December 21, 2015

Renewables in Algeria: Overview of the new PPA for Solar PV and Wind

The final templates of the Algerian Power Purchase Agreement (PPA) for PV solar and wind projects have just been published by the Algerian electricity and gas regulator (CREG), along with a set of decisions completing the renewable regulatory package.

As indicated in our previous briefings dated December 2014 and April 2015, the CREG has finally published the set of regulations required for Developers to initiate and develop PV solar and wind projects in Algeria.

What's new summary
PPA Template for PV solar and wind projects The PPA templates for PV solar and wind projects have been issued by a decision of the CREG dated 17 May 2015 and are made up of (i) general terms and (ii) specific terms for both PV solar and wind projects installations which are to be developed under the Specific Regime, which aims to provide a specific framework to renewable energy projects, settled by Decree No.13.218, dated 18 June 2013.
Feed-In Tariff (FiT) application forms Two separate application forms, one each for PV solar and wind projects, for requesting the FiT granting decision have been published by two decisions from the CREG dated 10 and 17 May 2015. The FiT granting decisions approve the right to benefit from the FiT and enter into the PPA.
Certificate of Guaranteed Origin (CGO) Two application forms, one each for PV solar and wind projects, for requesting the CGO have been published by two decisions from the CREG dated 10 and 17 May 2015. The CGO is a pre-requisite for the request of the FiT decision.
Data collected from the measurement systems This decision provides the information which has to be transmitted by the IPP to the CREG during the operating of the plant, on a monthly and annually basis.
What's next Summary
CREG regulations on templates for grid connection and injection agreements These regulations shall approve the templates of the grid connection agreements, applicable to the IPP, to be entered into between the Developers nad the DSO. They are still missing and shall be published on the CREG / Distribution System Operators (DSOs) website. Entering into the grid connection agreement is a pre-requisite to the commissioning of the plant as it determines the terms and conditions of the electricity injection on the electricity grid.
CREG regulations on financial compensation of the DSOs and the Algerian electricity transport operator (GRTE) and on the average electricity price These regulations should be issued by the CREG soon and will be published on the CREG website.

Main features of the PPA

Project Eligibility

Eligible renewable projects must have the following: an installed power capacity greater than 1MW; a certificate of guaranteed origin; operating authorisation to generate electricity from a renewable energy source; be connected to the distribution or transmission grid; be eligible to the Specific Regime and to the insurance of the FiT granting decisions. The DSO is then required by law to enter into PPAs with a renewable Developer and to connect its plant to the electricity grid.

Separate signing and entry into force

The signing date and the entry into force of the PPA have been distinguished in practical terms. The PPA shall be signed and executed before the construction phase starts and shall help to secure financing (in any case after the granting of the FiT granting decision). The PPA shall enter into force only from the commissioning date of the plant. The commissioning date of the plant is defined as the commissioning date of the data system measurement. Some other conditions are imposed by the PPA for its entry into force, such as the validation of the commissioning tests of the power plant and the measurement systems.

Duration of the PPA

The PPA will be executed for 20 years as from the commissioning date of the plant. However, this initial 20 year term can be reduced if the commissioning date of the plant occurs more than six months after the expected commissioning date indicated in the PPA, as a result of the IPP action or inaction. The PPA duration should be then reduced proportionally to the delay.

Amount of the FiT and its adjustment

The applicable FiT in the PPA shall be the one mentioned in the applicable Ministerial Tariff Order in force at the date of the FiT granting decision.

The FiT will however be adjusted after the first five years of operation of the plant, after comparison between (i) the real operating hours of the plant measured during this five year period and (ii) the reference operating hours, of 1,500 hours, used as reference for the first five years. The applicable FiT for the first five year period is based on a reference base of number of operating hours (“Phase 1” is equal to 1,500 hours for every IPP), while the following 15-year period shall be based on the real operating hours corrected after Phase 1. In any case, the adjusted FiT shall not vary of more than 15% from the initial FiT.

The FiT adjustment after five years shall give rise to an amendment to the PPA.

Take-or-pay

DSOs are obliged to take all the electricity produced and injected by the plant, and pay for it, except in the case of (i) Force Majeure and (ii) unavailability to take the production.

The first case, Force Majeure, is defined as "any act or event unforeseeable, irresistible and independent from the will of the Parties" without any further description.

The second case, unavailability to take the production, is defined as:

  • Scheduled unavailability of the grid, when it has been scheduled and agreed between the parties;
  • Unscheduled unavailability of the grid, when it does not exceed a total sum of 24 hours per year. Beyond this 24-hour limit, the electricity produced but not injected shall be paid on the FiT basis.

Amount of production purchased

The amount of the electricity purchased under the FiT is limited. Beyond a certain threshold (threshold determined as the number of operating hours multiplied by the installed peak capacity of the plant), the electricity produced will be purchased at a price "equal to the average price of conventional electricity on the Algerian market", with no fixed price.

Billing and payments

The billing and the relevant payments will be executed on a monthly basis, and the DSO will be required to pay the power producer within 30 days from receipt of the relevant invoice. The payments will be made in Algerian Dinars (DA).

Comments on the PPA

The publication of this new set of regulations confirms that Algeria is committed to the development of renewable energy projects. However, with regard to the PPA itself, specific points should be reviewed and addressed with the relevant public authorities in order to ease the implementation of renewable energy projects. Some of these points are proposed below:

  • The entry into force of the PPA is subject to a list of Condition Precedent which are, at this date, not clearly defined and limited. These CPs can bring some uncertainty to the Developers (for example Article 6 relating to the “presentation of the applicable permits and authorisations”). Additionally, there might be a risk that this list of CPs is contradictory with the Executive Decree on the PPA which provides that the PPA enters into force only at the commissioning date of the plant, without any other additional condition.
  • The PPA duration reduction is triggered if (i) the plant is commissioned later than six months after the expected commissioning date and (ii) if this delay is caused by the power producer. The PPA remains silent on the delays which would be caused indirectly by the Administration, the DSO or the certification bureau for example (delays in the issuance of a required authorisation, in the validation of the tests, etc.). Should it be considered as a delay caused by the power producer, would this leave the Developer to bear the PPA reduction delay without any compensation?
  • Credit worthiness of the regional DSOs until the term of the PPAs. The DSO, which is holding a long-term license by the State for operating the distribution grid, represents and warrants in the PPA that it has the financial and legal capacity to enter into such agreement for the entire 20 year duration. Does the DSO have the financial robustness and capacities to enter into long-term PPAs? How will the DSO be funded?
  • The clause for Force Majeure is not defined with sufficient precision and therefore shall be interpreted in light of common case law – this can raise a number of uncertainties for the Developer. The initial drafting of this clause under the PPA circulated by the CREG as a base for negotiation was more detailed. How should the Force Majeure clause be reinstated in order to reduce this legal uncertainty?
  • The risks of suspension and termination of the PPA are quite wide although they are limited in number. Pursuant to the PPA, the PPA can be suspended or terminated in the case of (i) suspension or termination of the and (ii) suspension or termination of the FiT granting decision. Firstly, how should be managed the PPA execution in case of suspension of the operating authorization or the execution of the related grid connection agreements? Second, the causes of suspension and termination of the CGO and the FiT granting decision should be thoroughly reviewed. 

If you would like to discuss any of the issues raised in theis briefing, or have any queries about the solar energy sector, please get in touch with a member of our team, or your regular Clyde & Co contact.