Nowadays, in most countries, clean power is cheaper to produce than energy from fossil fuels, and the global electrification of the world driven by AI, data centers, and EVs has pushed demand for renewable energy to its peak. The most important issue to understand is that banks do not finance PV projects, they finance the contracts behind them.

PPAs, as long-term power purchase agreements, make projects reliable and predictable for banks. So it's important to understand what bankability means. It means that lenders and investors can calculate the possible outcomes of the project, rather than relying solely on future projections (1). As the article title states, we shall discuss four essential clauses of PPA agreements:

• Price Mechanism

• Curtailment Allocation

• Credit Support

• Force Majeure and Regulatory Changes

Price Mechanism - There are several types of PPAs, and they work differently across markets depending on regulations and production prices. In this section, we will explain fixed, indexed, and floor-and-collar PPAs. The fixed-price PPA is the simplest and the most widely accepted structure for investors and lenders, as it provides long-term revenue certainty. However, it isn't always beneficial for electricity producers, since the long-term nature of the contract locks them into a fixed price for many years even as the market grows and prices increase (2). The floor-and-collar PPA is also widely accepted and approved by investors and lenders, as it includes both a floor and a ceiling price for the electricity. The floor protects the seller, guaranteeing they will never receive less than the agreed minimum price, regardless of market conditions. The cap protects the buyer, ensuring they never pay more than the agreed maximum. Between the floor and the cap, the price simply follows the market. This structure gives banks the certainty they need, as it guarantees a minimum revenue floor for the project while still allowing some upside if market prices rise (3). The indexed PPA is generally the least favored structure by lenders and investors, as the future price is uncertain rather than fixed. In some cases, the price is adjusted annually according to an inflation measure such as the Consumer Price Index (CPI) - this is still relatively bankable, as inflation can be reasonably forecast. However, when the price is instead linked directly to the wholesale market price, with no fixed base or floor, it becomes far harder for lenders to model future revenue, making this the least bankable structure of the three (4).

Curtailment Allocation - Curtailment is the worst nightmare for power generators, because it represents money that has already been "earned" on paper but will never actually be received. Before signing the PPA, it is vital to assess the grid's stability and curtailment history during due diligence. For lenders and investors, the curtailment allocation clause in a PPA often determines whether they fund the project at all. This is because, if the generator bears the full cost of curtailment, it is generally unfavorable for the lender - grid behavior during periods of oversupply can be unpredictable, making future revenue harder to forecast (5). In some jurisdictions there are legal obligations to compensate the developer for the curtailed amount of electricity (Germany and UK), while for example in Spain and Cyprus there is no such legal requirement. From the developer's side, a common tactic is to negotiate a higher PPA price upfront, factoring in an expected percentage of curtailment, rather than seeking a separate compensation clause for curtailed volumes. Offtakers often prefer this approach, as it avoids the complexity of calculating and paying for energy they never actually received.

Credit Support - Nowadays, credit support is one of the hardest clauses to negotiate between the power generator and the offtaker, as the cost of the credit support mechanism can be quite significant. So what are the main credit support mechanisms? There are typically three: Letter of Credit, Parent Company Guarantee, and Credit Insurance. So why do lenders and investors require credit support to fund the project? Because a signed PPA alone does not guarantee payment - it is the credit support mechanism that guarantees payment if the offtaker fails to pay on time. Additionally, if a company is able to provide credit support, it signals that the company is financially healthy. Lenders typically require Letters of Credit (LCs) covering 6 -18 months of expected PPA revenue. An interesting point here is that balanced credit support is best for all parties - neither undersized nor oversized. Some may ask: why can more credit support than required actually be a bad thing? The reason is that LCs are not free. The amount covered by the LC is effectively frozen - the offtaker cannot use that capital for other purposes while the obligation stands. On top of that, banks charge a fee to issue and maintain the LC, so a larger LC means a larger ongoing cost for the offtaker, even if the actual default risk doesn't justify it (6). The Parent Company Guarantee is also a good mechanism for credit support, but it depends on whether the parent actually holds tangible assets. There are many cases where the parent company does not actually hold significant assets and is instead used as a holding company for jurisdictional or tax purposes. In such cases, a guarantee from that parent provides little real protection, since there is nothing substantial behind it to enforce against in the event of default.  

Force Majeure and Regulatory Changes - The force majeure clause plays a vital role for all parties to the PPA - generators, offtakers, lenders, and investors alike. This is because the long-term nature of a PPA makes it difficult to predict, over the life of the contract, who will bear the risk when events such as natural disasters, environmental acts, war, or other extraordinary circumstances occur. Interestingly, regulatory changes can themselves qualify as a force majeure event, depending on how the clause is drafted, rather than always being treated as a separate risk category (7). Regulatory change allocation matters particularly to lenders and investors, because over the past decade there have been numerous examples of governments changing the rules after investors had already signed agreements and committed capital to their projects. Spain and the Czech Republic are among the clearest examples of this. Since 2011, Spain has faced over 50 investor claims relating to retroactive cuts in feed-in tariffs, and has been found liable in 27 of the 33 cases decided so far. The Czech Republic has faced a similar pattern: the most recent of seven arbitration cases stemming from its 2013 tariff cuts concluded in January 2024 with an award of roughly $15 million against the state (8). When entering a new market, it is also essential for investors to conduct proper due diligence on that market's regulatory history. Frequent changes to energy-related laws are often a signal that the market is volatile and carries higher regulatory risk.

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(1) Steppat, J. (2025). Why are PPAs bankable and what makes them attractive to investors? Montel Energy, https://montel.energy/resources/blog/why-ppas-are-bankable-and-what-makes-them-attractive-to-investors

(2) Shell Energy Europe (n.d.). Power Purchase Agreements (PPAs). Shell Global. https://www.shell.com/shellenergy/shell-energy-europe/power-portfolio/power-purchase-agreements.html

(3) Peyman, A. (2022, updated 2025). Corporate Guide to PPAs. Innova. https://innova.co.uk/insights/corporate-guide-to-ppas/

(4) Renewable Exchange (n.d.). Variable price PPA – could it work for you? https://www.renewable.exchange/renewables-explained/variable-price-ppa-could-it-work-for-you

(5) PV Maps Team (2026). Curtailment in Solar Plants: Causes, Costs, and How to Avoid It. PV Maps https://pv-maps.com/en/blog/curtailment-solar-plants-spain

(6) Maggiotto, N. (2026). How to Size Credit Support in a Renewable PPA. Energetic Capital, https://www.energeticcapital.com/post/how-to-size-credit-support-in-a-renewable-ppa

(7) Vashishtha, Saanya and Tiwari, Shreya, Navigating Challenges in Solar Power Purchase Agreements and the Role of Adr in the Energy Sector. Available at SSRN: https://ssrn.com/abstract=5082897 or http://dx.doi.org/10.2139/ssrn.5082897

(8) Winnington-Ingram, L.M., Fouchard, C., Rosher, P., Walker, N. and Khashaba, M.T. (2024). Proposed cuts to solar power subsidies in the Czech Republic give rise to claims under investment treaties. Reed Smith LLP, https://www.reedsmith.com/en/perspectives/2024/11/proposed-cuts-to-solar-power-subsidies