Conditions Precedent (CP) are specific requirements or milestones that must be met by one or both parties before a Power Purchase Agreement (PPA) becomes fully enforceable or operational. The Conditions Precedent (CP) for the seller in a PPA are designed to ensure that the seller is fully prepared legally, financially, and technically to build, operate, and deliver electricity from the project. They include Regulatory Approvals and Permits, Securing Financing (Financial Close), Grid Connection and Interconnection Agreement, Site Control and Land Use Rights, Insurance requirements, Project Technical and Design Milestones, Commissioning Tests, etc.

The Conditions Precedent (CP) expected of a buyer in a Power Purchase Agreement (PPA) ensure that the buyer is financially capable, legally authorized, and operationally prepared to purchase and receive the electricity generated by the seller’s project. These conditions protect the seller by ensuring that the buyer is ready and able to meet its obligations under the PPA. They include Regulatory approvals, Financial Capacity, Internal Approvals and Corporate Authorizations, Market Participation Requirements, Credit Support and Security, Compliance with Environmental or Renewable Energy Standards, Execution of Power Sales Agreements (If Applicable), Tax and Duty Compliance, etc.

Overall, the Conditions Precedent clause is critical for protecting both parties to an agreement, ensuring that the groundwork for the project is firmly in place before significant commitments are made. Parties to a contract should therefore negotiate and agree on realistic CP and where those CP are not met, processes for requesting a waiver of the CPs.