Tolling Agreement Energy

You will also receive operations and maintenance payments as well as a start-up payment for turbine start-up. Project sponsors are also subject to various sanctions if they do not meet the expectations of the toll company, including the timely construction of the facility. This has become a hot topic during the negotiations. The first equipment manufacturers are struggling to meet delivery deadlines. There are also problems with malfunctions or poorly assembled components, Feldman said. Many project sponsors try to transfer some of the risks of delivering facilities to the contractor. Contractual clause of a sales contract (SPA) according to which a minimum quantity of natural gas must be paid, whether or not the delivery is accepted by the buyer. In August 2014, Duke Energy Corporation (Duke) and Calpine Corporation (Calpine Corporation), a competing wholesale electricity vendor in Florida, agreed to purchase the Osprey Energy Center (Osprey), a combined natural gas and gas power plant in Florida, in Calpine. The structure of the proposed transaction included a toll agreement that gave Duke responsibility for determining the amount of electricity to be generated at Osprey and purchasing the fuel needed to generate that electricity. In essence, the toll agreement allowed Duke to take operational control of the Osprey facility and limited Calpine`s role to the “mechanical operation of the Osprey facility, in accordance with Duke`s instructions.” [1] Toll agreements are a common feature of the energy sector. Through these agreements, a buyer supplies fuel to an electric generator and, in exchange, the generator will return electricity to the buyer. Although commonly used, the United States recently found that such a toll agreement, when entered into between companies that wished to merge, violated the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, 15 U.S.C. ยง 18a (HSR Act), resulting in the imposition of heavy financial penalties on the buyer.

When restructuring power purchase agreements and calculating returns on equity, the value of volatility is an effective buffer added to the cash reserves needed to cover debt service.. . . .

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