Energy Transition Handbook - Flipbook - Page 39
Energy Transition Handbook 2021
39
Power trading in emerging markets
With an increasing number of state-owned offtakers in key “hotspots” in emerging
markets suffering from growing credit issues, it is clear that there is reducing
appetite to buy power from independent power producers due to perceived (real or
otherwise) excess generation capacity in the near future and concerns about whether
the obligations of those offtakers will be effectively backstopped by their relevant
host governments.
This trend isn’t being specifically driven by climate change concerns but it forms part of
the transition to a new more dynamic energy system.
Certain developers, for example in Ghana, Nigeria,
Mozambique and Zambia, are contemplating a
strategy to limit capacity and output sold to such
state-owned offtakers, with a certain volume of
capacity and output sold instead to commercial
and industrial end users (each being a “C&I
Offtaker”). The benefit of this structure is to
secure an enhanced off-taker credit risk.
The capacity and output may be generated by
the developer, or, more innovatively, bought by
them from various IPPs / state-owned offtakers,
and then sold on by them (in which case, they
would be a “trader”).
In order for these developers/traders to be able
to sell power to a C&I Offtaker, depending on the
regulatory framework, they may need to enter
into wheeling agreements with transmission
companies in relevant jurisdiction(s) in order to
purchase transmission capacity (akin to pipeline
capacity), and also, potentially, with an adjacent
transmission company of an adjacent country if it
is possible to sell energy to a C&I Offtaker of such
adjacent country.
At a very high level, in order for a developer/trader
to achieve a viable project in circumstances where
it can sell directly to C&I Offtakers, the developer/
trader may need to:
•
enter into power purchase agreements (each,
a “PPA”) with upstream generators, whereby
the developer commits to taking power for a
fixed term;
•
enter into power supply agreements (each, a
“PSA”) with each C&I Offtaker, whereby each
C&I Offtaker commits to buying power for a
fixed term; and
•
put in place suitable payment security
arrangements with each relevant C&I Offtaker.
Hogan Lovells has market leading experience
of structuring and implementing power sale
transactions to C&I Offtakers in Africa and beyond
and we have been active in this sector for over 10
years. Most recently, we have advised both traders
and C&I Offtakers on transactions involving
various utilities and countries, across sub-Saharan
Africa in particular. Our team was heavily involved
in the development of many of the mine power
sale agreements that are currently in use in subSaharan Africa. We have also worked on numerous
captive power projects in Africa.