ISDA Publishes Financial Power Purchase Agreement (FPPA) Template

ISDA is launching and publishing the ISDA FPPA Template to enable market participants to efficiently transact in FPPAs under the ISDA Master Agreement. Jones Day advised on and prepared the ISDA FPPA Template as ISDA's counsel.

The Rise of FPPAs

The ISDA FPPA Template is ISDA's answer to increasing calls from market participants for the standardization of documentation for FPPAs, as the global volume of FPPAs continues to expand to keep pace with the rapid growth of global electricity demand and in particular the demand for renewable energy.

• Electricity demand worldwide is projected to nearly double by 2050, by some estimates, driven by ongoing global growth and technological developments. As industry strives to meet this demand, the proportion of electricity supplied by renewables is expected to rise, given the global drive to reduce carbon emissions, with countries and companies alike continuing to bolster their commitment to the energy transition to cleaner generation resources through various policies and initiatives, such as the EU's Renewable Energy Directive, the U.S. Inflation Reduction Act, and the global RE100 initiative.
• FPPAs are an essential tool to promote the increase of renewable energy, as the ability to execute FPPAs without the physical delivery of energy between the parties (where the energy is delivered and sold by the renewable project to the market operator) allows project developers and offtakers in different geographical markets and jurisdictions to transact, unlocking otherwise unavailable avenues of financing for project developers and overcoming otherwise challenging transmission system constraints and other physical obstacles for buyers and intermediaries, to provide flexibility for all market participants in deploying and procuring renewable energy.

The ISDA FPPA Template

The ISDA FPPA Template provides global standard product definitions and contract terms with a modular structure that allows for easy tailoring by users to address jurisdictional or entity-specific needs and to reflect new market practices or other relevant developments. The modular structure also enables the ISDA FPPA Template to utilize other current and future ISDA documentation to leverage common provisions for ease of use and consistency.

The "ISDA FPPA Template" consists of the ISDA Global Financial Power Purchase Agreement Confirmation Template ("ISDA Global FPPA Confirmation Template") and certain Optional Attachments to the ISDA Global FPPA Confirmation Template as described below.

The ISDA FPPA Template was prepared in the form of a confirmation template, rather than an annex or a definitions booklet, to achieve a balance between establishing a common starting point to facilitate standardization and providing flexibility for users to tailor the ISDA FPPA Template to address jurisdictional or entity-specific needs.

To enable such standardization and flexibility at the same time, the ISDA FPPA Template has a modular structure as follows.

The ISDA Global FPPA Confirmation Template consists of:

• "Base Provisions" in the body of the confirmation, which users can utilize as a starting point and modify as needed. Provisions where the relevant concept has a sufficiently recognized approach across jurisdictions are drafted as Base Provisions.
• "Optional Provisions" in the body of the confirmation, drafted as options in brackets, allowing users to easily select the desired option and delete the remaining options. Provisions where there is a limited number of recognized approaches to the concept that are commonly used across jurisdictions are drafted as Optional Provisions.
• "Additional Provisions" section in the body of the confirmation, with a placeholder for any provisions drafted by users to address jurisdictional and entity-specific needs.
• "Attachments" that are each a separate attachment appended to the confirmation, with a placeholder for any provisions drafted by users to address more extensive jurisdictional and entity-specific needs (which are better placed in a separate attachment than in the main body of the confirmation). There are currently four Attachments, but users can easily create additional Attachments for a particular FPPA:

• "Attachment A: Environmental Attributes Product Provisions"
• "Attachment B: Performance Guarantee Provisions"
• "Attachment C: Credit Support Provisions"
• "Attachment D: Insurance Provisions"

The ISDA FPPA Template also includes certain "Optional Attachments" to the ISDA Global FPPA Confirmation Template, which contain template provisions that users can insert into the applicable Attachment and modify as needed.

As part of the initial launch of the ISDA FPPA Template, ISDA is publishing the following three Optional Attachments:

• "ISDA Global FPPA Optional Attachment (ISDA REC Annex)" which contains template provisions that users can insert into Attachment A to govern the delivery of environmental attributes under their FPPA based on the ISDA U.S. Renewable Energy Certificate Annex ("ISDA REC Annex").
• "ISDA Global FPPA Optional Attachment (Mechanical Availability)" which contains template provisions that users can insert into Attachment B to document an availability-based performance guarantee for their FPPA.
• "ISDA Global FPPA Optional Attachment (Proxy Generation)" which contains template provisions that users can insert into Attachment B to document a production-based performance guarantee for their FPPA.

ISDA may publish additional Optional Attachments as part of future updates of the ISDA FPPA Template.

• For example, if ISDA publishes an ISDA EU Guarantees of Origin Annex ("ISDA GO Annex"), ISDA may update the ISDA FPPA Template by publishing an "ISDA Global FPPA Optional Attachment (ISDA GO Annex)" containing template provisions that users can insert into Attachment A to govern the delivery of environmental attributes under their FPPA based on such ISDA GO Annex.

The Bigger Picture

The ISDA FPPA Template reflects ISDA's recognition of the important role of the derivatives markets, including the FPPA markets, in supporting global sustainability efforts. It also builds on the success of prior ISDA documentation, such as the ISDA REC Annex, and establishes a strong foundation for the standardization and further growth of FPPAs and related future products.