INDEPENDENT POWER PRODUCERS,

POWER PURCHASE AGREEMENTS

& RELATED MATTERS

Arjunamuda B. Mohd. Ismail

Senior Manager (Commercial Management)
Energy Procurement Unit
System Planning & Operation Department
Transmission Division
THE POWER PURCHASE AGREEMENT
• A PPA is a contract between an IPP and a Utility such as
TNB, setting the terms and conditions for the supply and
purchase of electrical power between the two parties

• An IPP is a long term supplier of a product (i.e. electrical

capacity and energy) and TNB is a long term purchaser of that
product. The PPA should therefore provide customary terms
and conditions in long term supply contracts and specifically
those found in long term electricity supply contracts
 INSTALLED CAPACITY: IPP vs. TNB
M a rke t S h a re : D e p e n d a b le Ca p a city o r T e ste d An n u a l Ava il a b le
C a p a ci ty b e tw e e n T NB P l a n ts a n d IP P s

C a p a c it y fo r a ll 2 50 0
g e n e ra to rs in th e 2 00 0
G r id S ys te m
1 50 0
fo r F Y0 5 0 6
MW
1 00 0

50 0

TJPS

TNB Prai
TTPC
PDP

PGPS
TNBJ
G SP

CBPS
Panglima

Paka
GB3

Serdang

Hydro
SEV

KEV

Gelugor

Teluk Ewa
Prai Power
Powertek
Pahlawan

YTL
P la n t

M arke t Sh a r e - Ca p a city

M a rk e t S h a re o f
TNB
C a p a c it y b e t we e n 48%

T NB P la n ts & IP P
IPP
P la n ts 52 %
 THE 3 GENERATIONS OF PPAs/IPPs

YTL Power Generation

Segari Energy Ventures
Port Dickson Power
TTPC
Powertek Berhad
Pahlawan Power
Genting Sanyen Power
Kapar Energy Ventures
Prai Power Tg Bin Power
GB3 Jimah Energy Ventures
Panglima Power TNB Janamanjung

1st Generation 2nd Generation 3rd Generation

1993 - 1994 1998 - 2001 2002 - 2006
Financing O&M Fuel Supply
EPC
Agreement Agreement Agreement

Shareholders
Agreement

Concession
Agreement Other
Agreements

POWER PURCHASE
AGREEMENT
TYPICAL PPA TERMS
• Definitions and Interpretation
• Term
• Conditions Precedent
2 Conditions Precedent to Effectiveness of PPA
2 Conditions Precedent to Commencement of Generation
(IOD)
2 Conditions Precedent to Commercial Operations (COD)
2 Critical Milestones
• Pre Operations
2 Design & Construction, Initial Operations, Interconnection
Facility, Insurance, Maintenance Reserve
• Sale & Purchase
2 Test Energy, Availability and Capacity, Energy
TYPICAL PPA TERMS (cont.)
• Dispatch
2 Annual Schedule Available Capacity, Scheduling, Dispatch
and Tests,
2 Billing & Payment
2 Fuel, Start-up, CRF, FOR, VOR
• Additional Legal Elements
2 Force Majuere, Change-in-Law, Default and Termination,
Step-in Rights, Liquidated Damages
HOW IPP PROPOSALS ARE ANALYSED
External Process
• IPP submits unsolicited proposals
• Deliberation by Privatisation Committee of EPU
2 Discussion on technical commercial matters with MOF,
MEWC, EC, TNB
• Offer made to IPP
• Cabinet Approval obtained
• Finalisation of the PPA
HOW IPP PROPOSALS ARE ANALYSED
(cont.)
Internal Process
• Specialized sub-groups
• Technical (Power Plants, Heat Rate & Start-ups, System
Technical Requirements, Interconnection Facilities
(Transmission Equipment))
2 Fuel
• Financial and Commercial
• Legal
• Appoint a Technical Officer
• Technical Proposal
2 Check against standard practice
2 Accepted benchmarks
2 Sources - Internal (TNBE, TNB Fuel, TNBT, System
Planning (SPD & OPP)), External (SKM, PowerGen, etc.)
HOW IPP PROPOSALS ARE ANALYSED
(cont.)
Internal Process
• Financial and Commercial
2 Project Cost Breakdown
2 Verification of operational assumptions - availability, heat
rate, fuel consumption
2 Accepted benchmarks
2 Current practises
2 Sources - Other financial proposals, Financing Parties
(Bank America, Citibank, MacQuarie, ANZ Bank)
PPA PROCESS
IPP submit project
proposal to GOM

TNB management
GOM to inform
issues directive to
GOM approve IPP TNB to commence
EPU to commence
proposal discussion &
discussion /
negotiation
negotiation

Supply/ Demand
input by TNB

Determination & Negotiation of

Approval by GOM of Agreement
commercial rates and
new PPA terms

Operationalization
of Agreement

Settlement of
Invoices

End
PPA PROCESS (cont.)
Government - EPU, MOEWC, EC, Privatization Committee
Advisors - (Legal, Technical, Financial)
IPPs

