would like to discuss any issues, please do not hesitate to contact us.

This article is produced by our Singapore office, Bird & Bird ATMD LLP. It does not constitute legal advice and is intended to provide general information only. Information in this article is accurate as of 19 March 2024.

[1] Climate of Singapore (Meteorological Service Singapore)

[2] Energy Reset (Green Plan)

[3] Solar (Energy Market Authority)

[4] Do I need a licence to install a solar PV system? (Energy Market Authority)

[5] Do I need a licence to install a solar PV system? (Energy Market Authority)

[6] As defined by the Energy Market Authority, Specified Premises are premises that “(a) are lawfully used or occupied by the Licensee for the purpose of generating electricity through a generating unit on the premises for supply and sale by the Licensee of the electricity to one or more consumers who lawfully use or occupy the premises for non-residential purposes; and (b) are also supplied electricity from a transmission system”.

[7] Solar Installation Guide (Energy Market Authority)