Structuring a Successful Distributed Energy Resource Agreement: A Legal and Commercial Guide to PPAs

Structuring a Successful Distributed Energy Resource Agreement: A Legal and Commercial Guide to PPAs

Part 3 of the Distributed Energy Series

This article is the third and final installment in the Distributed Energy Series from Rise Energy Services, and was developed in collaboration with Bray Dohrwardt from Avisen Legal. The first two parts — Part 1: The Business Case for Behind the Meter Distributed Energy Resources… Things Have Never Looked Better and Part 2: Planning for Success: A Guide to a Successful Distributed Energy Project — were authored solely by Rise and explored the growing economic potential of DER projects and the planning considerations critical to their success.

In Part 3, From Plan to Contract, Rise and Avisen Legal turn to the final, and often most complex, stage: contracting. This legal and commercial guide walks through Letters of Intent, Power Purchase Agreements (PPAs), and other core terms that determine project viability and long-term success. Whether you’re deploying solar, battery storage, or microgrids, this piece provides the strategic insight needed to structure agreements that align risk, protect investments, and deliver resilient, cost-effective energy.

Structuring a Successful Distributed Energy Resource Agreement: A Legal and Commercial Guide to PPAs

Prepared in collaboration by Rise Energy Services and Avisen Legal

From Plan to Contract: A Strategic Approach to DER Agreements

This is the third paper in our Distributed Energy series. “The Business Case for Behind the Meter Distributed Energy Resources…. Things Have Never Looked Better” defined distributed energy resources “DER” and micro-grids and explored some underlying factors that are improving the economic case for their deployment. “Planning for Success: A Guide to a Successful Distributed Energy Project” explored the primary considerations for making energy decisions, outlined some of the key differences between DER technology choices, and discussed the most common barriers that derail projects.

Firms that successfully navigate a distributed energy project’s development lifecycle must prepare for the contract phase. This paper will provide a valuable guide for contracting an on-premises DER project with a vendor. The customer can always choose to provide the necessary capital to enable the project and contract with the vendor on a cash basis, however, the most common structure is the Power Purchase Agreement “PPA”, which has the vendor providing the necessary capital to deploy DER assets and recovering that capital over the term of the agreement. This document assumes a PPA structure.

DER Contract Process

It is common practice during the evaluation phase to have several different vendors provide project proposals. The details vary by vendor but generally include specifications for the designated solution, high-level design work to indicate potential project location, indicative economics including PPA costs or capital expenditure, projected energy output, fuel consumption, and energy savings vs. existing utility rates. The documents provide the basis for selecting which project best fits your needs.

Once a project is chosen, the vendor will move toward having the customer execute a Letter of Intent “LOI”, which will provide for some exclusivity for some time and provide more detailed information regarding the project and current assumptions. This document indicates a more concrete level of interest to the vendor and generally is required for them to dedicate the internal dollars and resources necessary to fully develop the project. From the customer’s perspective, all proposal assumptions can be more fully evaluated at this stage. Essentially, both parties perform their respective “due diligence” to determine if the project makes sense.

Best Practice: Define Term and Exit Options in LOIs

Letters of Intent (LOIs) should always include defined duration and explicit termination rights. These “off-ramps” should account for material changes in project design, capital requirements, permitting outcomes, interconnection feasibility, or other key assumptions. Without clear exit language, parties’ risk being constrained by preliminary terms that no longer reflect the project’s technical or economic viability. Well-drafted LOIs provide flexibility while preserving alignment and momentum during early-stage development.

Projects that are successfully vetted during the LOI phase will move toward full contracting. This will involve a Master Agreement which will capture all the key terms between the parties, as well as technical addendums or exhibits.

The negotiation of a final DER contract with a vendor should be supported by legal counsel with experience and expertise in these matters and supported by engineering, operations and commercial personnel from the customer to ensure that all details are properly documented.

Contract Review

Best Practice: Organize Items by Review Category

To streamline project review and approval, group all documents and decisions into clearly defined buckets and assign each to the appropriate subject matter experts (SMEs). This ensures a more efficient process, avoids confusion, and helps identify gaps early.

Common bucket categories include:

  • Technical – Equipment specifications, interconnection plans, and installation requirements
  • Construction – Site access, hours of operation, laydown areas, labor standards, and restoration
  • Legal – Contract terms, liability provisions, permits, and land use documentation
  • Financial – Cost allocations, capex/opex implications, and payment milestones
  • Regulatory & Permitting – Utility interconnection, environmental approvals, and compliance obligations
  • Operational – Fuel supply, backup power planning, and commissioning support
  • Customer Responsibilities – Ground surveys, rights-of-way, easements, and internal approvals

Categorizing issues in this way is significant for complex DER or energy infrastructure projects involving multiple stakeholders and phases. It promotes accountability, reduces oversight risk, and accelerates decision-making.

Key Design and Installation Terms:

These are the terms detailing the project and any requirements related to the project’s installation. While your selected vendor is likely an expert in their field, you should thoroughly review all technical documents to make sure they are correct.

  • Specifications for power generation equipment, transformers, switch gear, or microgrid controller.
  • Points of interconnection including how the system is integrated with existing site infrastructure and any building management system “BMS”.
  • Equipment siting and gas, water, internet, or power interconnection lead lines.
  • Any special provisions for construction, including site access, standard hours of operation, construction laydown areas, rigging, site disturbance and restoration, fencing, prevailing wage rates, etc.
  • Requirements for customers to provide ground surveys, rights of way, or other documents.
  • Cost allocation and responsible party for permits, approvals, and utility interconnection agreements.
  • Timeline for installation, testing and commissioning.
  • Responsibility for providing fuel or backup generators during commissioning.