Power Purchase
Agreement

OFFTAKER

Transmission - NLDC, OPP, SPD, Telecontrol, Asset, Telecommunication,

Network Maintenance (Central & Region), TNB Fuel Services
Finance
Distribution
REMACO
PPA PROCESS (cont.)
• IPP project evaluation and settlement
2 IPP costs are evaluated on a project basis with terms
offered to ensure project viability whilst at the same time
ensuring TNB is not overly burdened with higher costs
2 Settlement of purchases require checking and verification
with the system i.e. Energy Metering, Daily Plant
Declaration, Confirmation of Purchase, Plant Outages
(Scheduled and Forced), etc.
POST NEGOTIATIONS
• Collate all documentation into one or more project files
• Create an Execution Document
2 Explaining in detail each clause, rationale for the clauses,
milestones, timeline charts, sample calculations, etc
• Create an Interoperation Manual
2 Operations manual between Grid System Operator and
IPP
• Create a Commissioning Document
2 What information and documentation is required
• Create a Settlements Manual
THE EVOLUTION OF PPAs
DIFFERENCES BETWEEN THE PPAS

The main differences between the PPAs lie in the following

terms and conditions:

PRODUCT
PAYMENT
SCHEDULING & DESPATCH
CHANGE IN LAW
FORCE MAJEURE EVENTS
DEFAULT AND TERMINATION
INDUSTRY RESTRUCTURING
 PRODUCT

1st Generation 2nd Generation 3rd Generation

- Capacity & Energy - Capacity & Energy - Capacity & Energy

- Minimum Take or Pay - Demand Risk

(YTL only) Sharing
(Under this concept,
IPP is to bear some
risks associated with
demand)
 PAYMENT

1st Generation 2nd Generation 3rd Generation

- Capacity & Energy - Capacity & Energy - Capacity & Energy

Payments Payments Payments

- Energy Payment for - Utilization Payment

YTL only
PAYMENT (cont.)

Demand Risk Sharing Mechanism

• A portion of Capacity Payment is paid to IPP for its

availability and performance

• The remainder of Capacity Payment will be based on Daily

Utilization Payment (DUP). This will be paid to the IPP only
upon being despatched by the System Operator.
 SCHEDULING & DESPATCH

1st Generation 2nd & 3rd Generation

- Rescheduling of Outages by - Rescheduling of any Outage is

IPPs is allowed stringently sanctioned by GSO

- Unsanctioned rescheduling of
- This results in GSO having to Outages by the IPP has dire
despatch other units in the commercial consequences on
System which costs are the IPPs (Forced Outage)
borne by TNB
- Failure to comply with a
- No immediate consequence Despatch Instruction will result in
if IPPs fails to make a penalty be imposed on the
available the capacity as IPPs
declared
 CHANGE IN LAW

1st Generation 2nd & 3rd Generation

- Any CIL that decreases - Only CIL that requires material

revenue or increases IPPs’ capital improvement beyond a
threshold amount (between RM
costs would result in an upward 5 mil to RM 10 mil) will be
adjustment of the Capacity considered
Payment
- CIL affecting IPPs’ revenue is a
business risk borne by IPP
 FORCE MAJEURE EVENTS
1st Generation
- TNB has to continue making
Capacity Payments even when
IPP is not available due to
Force Majeure Events (FMEs)
affecting IPPs or when TNB is
affected by a FME
2nd & 3rd Generation
- If FME affect IPPs, Capacity
Payment is paid only if
and up to the level the Facility is
Available. Otherwise the term of
the PPA is extended
- If FME affects TNB, then TNB
pays IPPs Debt Service (to
prevent IPP defaulting under their
Financing Documents) and fixed
obligations
FORCE MAJEURE EVENTS (cont.)

2nd & 3rd Generation

- Unavoidable costs incurred by

IPP (only if IPP don’t receive any
insurance proceeds)
 DEFAULT & TERMINATION
1st Generation
- Default by either Party entitles
the non-defaulting Party to
terminate the PPA. TNB may
step in and also have the option
to purchase the Facility at Fair
Market Value
2nd & 3rd Generation
- If TNB terminates the PPA due to
IPPs’ default, TNB only has to
pay a nominal sum of RM10
- If IPPs terminate as a result of
TNB’s default then IPP has the
option to sell the project to TNB
at a sum which includes the
Outstanding Debt and Sponsor’s
Contribution & Return
INDUSTRY RESTRUCTURING

Introduced in 2nd & 3rd Generation PPAs

• Incorporated to reflect the Government’s long term intention

to restructure the Malaysian Electricity Supply Industry

• Gives TNB the option to continue with the PPA or terminate

it; whichever gives a better solution whilst at the same time
managing the issue of Stranded Costs

• TNB & IPPs are to negotiate in good faith within 6 months

the provisions to allow IPP to participate in the restructured
MESI. Failure to reach an amicable solution would result in
TNB’s exercising its options
THANK YOU