In order to minimize transaction costs, the SEU will enter into standard form SREC Transfer Agreements with Owners and, if required or elected by such Owners, the Owner Representatives. The SEU will countersign each SREC Transfer Agreement promptly upon determining that the associated application and bid qualify for selection pursuant to the pending solicitation (the date of signing by the SEU, the “Execution Date”). Each SREC Transfer Agreement will include:
- the Owner’s agreement to maintain the Generation Unit as an Eligible Energy Resource;
- an acknowledgment by the Owner and, if applicable, the Owner Representative that: (a) the SEU and retail electricity suppliers have the right to inspect the Generation Unit (which right may be assigned to qualified third parties); and (b) the SEU has the right to resell the SRECs in any market where they are eligible to be traded, including states other than Delaware; and
- if the Owner is designating an Owner Representative, the appointment of the Owner Representative as the Owner’s exclusive agent to manage SRECs within GATS on the Owner’s behalf.
The form of the SREC Transfer Agreement is appended hereto as Appendix B. Some of the principal terms and conditions of the SREC Transfer Agreement are described in this Section 6.
6.1 Term of Agreement
All SREC Transfer Agreements will have a term of 20 years. The term will commence as of the first day of the month following the date as of which the Generation Unit is certified as an Eligible Energy Resource by the DPSC or, for operating resources, either June 1, 2011 or the first day of the month following the Execution Date of such agreement, as determined by the Owner.
6.2 SREC Quantity
Pursuant to each SREC Transfer Agreement, the Owner and, if applicable, the Owner Representative will be obligated to transfer (by registering within GATS) and sell to the SEU, and the SEU will be obligated to purchase and pay for, all of the SRECs produced at the Generation Unit up to the Contract Maximum (as defined below). To facilitate more efficient management and accounting for SREC procurement, and to maximize opportunities for the largest possible group of Owners to participate in the SREC Procurement Pilot Program, the quantity of SRECs that may be delivered pursuant to any SREC Transfer Agreement during any annual period will be limited to 110% of the Estimated SREC Quantity for such period (such amount, the “Contract Maximum”). All SRECs delivered pursuant to an SREC Transfer Agreement must be created based on the output of the Generation Unit that is the subject of that agreement. In the event a Tier 1, Tier 2-A or Tier 2-B project produces SRECs in excess of the Contract Maximum, the SEU will have the option to elect whether or not to purchase any or all of the surplus SRECs. If it exercises that option, the sale of any such excess SRECs will be subject to the same terms, conditions and pricing applicable to other SREC purchases under the SREC Transfer Agreement. In the event a Tier 3 project produces SRECs in excess of the Contract Maximum, or if the SEU declines to purchase, or purchases only a portion of, the excess SRECs produced by a Tier 1, Tier 2-A or Tier 2-B project, the SEU will transfer any such excess SRECs back to the Owner, who will have the right to sell such excess SRECs in any manner it deems appropriate.
For Tier 3 projects, the Owner and, if applicable, the Owner Representative will be obligated to sell to the SEU, for each annual period, a quantity of SRECs equal to no less than 80% of the Estimated SREC Quantity for such period (the “Minimum Annual Quantity”).
The Estimated SREC Quantity may not be amended unless the Owner reduces the capacity of a Generation Unit either to avoid or minimize any interconnection fees or charges sought to be imposed by the interconnecting utility (as described in Section 6.4) or to allow the Generation Unit to fit within a pending solicitation (as described in Sections 7.1 and 7.2).
The Taskforce has established administratively set prices for Tier 1 and Tier 2-A projects. Those prices were set based on the assumption that each Owner of such a project will receive a GEP grant in an amount equal to that currently available to DPL customers (i.e., pursuant to the GEP in effect since December 10, 2010). Details of the current GEP grant program may be found at http://www.dnrec.delaware.gov/energy/services/GreenEnergy/Pages/default.aspx. For Tier 1 and Tier 2-A projects that have received or will receive GEP grants in excess of that amount, there is an alternate (i.e., reduced) price.
