This Client Alert continues our reports regarding the Illinois Power Agency’s ("IPA”) on-going implementation of the Illinois’ Future Energy Jobs Bill (Public Act 99-0906), which became effective on June 1, 2017. (See prior Client Alert, “New Illinois Law Boosts Renewable Energy Project Development,” available at: https://www.bryancave.com/en/thought-leadership/new-illinois-law-boosts-renewable-energy-project-development.html). Recently, on June 28, 2017, the IPA issued a second version of the Standard Contract that renewable energy developers will be required to execute with investor-owned utilities in Illinois in order to sell wind and solar renewable energy credits (“RECs”) as part of the IPA’s Initial Forward Procurement. This Standard Contract form will be critically important to incentivizing renewable energy developers to submit proposals to the IPA and ultimately to the success of the new law. As part of this new draft, the IPA revised certain of its original proposed Standard Contract terms to avoid needlessly discouraging new project capacity that could be bid into the IPA’s auction for procurement of new RECs. As discussed in more detail below, the revisions are designed in part to ease burdens on developers and clarify their obligations. The IPA has invited written public comments on its revised draft, which are due by 6:00 p.m. Central Standard Time on July 10, 2017. After consideration of those comments, the IPA has indicated that it intends to publish its final Standard Contract for wind and solar project RECs.
Importantly, the revised Standard Contract terms clarify that “banking” of RECs produced in excess of the annual amount required by a REC contract with a utility will be allowed, but only with respect to the specific project that is subject to the Standard Contract. Any such excess RECs could be delivered in a subsequent delivery year to make up for a shortfall in the RECs actually produced in that subsequent delivery year. Alternatively, such “banked” RECs could be sold to other REC markets or otherwise used in the seller’s sole discretion.
In the first draft of the Standard Contract issued on June 1, 2017, the IPA originally proposed contract language that would require developers to post collateral equal to 150% of the value of their annual projected REC sales revenue (Annual Quantity x Purchase Price). In the revised draft, the IPA has proposed a significant reduction in the collateral requirement to 50% of the annual projected REC sales revenue from projects before June 1, 2019. On or after June 1, 2019, the IPA has proposed an increase in the collateral requirement to 100% of the annual REC sales contract value. Notwithstanding the 50% reduction before June 1, 2019, the IPA is proposing a $50,000 floor or minimum on the collateral requirement at all times during the first ten delivery years of the delivery term.
Both drafts of the proposed Standard Contract provide that the failure to deliver at least one REC from a project by June 1, 2021 constitutes a default. Under the revised draft, such a default cannot be excused by a Force Majeure event. However, a Force Majeure event can excuse other delivery failures and the definition of such an event has been revised to include curtailments of the output of a project ordered by a regional transmission authority under certain conditions. In the event of most any unexcused default, the utility buyer would be entitled to collect the full amount of the collateral. But the utility would have to provide at least five days’ notice of default, during which period the seller would have an opportunity to demonstrate that it is not in default.
This Client Alert does not purport to cover all of the revisions proposed by the IPA on June 28, 2017 and any interested or potentially affected parties must read the revised Standard Contract as a whole in order to understand its terms and requirements as applied to any individual wind or solar project. The revised draft Standard REC Contract can be viewed in its entirety, along with a red-line comparison of its changes to the original draft, at: https://www.ipa-energyrfp.com/wind-and-solar/draft-documents/. Interested parties are strongly encouraged to review the entire document to determine whether the revisions properly address all issues of concern to them. If not, interested parties have a last opportunity to seek further revisions by filing written comments with the IPA by 6:00 p.m. CST on Monday, July 10, 2017.
The IPA is currently scheduled to adopt and publish its final Standard REC Contract terms on Tuesday, July 18, and to host a webcast on the final Standard REC Contract terms and its RFP requirements the following day, July 19, 2017. Other important, upcoming dates associated with the IPA’s Initial Forward Procurement include the opening of the window for Part I bid submissions on July 20, with all such submissions due by August 7, 2017. Part 2 bid submissions will be accepted August 8 through August 23, 2017. Final bid submissions are now due August 31, 2017.