Power purchase agreements with industrial companies usually involve large sums, and the development of the power price can have a significant impact on the remaining value of the contract. The power supplier runs the risk of contract default. If GIEK issues a guarantee for the power purchaser, the power supplier can make a claim against GIEK if the purchaser fails to meet contract terms. The guarantee benefits both parties; the purchaser can enter a predictable long-term power purchase agreement and the supplier limits the risk of running losses.
High level of predictability
-When GIEK issues a guarantee, the premium will be decided for the whole length of the guarantee period. The company will then know how much it is due to pay throughout the whole period. The power price development during the guarantee period will not affect the premium or lead to requirements of additional securities. Hence, a guarantee from GIEK represents a high level of predictability, says Solheim.
Not only for the large industrial players
The guarantee scheme covers power purchasers registered in Norway with businesses within wood and timber processing, wood materials, chemical products, and metals. It is not only the large power-intensive industries that can benefit from the public guarantee scheme, GIEK can also issue guarantees to a consortium of multiple power-purchasing companies. The companies must have an annual individual power consumption of at least 10 GWh, and the power purchase agreement must have a volume of at least 35 GWh during the agreement period. The power agreements may be physical or financial with a minimum of 7 and up to 25 years duration.
GIEK can also issue guarantees to banks and other lenders financing the power purchase. GIEK secures that the bank will receive repayment for the loan the power purchaser has taken out in order to prepay parts of the power delivery.
Read more about the power purchase guarantee scheme here.
Photo: NTB Scanpix