Common Challenges in Power Purchase Agreements (PPA)

Part 2: Renewable Energy Markets Asia 2025 What happens when two developers, a consultant, a legal advisor, and a corporate buyer walk into a room? No, it’s not a new project! It was our panel at REM Asia 2025, and we got real about — the messy challenges of PPAs in Southeast Asia. The lineup was diverse, and so were the truths we brought to the table. ✅ Developers grappling with regulatory whiplash ✅ A consultant navigating shifting buyer expectations ✅ A legal expert untangling risk allocation ✅ And me — the offtaker — trying to make real progress while managing decarbonisation goals, and credibility. Here are a few raw, honest takeaways from the discussion that stuck with me: 🔍 1. The risk is shifting earlier. And it’s heavier. In markets like Vietnam or Indonesia, developers are being pushed to move quickly, and buyers are being asked to take a leap of faith. That means signing commitments before regulations are fully clear, grid access is confirmed, or offtake structures are defined. From the buyer’s side, this creates friction: We're expected to make long-term bets without full clarity — but waiting too long? The ship has sailed! 🧩 2. Each market has its own puzzle pieces — and no master picture. This region isn’t one PPA market. It’s many, layered and evolving. Here’s what I shared: 🇻🇳 Vietnam — Still shaping its direct PPA framework, with state-owned EVN in the shadows 🇮🇩 Indonesia — PLN’s role means offtake is still indirect or JV-driven, and land permits are complex 🇲🇾 Malaysia — Liberalising through programs like CGPP, but still cautious on wheeling 🇸🇬 Singapore — Fully liberalised, but highly sensitive to reliability, capacity, and grid stability Trying to source renewables across multiple jurisdictions? It’s tough 💡 3. Real leadership isn’t just about price — it’s about what you enable. Yes, every company wants the cheapest clean electrons. But I’m increasingly seeing a maturity curve: Organisations start by buying cheap RECs. Then they realise — if everyone only does that, nothing new gets built. The companies I admire are the ones willing to say: "We’ll support the easy stuff where it makes sense — and we’ll back harder projects that actually move the needle, even if it costs more." That’s how you build credibility and additionality. And systems change. ⚖️ 4. PPA contracts are no longer just legal documents — they’re risk-sharing frameworks. We spoke about how PPA terms are evolving. I shared what we (as a buyer) look for now: • Flexibility on volume — because our business changes • Newer contract structures — part of risk management We’re no longer just procuring electrons. We’re managing real operational and reputational risk. 🙌 The best part of the panel? We didn’t all agree. And that’s what made it real. This wasn’t a PR exercise. Massive thanks to: • Clares Loren Jalocon • Jane Tay • Amy Chiang • Adrian Wong Thanks Roble Poe Velasco-Rosenheim for the pictures

It’s come to my attention that a lot of European corporates have entered into Power Purchase Agreements (#PPAs) in one market, in an effort to hedge exposures in another. Worryingly, there seem to be a number of consultants recommending this approach without undertaking a thorough risk analysis. This may sound like a smart strategy, but in reality it can be very risky. Let me tell you why... ▶ Market differences: European #power markets are not fully integrated and prices can vary significantly between countries due to factors like local supply and demand, transmission constraints, and regulatory environments. ▶ Basis risk: Purchasing a PPA in one market to hedge risk in another introduces basis risk, which has the potential for price movements in the two markets to diverge. This could lead to ineffective hedging if the markets don't move in tandem. ▶ Regulatory uncertainty: Different European countries have varying regulatory frameworks for PPAs and #renewable energy. Changes in regulations in either the PPA market or the market you're trying to hedge can impact the effectiveness of your strategy. ▶ Locational factors: PPAs are often tied to specific #renewableenergy projects in particular locations. The power generation and pricing dynamics in one location may not accurately reflect those in another market. For example in Spain capture rates are expected to fall dramatically over the next few years as renewable penetration rates increase. Buying a PPA in Spain to “hedge” a power price risk in another European country with less renewables penetration, or more flexible generation, is likely to lead to a significant loss. Instead of cross-market hedging, companies should – as a first option - enter into PPAs within the same market they're trying to hedge. If this isn’t possible given the complexities involved, it's crucial to conduct thorough analysis and potentially seek expert advice before implementing a cross-market PPA hedging strategy in #Europe.

