What to Know
- Middle East power purchase agreements (PPAs) typically include three termination triggers: project company default, offtaker default and force majeure. Risk allocation, however, varies significantly by jurisdiction.
- Qatar’s PPAs stand out: Only the offtaker may terminate, and project companies are limited to pursuing damages.
- Instead of traditional long-term debt, developers increasingly choose mini-perm financing structures that anticipate refinancing after the project begins commercial operation.
The Middle East is often considered synonymous with abundant fossil fuel reserves and its dominant role in the global market as a net exporter of oil and gas. As the world accelerates the transition to a renewable or “green” energy sector and reduces its reliance on fossil fuels, the region has played an outsized role in developing renewable energy technologies on a vast scale, primarily through its equally abundant renewable energy resources.
The Middle East benefits from its unique geographical location (being near the equator and benefitting from a jet stream), which provides an excellent opportunity for generating clean and sustainable renewable energy through solar and wind projects. This transition is taking place against the simultaneous challenge of ever-increasing energy consumption driven by digitisation, urbanisation and the advent of artificial intelligence (AI), which has driven a dramatic surge in electricity demand from data centres.
As project developers endeavour to maximise their returns, we continue to advise on key structuring features such as mini-perms, potential deferral of first repayments, allocation of pre-completion revenues and the treatment of working capital facility providers and VAT facility providers.
This article: (i) sets out an overview of the Middle East renewable energy market; (ii) highlights some of the challenges and opportunities that the Middle East’s unique and buoyant market offers; (iii) compares termination regimes in the region (including triggers and consequences); and (iv) explores some of the key financing structures we see in Middle East project financings, and the related considerations at the forefront of decisions made by developers and lenders in the region.