Owners of Tier 2-B and Tier 3 projects are not eligible to receive administratively set prices and will be required to submit bids which will be evaluated and selected based on the lowest bid prices. Owners of Tier 1 and Tier 2-A projects may waive their right to receive administratively set prices, and instead, participate in competitive solicitations for Tier 2-B projects; provided that a Tier 1 or Tier 2-A project that submits a bid in a Tier 2-B solicitation will be subject to the requirements imposed on other Tier 2-B projects, e.g., they cannot receive supplemental public funding other than grants in lieu of investment tax credits and they will be required to install revenue-grade meters with on-line monitoring.
For projects selected in competitive solicitations the SREC price during the first 10 years of the term of the SREC Transfer Agreements will be the bid price. The SREC price for the final 10 years of the SREC Transfer Agreements will be fixed at $50 per SREC.
6.4 Utility Interconnections
Each Owner must submit a complete interconnection application (Step 1) to the interconnecting utility no later than 60 days after the Execution Date. If, based on that application, the interconnecting utility proposes to assess any fee or charge (other than a standard interconnection application fee), the Owner may, within 10 days of notice of such fee or charge by the interconnecting utility, either reduce the capacity of the Generation Unit to avoid or minimize such fee or charge or terminate the SREC Transfer Agreement.
If an Owner reduces the capacity of a Generation Unit to avoid or minimize an interconnection charge, the Estimated SREC Quantity will be reduced by the same percentage and any excess deposit will be returned to the Owner. If an Owner elects to terminate the SREC Transfer Agreement based on the imposition of an interconnection fee or charge, the entire deposit will be returned.
6.5 Guaranteed On-Line Date; Delay Liquidated Damages
All projects must commence operation no later than 12 months after the Execution Date (the “Guaranteed On-Line Date”); provided that the Guaranteed On-Line Date will be subject to extension to the extent reasonably necessary based on: (a) events beyond the reasonable control of the Owner (i.e., force majeure as defined in the SREC Transfer Agreement); or (b) the failure by the interconnecting utility to complete the interconnection (provided that the Owner or, if applicable, the Owner Representative shall have submitted a timely and complete interconnection application to the interconnecting utility). In no event will the Guaranteed On-Line Date be extended for more than one additional year.
For any Generation Unit that fails to meet its Guaranteed On-Line Date, the Owner and, if applicable, the Owner Representative will be liable to pay liquidated damages for each full or partial day of delay. The amount of such damages will be equal to 1/30th of the deposit amount. In the event a Generation Unit is not operational within 30 days of its Guaranteed On-Line Date, the SEU will have the right to terminate the SREC Transfer Agreement.
All Tier 1 projects receiving administratively set prices will be paid on a quarterly basis, and all other projects will be paid on a monthly basis. Each Owner will stipulate in the SREC Transfer Agreement whether payment is to be made to the Owner or, if applicable, the Owner Representative. Payment will be based on the number of SRECs transferred to and registered in the SEU’s GATS account during the relevant billing period.
All Tier 1 projects receiving administratively set prices must install either a standard, utility-grade meter or a revenue-grade meter, in either case with on-line monitoring. All other projects must have a revenue-grade meter with on-line monitoring.
6.8 Conditions Precedent
The SEU’s purchase obligations under each SREC Transfer Agreement will be conditioned on: (a) the Owner providing evidence that it has received a certification number from the DPSC confirming that the referenced Generation Unit qualifies as an Eligible Energy Resource; and (b) for Generation Units that are eligible in accordance with GATS rules and procedures, the Owner executing a standing order directing that all SRECs generated by such unit (up to the Contract Maximum) be transferred to the SEU’s GATS account. For projects claiming a bonus based on the use of Delaware-sourced equipment or an in-state workforce (as described in Section 2.3 above), the SEU’s obligations will also be subject to delivery of confirmation from the DPSC that the resource qualifies for the claimed bonus (which confirmation may be delivered within 30 days of the commencement of operation of the resource).
6.9 Performance Credit Support
Pursuant to the terms of each SREC Transfer Agreement, the Owner and, if applicable, the Owner Representative, will grant the SEU a security interest in all of the SRECs (up to the Contract Maximum) generated by the project to secure their respective obligations under the agreements, including the obligation to deliver and sell the SREC output of the project.
