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Plotting Your Course Through the Energy Contract Maze

September 18, 2023 (2 min read)

I'll never forget the feeling of staring down at a 200-page power purchase agreement on my first energy deal and wondering "Where do I even start with this thing?" It was like opening a door only to find myself lost in a maze of incomprehensible legal jargon and complex industry terms. With endless pages stretching out ahead of me, I felt overwhelmed trying to chart a course through this contract to advocate for my client's interests.

Navigating energy contracts can feel like wandering through a maze full of twists, turns, and potential dead-ends. One wrong step and an attorney could end up costing their clients tens of millions of dollars over a multi-year period. This article will help lawyers successfully traverse key agreements like Power Purchase Agreements (PPAs), Master Services Agreements (MSAs), and Engineering, Procurement and Construction (EPC) contracts.

First, it's essential to understand the key players and their differing interests. Energy projects typically involve developers, utilities, contractors, landowners and more. Developers want maximized revenue, utilities need reliable energy sources at competitive prices, contractors seek to perform a job quickly and profitably, and landowners want fair compensation for land use and the ongoing inconvenience associated with an energy project. With so many competing motivations, an attorney must adeptly guide their client through the negotiation process.

Master Services Agreements (MSAs) are critical long-term service contracts between developers and contractors. MSAs define the broad terms that will govern the scope of work for any future projects. Key terms include liability caps, intellectual property rights, change order processes, and confidentiality clauses. Scrutinize areas like indemnification to avoid exposing your client to excessive risk down the road.

Within the context of EPC contracts, the engineering component involves design and permitting for the project itself. Procurement refers to equipment purchasing to serve the short and long-term needs of the project. And the construction component covers the physical installation and commissioning of the project’s assets. When reviewing EPC contracts, pay close attention to warranty details, performance security, and testing protocols to prevent delays or cost overruns.

At a project's core is the Power Purchase Agreement (PPA) between the developer and a utility. This contract governs the sale and purchase of the electricity generated by the power producer itself. PPAs establish crucial details like pricing mechanisms, performance obligations, credit support, and remedies for non-compliance. Thoughtful PPA drafting brings long-term profitability for developers, security for lenders and investors, and a guaranteed and reliable long-term source of power production for utilities. Be sure to balance risk while delimiting clear performance timelines and payment procedures.

Beyond these three core contracts, supplementary agreements deserve a quick check-in. For example, easement and land use agreements grant developers access and project site rights. Carefully assess the defined rights and boundaries provided in these agreements. And don't forget about mineral deeds if energy resources are discovered on project lands.

The maze of energy contracts is certainly complex, but keeping these tips in mind will help prevent disorientation. Always keep sight of your client's goals while reviewing key risks and obligations in detail. With sound preparation and Energy & Utilities Practical Guidance acting as a compass guiding you towards equitable terms, successfully mapping an energy deal route is completely navigable. Though the path may twist and turn, thoughtful drafting and negotiation can lead straight to a project's successful completion.