Cross Border Transactions

DOMINICAN REPUBLIC—Update: Conditions for CDEEE-Related PPAs for Renewables

By Cristián L. Vallejo, Partner, Corporate and Finance

Spanish

In our August 1, 2017 Cross Border Transactions Newsletter we informed about the announcement made by the Corporación Dominicana de Empresas Eléctricas Estatales (CDEEE) regarding several new conditions included in the Power Purchase Agreements (PPAs) for wind and solar photovoltaic projects that the CDEEE had recently signed. Because the CDEEE’s announcement is not clear as to whether such new conditions will be included in all future PPAs for renewable projects, we advised that developers, particularly those whose projects already have a definitive or provisional concession, should, among other actions, consider such new conditions in their project development processes, seek written clarification from the CDEEE as to whether such conditions will also be included in their respective PPAs and, if so, request details of each of such new conditions and related protocols.

The conditions described in the CDEEE’s announcement, which were outlined in the foregoing Newsletter, are the result of specific instructions given to the head of the CDEEE by the country’s president in a power of attorney issued on November 27, 2015 (Presidential Power of Attorney). The instructions contained in the Presidential Power of Attorney were given, among other reasons, (i) as part of the current administration’s ongoing efforts to diversify the country’s energy matrix and increase the country’s available energy capacity from renewable sources, and (ii) to deal with some of the problems that have hindered actual development of renewable projects since the enactment of Law No. 57-07 of Renewable Energy Incentives and its Special Regimes and the Regulations issued in connection with such Law.

The new PPA conditions are expressly outlined in the Presidential Power of Attorney and are mandatory for all PPAs for renewables projects to be signed or renegotiated by the CDEEE in the near future.

The Presidential Power of Attorney contains the following mandatory PPA conditions:

  • Minimum energy price for wind and solar photovoltaic projects:

    • 11.50 cUS$/kWh for wind projects
    • 12.50 cUS$/kWh for solar photovoltaic projects
  • Maximum energy price for wind and solar photovoltaic projects:

    • 13.80 cUS$/kWh for wind projects
    • 14.28 cUS$/kWh for solar photovoltaic projects
  • Maximum PPA term: 20 years from the Project’s commercial operation date.
  • Evidence of availability of funds for the Project: Developer must provide evidence that it has secured, whether directly or indirectly, sufficient financial resources for the construction, installation and commercial operation of the Project.
  • Performance guarantee: To secure timely commencement of the Project’s construction, installation and commercial operation, in accordance with the agreed upon Project schedule, the developer must provide a performance guarantee for an amount equal to 4% of the Project cost.
  • Term to commence execution of the Project: The PPA must include a term, not to exceed 6 months, within which the developer must commence the Project works and execution of the Project schedule.
  • CDEEE’s right to terminate the PPA: The PPA must include the CDEEE’s right to terminate the PPA and seek payment of the performance guarantee if the developer fails to commence the Project works and execution of the Project schedule within the above-referenced term.
  • Penalty: In addition to the performance guarantee, the PPA must include a monthly penalty to be paid by the developer if the Project’s commercial operation does not occur as provided in the agreed upon Project schedule. Such penalty shall be as follows:

    • US$50,000 per month, from the agreed upon Project’s commercial operation date until the sixth month following such date
    • US$110,000 per month, from the seventh month following the agreed upon Project’s commercial operation date until the twelfth month following such date
  • CDEEE’s additional right to terminate the PPA and seek payment of the performance guarantee: The PPA must include the CDEEE’s right to terminate the PPA and seek payment of the performance guarantee if (i) the Project’s commercial operation does not occur on or before the twelfth month following the agreed upon Project’s commercial operation date, or (ii) the developer fails to pay the above-referenced penalty for two consecutive months.
  • Prohibition on transfer of developer’s rights and obligations under the PPA: The PPA must provide that until the Project’s commercial operation occurs, the developer shall not sell, assign or transfer, in whole or in part, to any other person or third party, whether or not the developer has any interest in such person or third party (whether as a shareholder or in any other capacity), any of the developer’s rights and/or obligations under the PPA and/or any amendment thereto, subject to the CDEEE’s right to terminate the PPA if the developer breaches such prohibition. The developer’s right to collaterally assign its rights under the PPA to the Project lenders (for Project financing purposes) without the CDEEE’s prior consent shall be excluded from this prohibition.

According to the Presidential Power of Attorney, the above-listed conditions shall apply to all PPAs for wind and solar photovoltaic projects to be signed by the CDEEE in the near future, as well as to PPAs for other renewable sources. In the latter case, the minimum and maximum energy prices will be determined by the government later on.

With respect to PPAs signed prior to November 27, 2015, the Presidential Power of Attorney provides that the related definitive concession will be extended if the corresponding developer accepts each of the above-referenced new PPA conditions.

Finally, given the importance of these new PPA conditions and the apparent lack of publicly available guidance/protocols regarding same, we continue to recommend that all developers of renewable projects seek written clarification from the CDEEE as to the applicability of each of these new (or any other) conditions to their projects or PPAs and copies of all relevant information/documentation regarding such conditions.