Letters of Intent (LOI) for Power Purchase Agreements Posted on Apr 05, 2018
A power purchase agreement ("PPA") is a financial agreement where a developer arranges for the design, permitting, financing and installation of a renewable energy system on a customer’s property at little to no cost. PPAs are excellent tools for putting together renewable energy projects. The process of developing PPAs involves lengthy negotiation, robust documentation, significant analysis and due diligence. A Letter of Intent (“LOI”) for a PPA can ensure exclusivity while these details are worked out.
In addition to providing exclusivity, LOIs can include binding commitments on the proposed key terms of the PPA subject to the Developer completing its credit review, securing applicable federal, state, local and/or utility incentives and a satisfactory review of all due diligence, documentation and other conditions. An LOI can also be used to cover binding commitments to ensure that the typical “deal breaker” type of sticking points that can occur during the PPA development process are agreed upon at the outset. Some of these types of binding commitments that parties might want covered in the LOI include the renewable energy system's specifications, an electricity rate cap, energy output requirements, electricity production guaranty, options to purchase, rights of access, financial guaranties and other key deal terms.
Regardless of how the LOI for a PPA is structured, parties often find LOIs to be a helpful tool for preserving the sales opportunity and protecting their investment while they perform the analysis and due diligence required to complete the full set of PPA project documents.