The most important agreement on which project financing was developed was the 25-year AAA contract between Quezon Power (SPV) and Meralco. The ECA was structured in take-or-pay on the basis of a minimum availability factor of between 82% and 88%, on average 85% over the duration of the 25-year contract. Meralco has not been set apart, even in cases of force majeure, by the monthly payments provided for in the contract. For 25 years, Quezon has been required to receive and pay for at least the minimum guaranteed amount of electricity each month, as required by the ECA. The components of the royalty paid by Meralco to Quezon Power were: indexing the cost of fuel to the market price of electricity, thereby reducing price risk; Or the other determining factor that enabled the development of the AAE contract model was the financial engineering known as “project financing,” which provides the significant portion of the long-term borrowing required for such projects. Although such techniques previously existed in the field of natural resources, the project financing structures used to finance PPAs have served as a basis for financing all types of PPPs (see Chapter 8). An important aspect of project financing is the transfer of the above risks from the project company to subcontractors. Figure 1.1 shows how this transfer of risk occurs in the main components of an electricity generation project. (The arrows indicate the direction of cash flow.) The main elements of the structure are as follows: if an existing power plant is at the end of legal aid, PDOs are a means of ensuring connection financing for the operation of the installation.

This could include operating costs such as maintenance and leasing. One of the essential aspects of a ECA is therefore that the investors of the project company that builds and operates the plant do not take any risk as to the real need for the electricity it can produce: this risk remains in the hands of the distribution company that pays the availability charge, whether or not it consumes electricity. . . .

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