Renewable energy for C & I customers represents an opportunity for an offtaker / end user/ customer to enjoy purchasing discounted energy for their use while contributing to clean air, national energy independence, and many other advantageous features. However, sometimes an offtaker/end user chooses to lease the power from an independent power producer with excellent experience and great financial statements and a sound Operations & Maintenance plan. In making their final decision, concerns sometimes arise as to the future stability of the IPP and their ability to deliver discounted energy as stipulated in the PPA contract.
Our rapidly changing world is witnessing growing opioid abuse, legalization of medical marijuana and likely, soon, the legalization of recreational marijuana. Increased availability of online gambling and the growth of a myriad of social problems including political polarization that has not been witnessed since the American Civil War has already begun to negatively affect the labor force. Increased cost of credit and low employment, together with employers facing additional challenges at filling skilled labor positions, may lead to a further diminishment in the quality of services. For an offtaker, these factors may sometimes delay their decision to move ahead because the local utility supplier inspires higher confidence than an independent utility when facing an uncertain future.
A supply bond, either in the form of a performance and payment bond, or solely a payment bond, purchased by the IPP on behalf of the offtaker guarantees the faithful supply of the contracted energy output in the event of contractual default. The bond can be purchased either as a 1 year bond (renewable subject to annual underwriting) or a multi-year bond on a non-cancellable basis for the term (renewable at the end of the term subject to underwriting). These bonds provide a financial guarantee for a mutually agreed upon penalty sum for the benefit of the offtaker / end user to make alternative provisions to replace the contracted energy in the event of an IPP contractual default.
This bond is a useful instrument when the purchaser needs to be given additional confidence to consummate the transaction between the parties. By protecting the offtaker / end user it also protects the IPP from losing a valuable power contract.
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