Best Practice: Closely Track Customer Obligations and Cost Allocation

Pay particular attention to any terms that impose obligations on the customer, especially those related to cost allocation, permitting support, interconnection responsibilities, site access, and documentation. Most change orders and scope disputes stem from misunderstandings or deviations from these customer-side requirements. Clearly identifying and tracking these obligations early helps avoid delays, unexpected costs, and misaligned expectations during project execution.

Key Commercial and Operation Terms:

This section covers the financial and operational terms that govern the project both during construction and over the life of the agreement. Careful review of these provisions is critical, as they directly affect the project’s risk profile, economics, and long-term success.

  • Contract Duration and Exit OptionsTerm length, early termination rights, extension options, and buyout provisions.
  • PPA Pricing StructureWhether pricing is fixed, indexed, or structured with minimum payments based on availability, output, or performance. May also include escalators or profit-sharing mechanisms.
  • Incentive Ownership and AllocationTreatment of federal, state, or utility-based incentives such as Investment Tax Credits (ITCs), grants, and rebates—who applies for them, who benefits, and how value is shared.
  • Performance GuaranteesCommitments to minimum output, system availability, heat rate, or efficiency—typically backed by remedies if not met.
  • Incentives and PenaltiesBonus payments for exceeding performance benchmarks or liquidated damages for failure to meet minimum standards.
  • Settlement and Payment TermsTiming, frequency, and method of invoicing and payment, including any true-up or reconciliation mechanisms.
  • Collateral and SecurityAny requirements for performance bonds, letters of credit, parent guarantees, or other forms of credit support.
  • Operations & Maintenance (O&M) StandardDefined service levels, routine maintenance schedules, reporting obligations, emergency response times, and spare parts inventory requirements.

Remaining Legal and Risk Management Provisions

This section includes the remaining key legal, risk allocation, and contractual boilerplate terms typically found in a final agreement. While sometimes viewed as “standard,” these provisions can carry significant operational, financial, and legal consequences and should be reviewed carefully.

  • Ownership of Equipment vs. Energy OutputClarifies which party owns the physical assets and which owns the energy, environmental attributes, or capacity generated.
  • Insurance RequirementsSpecifies required insurance coverage during construction and operations (e.g., general liability, builder’s risk, property, environmental, and business interruption).
  • Mutual IndemnificationAllocation of liability between parties for third-party claims, including scope, carve-outs, and survival periods.
  • Confidentiality ProvisionsLimits on sharing of project information, pricing terms, and proprietary data during and after the contract term.
  • Metering and Data AccessTerms governing installation, operation, and ownership of meters, as well as access rights to performance and usage data.
  • Force MajeureDefines excusable delay events and how parties are required to notify and respond during uncontrollable disruptions (e.g., natural disasters, regulatory events, or supply chain disruptions – including trade tariffs).
  • Assignment and Change of ControlRestrictions or approvals required for either party to assign the agreement or undergo a change in ownership.
  • Dispute Resolution and Governing LawMechanisms for resolving conflicts (e.g., mediation, arbitration, litigation) and the legal jurisdiction governing the agreement.
  • Decommissioning and Site RestorationRequirements for equipment removal, site restoration, and potential posting of security at the end of the contract term.

The Finish Line

Executing a comprehensive contract for a distributed energy solution can be a challenging experience. These types of projects typically have a useful life of 10 to 20 years and contracts should be robust enough to capture all the reasonably anticipated circumstances, while flexible enough to accommodate changes to the regulatory or operating environment. Like project evaluation and selection, it is best to assemble a qualified team of experts that work to protect your interests and ensure the anticipated benefits of any project.

To explore the full Distributed Energy Series, check out Part 1 for a look at the evolving business case for DERs, and Part 2, which outlines key planning strategies for a successful project. Part 3 (this article) is also available as a downloadable PDF on Rise’s website. Together, these resources offer a comprehensive roadmap from concept to contract.

 

Our Contributors

John Schultz

John is a results-driven energy executive with over 30 years of experience shaping strategy and driving growth across the U.S. energy market.

He has led two of the nation’s largest competitive retail energy providers and brings deep expertise across sales, trading, operations, infrastructure development, M&A, and risk management. With a track record of leadership at companies like Direct Energy and Hess Corporation, John helps organizations navigate the evolving energy landscape with practical insight and proven execution.

Read John’s Bio.

Bray Dohrwardt Attorney at Avisen LegalBray Dohrwardt

Bray is a business-minded energy attorney with decades of experience guiding clients through complex transactions, regulatory challenges, and strategic growth.

His background includes leading legal and operational teams across North America, including a 600-person business unit. He helps clients in energy, M&A, and compliance align legal strategy with business goals to succeed in a fast-changing energy landscape.

Read Bray’s Bio.

 

Bray Dohrwardt

Bray Dohrwardt

I’m a business-minded energy attorney with decades of experience guiding clients through complex transactions, regulatory challenges, and strategic growth. My background includes leading legal and operational teams across North America, including a 600-person business unit. I help clients in renewable energy, M&A, and compliance align legal strategy with business goals to succeed in a fast-changing energy landscape. Read Bray's Bio.

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