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ENERGY LICENSING


Electricity Production License



Subtleties in the process of licensing the production of electricity from renewable sources in the European Economic Area.


The use of renewable energy sources is growing rapidly across Europe. In recent years, Europe has seen a significant increase in investment in renewable energy projects, especially with solar and wind sources.


In order to regulate the growth in the renewable energy sector, the European Parliament introduced a system for licensing the production of electricity from renewable energy sources as early as 2010.


The Ordinance on Licensing Activities in the Energy Industry, electricity producers from power plants with a total capacity of over 20 MWp are subject to licensing! The licensing process aims to ensure that renewable energy projects are developed and operated in a safe, responsible and sustainable manner, with the license issued giving the producer the right to sell the power produced by the power plant and the Energy Regulators in turn providing oversight when carrying out disposal transactions, pledges, mortgages, as well as when there is a change in the circumstances of the company that owns the power plant.


License Term Energy regulators determine the term of the license based on the operational life of the assets and the financial status of the applicant. This term varies from 1 to 35 years.


Application to the Energy Regulator (according to the country in the EEC where the facilities are built)

  • The submitted license application must contain: data about the company, type of license requested, description and technical parameters of the future energy facility, detailed schedule of construction activities on the facility, data on other licenses requested or held by the manufacturer for another type of activities under the Energy Law.


    Application documents

  • Certificate of Current Status
  • Declarations from the managers and members of the applicant's management bodies
  • Business plan with planned investments, investments made, estimated capital structure, income and expenses; production and repair programs and related costs, return on capital, annual cash flows, sales, prices
  • Investment analysis and financial model with estimated energy prices
  • Annual financial statements of the applicant for the last 3 years
  • Data on funding sources
  • Data on the percentage participation of partners/shareholders or the members in the capital
  • Data about the applicant's experience
  • Data on the organizational structure of the company
  • Conceptual design and/or technical design and/or working design prepared or approved according to ZUT
  • Construction schedule
  • Preliminary contract with the transmission/distribution company for connection to the network


    After construction and commissioning of the power plant, the licensee is obliged to submit the following documents:

  • Document for putting the building into operation (ACT16);
  • Data on the technical and operational characteristics of the object and its adjacent infrastructure;
  • Documents proving ownership or other real right;
  • Evidence of assigned service personnel and their qualifications;
  • Updated business plan and financial model.


    Across European countries, including Germany, France, Italy and the UK, most of the licensing of solar and wind electricity generation is managed at national or local level, rather than at a European Union level. This means that there may be differences in licensing requirements depending on the country, but the general trend is towards more streamlined and simplified processes. To support this goal, the EU has introduced a number of measures, including the Renewable Energy Directive, which sets out common rules for the promotion and use of renewable energy across the EU.


    Power Purchase Agreement (PPA) or subtleties of the Power Purchase Agreement!


    Power Purchase Agreement” (PPA) or Power Purchase Agreement. The Power Purchase Agreement (PPA) is a crucial component of the structuring and financing of a project for the construction of a photovoltaic power plant, as it determines the income from the production of electricity as well as its solvency, making it the most important document in the process.


    What is PPA

  • A PPA is a bilateral agreement between a power producer and a power buyer.


    The agreement usually includes the duration of the contract, start and end of the project and terms of sale and purchase of electricity between the two parties, penalties in case of default by the producer, method of payment and termination clause.


    The duration of the PPA agreement lasts between 3 and 25 years providing:

  • Secure income for the electricity producer;
  • Promised amount of electricity to the buyer;


    PPA Participants


    The electricity producer is the owner of the power plant from a renewable source, in our case – the PVPP.


    The buyer (also known as PPA Offtaker) is the party that buys the electricity. It could be a retailer, an institution using the electricity for personal use (eg school, hospital, government, etc.) or a large corporation aiming to reduce its carbon footprint.


    Types of PPA


    The type of PPA agreement is determined by the electricity buyer. Depending on this, the contract is divided into three main types: commercial, commercial and corporate.

  • Commercial PPA – the buyer is a type of institution (school, hospital, government, etc.) aiming to use the electricity for its own needs, buying it directly from the producer
  • Commercial PPA – the buyer is a trader aiming to resell the purchased electricity; the only condition in a commercial PPA is that the producer and the end user are market participants
  • Corporate PPA – one of the most common types of PPA; the buyer here is a large corporate player aiming to achieve their green energy goals; more and more large companies are entering into PPA agreements to reduce their carbon footprint such as Google, Apple, Amazon, etc.


    Advantages and Disadvantages of PPA


    If we have to come to a conclusion, it would be that the benefits of PPA are far more significant, weightier and outweigh the drawbacks. However, we will look at both sides to analyze the situation from every possible perspective.

  • Advantages


    Building a PV power plant is an investment requiring high initial costs, mostly CapEx (namely equipment), accompanied by relatively low, if not insignificant, operating costs during the project.


    Most often the financing of large projects over 1 MW takes place by taking out a loan from a financial institution. At this stage, the expertise of our xFigureFinance team could help you to improve the conditions so that they are in your favor and help you achieve the highest possible return.


    However, there are certain conditions and criteria that you will need to meet in order for the financial institution to be convinced of the success of the project, the realization of the intended results and the achievement of the cash flows in our financial model.


    This is where the role of the PPA agreement comes in. Its benefits are as follows:

  • It provides a stable income for the producer, which reduces the risk taken by him;
  • Provides a secure and agreed amount of electricity for the buyer during the duration of the contract;
  • Being a bilateral agreement, the buyer and the producer have the freedom to negotiate the price terms between themselves (of course within the relevant set regulations) – either buying the electricity at a fixed rate throughout the contract or allowing flexibility depending on current market prices;
  • Revenue security can also protect the producer from competition selling electricity at lower prices;
  • Disadvantages


    The flaws in the PPA agreements are far less, but nevertheless it is worth mentioning them, since for some it may hinder their vision of realizing a project to build a PV power plant. They are:

  • The complexity of the nature of a PPA – due to the many significant details involved in the agreement, negotiating all the terms can take time and require patience on the part of each party involved
  • Duration – as mentioned, the PPA agreement is valid for between 3 and 25 years, which can have a negative effect on the producer if electricity prices rise or the buyer if prices fall
  • The producer is obliged to deliver the agreed amount of electricity on the exact day and time and in case of delay is responsible for this and will be obliged to compensate the buyer financially


    Conclusion:


    The PPA agreement is a crucial component of the financing of a project for the construction of a photovoltaic power plant, as it determines the income from the production of electricity, as well as its solvency, making it the most important document in the process.


    If you need an Electricity Production License, the lawyers at Smart Startup UK will advise you on what you need to do to get a license!