Renegotiate Existing Power Purchase Agreement
A power purchase agreement (PPA) is a contract between a renewable energy generator and purchaser that defines all the business terms of the agreement between the parties. If continuing to sell electricity to the existing buyer is desired, the landfill gas (LFG) electricity project owner may want to renegotiate their PPA. Consulting firms can provide services in this area, if needed.
Example
Kiefer Landfill, California 1, 2, 3, 4
Sacramento County, California has owned and operated the Kiefer Landfill since 1967. In 1999, a private company developed an LFG electricity project at the site with three reciprocating engines totaling about 9 megawatts (MW) in capacity (two additional engines with 6.1 MW capacity were added in 2006). In 1999, the County entered a 15-year PPA for sale of the renewable power to the Sacramento Municipal Utility District (SMUD) for its Greenergy® program.
As the November 2014 expiration of the PPA neared, the County hired a consultant in 2012 to conduct a feasibility study. The study concluded that continued operation of the electricity project was the best LFG use option, as the price of electricity had increased since 1999 and the value of renewable attributes had matured. The County then met with SMUD several times regarding extended the existing PPA, but both parties agreed that a competitive bid was in the County’s best interests.
The County issued a request for proposals in April 2014 for the purchase of electricity and renewable energy credits (RECs) with two respondents, one of which was SMUD. SMUD proposed two pricing format options. The County and SMUD negotiated the terms and reached an agreement for an 11-year PPA for electricity and RECs, through the end of 2025.
Criteria:
- Existing customer still has a demand for renewable electricity.
- Pricing is able to justify the operational costs of the electricity-generating equipment.
Pros:
- The existing customer and the electricity project owner have an existing business relationship. If the current relationship is a good one, continuing with a renegotiated PPA could be the easiest course of action.
Cons:
- Many utilities have met their renewable portfolio standard (RPS) obligations and/or the state RPS favors other types of renewables, so utilities are not willing to pay premiums for LFG electricity.
Economic Considerations:
- Costs to renegotiate with existing buyer would likely be lower than finding a new buyer and starting “from scratch”.
More Information:
- State Policies for Power Purchase Agreements, National Conference of State Legislatures
- State Renewable Energy Resources, EPA’s Energy Resources for State, Local, and Tribal Governments
- Physical PPA, EPA Green Power Partnership Program
- Renewable Energy Projects: Negotiating Power Purchase Agreements (webinar), Strafford
- Financing Municipal Renewable Energy Projects: Negotiating Power Purchase Agreements for Municipalities (webinar), Strafford
References
1 U.S. EPA. LMOP Landfill and Landfill Gas Energy Project Database. July 2021. https://www.epa.gov/lmop/lmop-landfill-and-project-database.
2 Andis, Chris. Sacramento County. SacCounty News. New Landfill Power Agreement Will Enhance Revenue. February 3, 2015. Previously available at https://www.saccounty.gov/news/latest-news/Pages/New-Landfill-Power-Agreement-Will-Enhance-Revenue.aspx.
3 Sacramento County Department of Waste Management and Recycling. Agenda Item Continuation Memo. May 21, 2013. https://agendanet.saccounty.gov/OnBaseAgendaOnline/Documents/ViewDocument/Item%20No.%2029%20-%20Continued%20Memo%20to%206-4-13%20and%20Material.pdf.pdf?meetingId=5110&documentType=Agenda&itemId=308890&publishId=709779&isSection=false.
4 Bongiorno, Brenda. Sacramento County. Email correspondence. October 12, 2021.