Power Purchase Agreements in Australia- Four Key Legal Concerns

Power Purchase Agreements (PPAs) have reached maturity in the Australian market- now in the market for more than seven years. We are reaching the point where, for those early PPAs, we can expect to see legal issues arise and PPAs examined in the courts.

In today’s article, we look at four key legal considerations when it comes to drafting a ‘behind the meter’ PPA. Correct drafting today will save you unnecessary legal costs tomorrow. This is our second post looking at PPAs in Australia.

I. Certainty

PPAs are complex due to the nature of the ‘product’ being sold i.e. energy. Some PPAs require the purchase of 100 per cent of the generated quantity whereas others require the purchase of the quantity of electricity consumed. Each variation comes with its own risks and benefits. Care must be taken to ensure that the structure of a PPA is clear and compliant with regulatory obligations.

Different considerations apply when selling a PPA to a commercial as opposed to a residential consumer. There are a range of statutory obligations you will have under Australian Consumer Law including the non-excludable guarantees. These obligations need to be considered at the drafting stage. Furthermore, your marketing collateral needs to be consistent with the terms of your PPA, and not have the potential to mislead consumers.

II. Ownership

Ownership of solar panels under a PPA may be clear in your mind but, under the law, the reality is less certain.  Where ownership of panels is to transfer to the consumer at the end of the PPA term (often 7 years), with no intention of retention by your business, it may be that the panels are in fact fixtures meaning that you have limited rights in relation to taking them back.

III. Licences, Permits and Approvals

By selling energy under a PPA you are operating an energy business. Your business will either need to be exempt from the requirements to hold an authorisation or licence or hold an authorisation or licence. The Australia Energy Regulator has jurisdiction in NSW, SA, TAS, ACT and QLD. If your business is proposing to offer a PPA in those states it may be able to rely on an R8 exemption. The R8 exemption will not be appropriate in all instances and where it is appropriate comes with conditions.

In addition to energy licence obligations, your business will also need to consider consent authority obligations including any requirement to obtain a complying development certificate or a development approval. Further, your business will also need to comply with electrical safety laws in each state and with any electrical contractor licensing obligations.

IV. Metering

Energy is sold to a consumer on the basis of meter reads. A PPA should consider a range of scenarios including a customer denying access to a meter, any need for an estimated reading, and responsibility for metering including ongoing maintenance.

When metering PPAs it is important to remember the requirements of the National Measurements Act 1960 (Cth). Pattern approval (in other countries this is sometimes called ‘type approval’) is mandatory for measuring instruments used for trade in Australia. The National Measurement Institute (NMI) evaluates measuring instruments to check they meet specific Australian standards.

Our Energy Experience

We have significant experience in energy law, including in drafting Power Purchase Agreements. Our experience includes working for energy retailers, energy storage, and renewable energy companies. Working on ‘both sides of the meter’ gives us a unique and unmatched perspective.

Our lawyers have written extensively for industry publications including WattClarity and RenewEconomy. Our clients include small solar installers alongside large network distribution businesses.

Our firm is a finalist in this year’s Innovator of the Year award in the 2018 Australian Law Awards. Our sister business, Compliance Quarter has applied for over 80 percent of the recent energy retail authorisations with a 100 percent success rate. Compliance Quarter was a 2018 Westpac 200 Business of Tomorrow winner.

In our next post, we will look at changes to the accounting standards that come into effect from 1 Jan 2019 and are relevant to businesses looking to explore Power Purchase Agreements.

If you have any questions on Power Purchase Agreements please email connor@lawquarter.com.au. Alternatively, contact us here.

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