To secure their obligations to deliver the Minimum Annual Quantity, Owners or Owner Representatives of Tier 3 projects will also be required to provide supplemental credit support in the form of cash, a letter of credit or other collateral acceptable to the SEU. For each of the first 10 years of the SREC Transfer Agreement, such supplemental credit support shall be in an amount equal to 5% of the value (at the applicable price set forth in the SREC Transfer Agreement) of the first-year Estimated SREC Quantity; for each year thereafter, it shall be in an amount equal to 10% of the value of the Estimated SREC Quantity for the 11th year of the agreement. The supplemental credit support must be replenished to the required level in the event any portion of the credit support is drawn or used.
6.10 Project Maintenance; Inspections
Owners and, if applicable, Owner Representatives will be responsible for maintaining Generation Units so that they remain Eligible Energy Resources and are able to produce their respective Estimated SREC Quantities. Owners and Owner Representatives must notify the SEU of any substantive changes to the operational characteristics of the Generation Unit.
The SEU will have the right to physically inspect Generation Units to verify compliance with the terms of their applicable SREC Transfer Agreements. The SEU may delegate that right to the SREC Procurement Agent, any retail electricity suppliers or any other qualified third parties.
6.11 Excused Performance
Owners will be excused from any delay in performance or failure to perform under an SREC Transfer Agreement caused by conditions beyond their reasonable control (i.e., force majeure as defined in the SREC Transfer Agreement); provided that such relief shall be limited to a period of one year for any single force majeure event.
6.12 Default Provisions
Pursuant to the SREC Transfer Agreement, the Owner and, if applicable, the Owner Representative will be in default if:
- the full SREC output of a Generation Unit (up to the Contact Maximum) is not made available to the SEU;
- for a Tier 3 project, the project fails to generate the Minimum Annual Quantity during any annual period and the Owner fails to pay applicable damages (as described in Section 6.13 below) within 30 days after the end of such annual period; or
- required credit support is not maintained.
In addition, an Owner Representative will be in default under an SREC Transfer Agreement if it fails to qualify as an Owner Representative under the terms of the SREC Procurement Pilot Program and such failure is not cured within 30 days of notice of such failure.
Upon a breach or default by an Owner or an Owner Representative under an SREC Transfer Agreement, the SEU will be entitled to all of its remedies at law and in equity, including specific performance of and/or termination of the agreement. Upon a breach or default by the SEU under an SREC Transfer Agreement, the Owner and, if applicable, the Owner Representative, will be entitled to their respective remedies at law and in equity. Equitable remedies will include specific performance of such agreement.
In the event the SEU terminates an SREC Transfer Agreement based on a failure or refusal to sell the SREC output of the Eligible Energy Resource to the SEU, the SEU may recover damages calculated based on the difference, if positive, between the price for SRECs under the SREC Transfer Agreement and the cost to replace such SRECs in the market.
If a Tier 3 project fails to produce the Minimum Annual Quantity of SRECs during any annual period, the Owner will owe damages equal to the amount of the shortfall, multiplied by the difference, if positive, between: (a) the lower of the prevailing market price of SRECs (as reasonably determined by the SEU) or the amount of the “Alternative Compliance Payment” (as defined in REPSA) for the year in which such shortfall occurs; and (b) the price for SRECs under the SREC Transfer Agreement. Such damages shall be due and payable no later than 30 days after the end of the annual period to which they apply. Payment of such damages will be the Owner’s sole liability for the failure to deliver the Minimum Annual Quantity.
6.14 Replacement of Owner Representative
An Owner may remove its Owner Representative at any time and for any reason (or no reason); provided that if the Owner is not qualified to participate in the SREC Procurement Pilot Program on its own behalf, it will be obligated to designate a replacement Owner Representative (which replacement will accept a novation of the SREC Transfer Agreement) within 5 business days of the removal of the original Owner Representative. In the event an Owner who is not qualified to participate in the SREC Procurement Pilot Program on its own behalf fails to designate a replacement Owner Representative within such period, the SEU will have the right to designate the replacement Owner Representative, in its reasonable discretion.
 Owners that have applied for, or are entitled to receive, any such excess grant amount may elect to forego such excess amount in order to be eligible for the standard administratively set price.
 A reduction in capacity to avoid or minimize an interconnection charge will not affect pricing under the SREC Transfer Agreement, regardless of whether the reduced capacity would have qualified the project to submit an application for a lower tier.
 Owners and Owner Representatives are also required to provide the SEU with copies of any notice(s) submitted to the DPSC pursuant to 26 Del. Admin. C. § 3008(3.1.8) and any additional correspondence related to such notice(s).