The first draft of the Power Purchase Agreement was completely unbankable. That's more common than you might think. Many developing countries publish a template PPA for renewable energy projects. On paper, this looks efficient. In practice, those templates often fall far short of what’s needed to raise finance. The types of issues we see include: - A buyer with poor credit and no government guarantee - Developers forced to take grid and curtailment risks - Limited protection if the law or regulations change - Weak remedies on termination or political force majeure - Uncertainty around currency convertibility and offshore transfers - Lack of clear arbitration mechanism to resolve disputes - Term too short to repay the financing On those terms, it's impossible for an international lender to finance the project. As legal advisors, this is where we add value. We analyse risk allocation and negotiate the PPA into a version that lenders will actually accept. Fun(?) fact: I once spent 8 years negotiating a PPA with a state-owned power company. The PPA is the foundation for the entire financing. Get it right and everybody wins. Get it wrong and the project never gets built. 👉 I'm Kristian. I help sponsors, investors, and lenders get global energy, infrastructure and tech transactions structured and closed. Follow for insights - and let's connect. [Photo by Carolien van Oijen on Unsplash, with author's edits]

A good primer on corporate PPAs in Southeast Asia. “[The issue of corporate PPAs] is really quite a complex issue for regulated markets, or partially regulated markets as we see them in Southeast Asia, as compared to a free market position,” said Peter Godfrey, Asia Pacific managing director of think tank Energy Institute. State-owned utilities have historically taken on a social agenda, Godfrey noted, pointing to their mandates for subsidies and rural grid development that often do not generate the best financial returns. The ability for these utilities to “engineer development” could be hampered by the power market liberalisation needed to enable corporate PPAs, he added. But there could also be an element of large monopolies reluctant to relinquish the level of control they have had for decades. “[State utilities] do not want to see the dollars, or ringgit, or rupiah, going out of their cash flow. They see corporate PPAs as potentially losing their best customers,” said Grant Hauber, analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), referring to large factories and manufacturing plants that have very large power needs. “There are legitimate concerns over cash flow and losing big customers. But [the reluctance to change] shouldn’t be at the expense of advancing the overall energy mix and satisfying the demands of industrial customers with very strong mandates for green energy,”. To be clear, PPAs can be signed with state utility monopolies. Indonesia’s Perusahaan Listrik Negara (PLN) uses such deals to both source power from independent green power producers and sell the output to large firms such as Amazon – in this instance via a 210-megawatt solar power deal signed in 2022. But without competition, buyers have limited negotiating power to push for PPAs that best suit their needs. Corporate PPA dealmaking has been gaining momentum where regulations permit. Malaysia’s virtual corporate PPA programme was fully subscribed last year, with participants including Australian data centre firm Airtrunk (contracting 30 megawatts) and Japanese food oils manufacturer ISF (capacity undisclosed). Off-site corporate PPAs usually take two forms. Parties can install new private cables to transfer electricity, an arrangement typically reserved for the largest and most expensive of deals, or otherwise trade only via renewable energy certificates. In the more common latter arrangement, termed “synthetic” or “virtual” PPAs, renewable power is fed into the national grid to be shared with all users, but the buyer will own rights to claim all the resultant carbon savings. The injection of intermittent renewables into the national grid could cause dangerous load imbalances, and may be a factor holding both regulators and the private sector back from more corporate PPA deals." https://lnkd.in/gAknnABU

On March 5th, we witnessed the first negative spot prices of the year due to solar energy, and it is becoming increasingly evident that photovoltaic systems without battery energy storage systems (BESS) will not be feasible in the future.   Imagine you have a pay-as-produced power purchase agreement (PPA) for a stand-alone photovoltaic (PV) system, guaranteeing a fixed price for your volume. In that case, you’re not concerned about market prices since your cash flow is secure, right?   The more recent PPA agreements often have a negative price clause that exempts the buyer from paying the fixed price for the PV generation when the spot prices are negative. That creates another problem than the decreasing capture rate and capture price.   If you curtail your PV during those hours and lose part of your yearly production, it might be difficult to meet the volume obligations of the PPA. The PPA often covers/requires 70% of the expected generation on a yearly basis, so the PV park can afford only a very limited curtailment before risking default on the PPA.   The figure shows how a large share of the Danish PV production is produced in hours with negative prices. In the months with the most volume, the number reaches close to 25%! That volume has not been curtailed, so the actual share of production in negative price hours is even higher.   Apart from the decreasing capture rate and capture price, the growing number of negative prices is now reaching a level where they threaten existing solar with pay-as-produced PPAs. This problem will only worsen for stand-alone PV, while co-located BESS+PV will have an increasingly bigger advantage. Hybrid Greentech - Energy Storage Intelligence

