Cross Border Transactions

DOMINICAN REPUBLIC—Potential New Conditions for CDEEE-Related PPAs for Renewables

By Cristián L. Vallejo, Partner, Corporate and Finance

Spanish

Last May, the Corporación Dominicana de Empresas Eléctricas Estatales (CDEEE), the governmental entity required by law (Law No. 57-07 of Renewable Energy Incentives and Special Regimes and related Regulations) to enter into power purchase agreements (PPAs) with developers of renewable energy projects, announced that several new conditions were included in the eight PPAs for wind and solar projects that the CDEEE had recently signed (for a total capacity of 361 MW and representing a total investment of US$780 million, approximately), including (i) a guarantee that the project’s works will commence within six months from execution of the PPA, (ii) an agreement to complete the project within a specified term (not to exceed 18 months) and (iii) until commencement of the project’s commercial operation, a prohibition on selling, transferring or assigning any right or obligation under the PPA, in whole or in part, to any entity or third party, whatever the relationship between the developer and such entity or third party may be.

In its announcement, the CDEEE states that the new conditions were included to protect the Dominican State’s and consumers’ interests, to ensure that the projects are commenced and completed on a timely basis, and to end “the old practice of obtaining a PPA solely to be used as a negotiation instrument to obtain financial benefits without implementing the agreed-upon investment.” In addition, the CDEEE’s announcement states that if any entity or third party acquires/assumes rights or obligations under the PPA in breach of the above-mentioned restriction, such entity or third party “risks losing its investment since the CDEEE is neither required nor willing to acknowledge” such acquisition/assumption.

Pursuant to the CDEEE’s announcement, the following additional conditions were included in the foregoing PPAs:

  • The developer is required to submit documentation evidencing that it has, directly or indirectly, enough financial resources for the construction, installation and commercial operation of the project.
  • The developer is required to provide a performance guarantee, equal to 4% of the project’s cost, to secure timely commencement of the project’s construction, installation and commercial operation, in accordance with the project’s schedule.
  • A six-month term to commence construction and execution of the project’s schedule, subject to the CDEEE’s right to terminate the PPA and execute the performance guarantee in case of breach.
  • If the project’s commercial operation is delayed, a penalty equal to US$50,000 per month during the six months following the agreed-upon commercial operation date will be imposed. From the seventh month on, the penalty will increase to US$100,000 per month.
  • If the project does not commence operation within 12 months following the agreed-upon commercial operation date, the CDEEE will have the right to terminate the PPA, without any liability to the CDEEE, and to execute the performance guarantee.

Because the CDEEE’s announcement is not clear as to whether such new conditions will be included in all future PPAs for renewable projects, developers, particularly those whose projects have already been awarded a final concession or same is in progress, 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.