Development and finance
PPA structuring: the contract the whole project rests on
A power purchase agreement (PPA) is what turns a plant into a financeable asset. It sets how much the offtaker pays, for how long, how the price is updated and what happens if either party fails to perform. Every clause is read twice: by the offtaker and by the lender.
Who signs with whom
The offtaker and the SPVTwo parties sign the PPA: the energy user (an industrial plant, a park, a data center) and the special purpose vehicle (SPV) that owns the plant. GIS Power develops, builds and operates the plant for the SPV.
The offtaker buys the energy the plant produces at an agreed tariff. The SPV collects that tariff, uses it to pay operations and debt, and what remains is the return on equity.
In on-site generation for self-supply, the plant delivers energy to the user within its facility. If surplus energy is injected into the grid, it can only be sold to CFE, and the plant must hold a valid generation permit and interconnection contract (LSE art. 32).
When it is not a fit
- If your operation at that site could close or move before the term ends.
- If your consumption is highly variable and you cannot commit to a minimum volume.
- If you want the full savings and have the balance sheet to buy the plant: a lease or a purchase fits better.
Clauses
What gets negotiated in a PPA
Six decisions that define the contractTariff
A price per kWh, or a capacity charge plus an energy charge. It is built from the plant's cost, financing, operations and term.
Term
From 48 to 180 months, depending on the model and the project. A longer term spreads the investment over more years.
Indexation
The rule for updating the tariff: a fixed percentage, a price index or an agreed benchmark. It is set from the start.
Availability and volume
What availability the plant guarantees, what minimum volume the offtaker buys and what happens to energy that is not taken.
Security
A letter of credit, surety bond or deposit from the offtaker, and assignment of the SPV's collection rights to the payment trust.
Termination
Termination events, the early termination payment and the options at the end: renew, remove the plant or transfer it.
Term, tariff and financing
Three variables that move togetherThe tariff has to cover operations and debt service over the whole term, with headroom. A short term needs a higher tariff; a long one lowers it, but requires the offtaker to stay longer and the debt to run longer.
That is why the PPA and the financing are structured together: the debt tenor cannot exceed the contract term, and the offtaker's security has to cover the period in which the SPV still owes money.
The essentials
- Term: 48 to 180 months, depending on the model and the project.
- Parties: the offtaker and the SPV. The lender is a beneficiary of the trust, not a party to the PPA.
- Rule: the debt tenor does not exceed the contract term.
Who carries each risk
The allocation a balanced PPA aims for| Risk | Carried by | How it is covered |
|---|---|---|
| Construction (cost and schedule) | The SPV | EPC contract with price and schedule, and contractor guarantees |
| Plant performance | The SPV | Guaranteed availability and an O&M contract |
| Payment for energy | The offtaker | Payment security and a payment trust |
| Volume consumed | Shared | Minimum purchase volume and treatment of surplus energy |
| Change in law | Shared | Regulatory change clause with an adjustment mechanism |
| Force majeure | Shared | Suspension of obligations and insurance |
Typical allocation; each contract sets it according to the project and the offtaker.
Frequently asked questions
Is the PPA tariff lower than CFE's?
It is designed to be, but it depends on the project, the site and the term. We compare it against your actual bills before you sign.
What happens if my company moves?
The contract defines early termination and its cost. Some PPAs allow the contract to be assigned to whoever occupies the site.
Can I buy the plant before the term ends?
If the contract provides for it, yes: a purchase option is agreed with an exercise price for each year.
How is it different from energy as a service?
Under a PPA you pay for the energy consumed; under energy as a service, for capacity, availability and operations. The full comparison is in contracting models.
Structure a PPA
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