Over 8 TWh of Wind and Solar energy was curtailed in ERCOT, in 2024, due to grid congestion. Wind and Solar projects in the US have historically relied on Power Purchase Agreements (PPAs) to hedge against low wholesale prices and provide the bulk of their revenue. The majority of PPAs settle "as-produced", which means if a site doesn't deliver energy to the grid it doesn't get paid. This makes ERCOT's efforts to maintain grid reliability through generator curtailment, a problem. This trend of growing curtailment of renewables is compromising PPA agreements. Curtailment problems are greater... 1️⃣ For Solar in West Texas ▪️ Middle of the day generation exceeds baseline industrial demand; ▪️ The surplus energy can't get to the East due to the West Texas Export constraint; ▪️ This accounts for 22% of all renewable energy curtailed in ERCOT. 2️⃣ During Spring ▪️ Lower temperatures across Texas lowers demand; and, ▪️ Transmission outages increase as operators perform maintenance. Not all renewable sites suffer the same disruption from curtailment. 💨 Wind Farms - the most curtailed lose 200 GWh a year, others see none (a loss of $8.2 million of revenue if this energy were sold on the average Wind PPA arrangement in ERCOT today) ☀️ Solar Farms - the most curtailed lose 100 GWh a year. 🚫 When curtailed, the average site loses 20-25% of its power output, however the worst affected lose 60% of their production. Two solutions: batteries and flexible demand. Read this free article by Ovais Kashif on the Modo Energy Terminal.

𝗜𝗻 𝗻𝗲𝗴𝗼𝘁𝗶𝗮𝘁𝗶𝗻𝗴 𝘀𝗲𝘃𝗲𝗿𝗮𝗹 𝗣𝗣𝗔'𝘀, 𝘁𝗵𝗲𝘀𝗲 𝗮𝗿𝗲 𝘁𝗵𝗲 𝘁𝗼𝗽 𝗺𝗶𝘀𝘁𝗮𝗸𝗲𝘀 𝗶 𝗵𝗮𝘃𝗲 𝗻𝗼𝘁𝗶𝗰𝗲𝗱 ↓ 1. No arrangements with respect to 𝗶𝗺𝗯𝗮𝗹𝗮𝗻𝗰𝗲 𝘀𝗲𝘁𝘁𝗹𝗲𝗺𝗲𝗻𝘁. Yes, you do take "solar energy from the roof". But what many parties do not understand is that, if the producer is nominating the production themselves, there is imbalance risk. The way this is settled and who carries the risk, should be tackled carefully. 2. No arrangements with respect to 𝗴𝗿𝗲𝗲𝗻 𝗻𝗮𝘁𝘂𝗿𝗲 𝗼𝗿 𝗚𝘂𝗮𝗿𝗮𝗻𝘁𝗲𝗲𝘀 𝗼𝗳 𝗢𝗿𝗶𝗴𝗶𝗻. Often, the PPA specifies "solar energy from the roof". The remainder of the power will be taken from the grid by the site owner and billed to the tenant or user. However, nothing is specified with respect to the green nature of this electricity. Auditors are becoming increasingly stringent on the fact that the green character needs to be supported by GO's. 3. Not being 𝗳𝘂𝘁𝘂𝗿𝗲𝗽𝗿𝗼𝗼𝗳 or 𝗳𝗹𝗲𝘅 𝗽𝗿𝗼𝗼𝗳. Almost certainly, at some point in the foreseeable future, flexibility will be unlocked on the site or an EMS will be installed to perform peak-shaving, optimize self-consumption or participate in energy markets. The PPA needs to be futureproof and make solid arrangements with respect to who does what (and ultimately, who takes the profits and losses). 4. 𝗟𝗶𝗮𝗯𝗶𝗹𝗶𝘁𝗶𝗲𝘀 too light. Liabilities should, ideally, be in line with the risk level and the exposure.