A tolling agreement power purchase agreement, commonly referred to as TAPPA, is a contractual agreement between two parties to generate and consume electricity. It is a cooperative arrangement where a company that owns a power plant provides power to another company that requires it.
The power plant owner (tolling party) charges a fee to the buyer (tolling customer) for the transmission and generation of power. The tolling customer, on the other hand, does not own the plant, but they purchase the power generated by the plant.
One of the significant advantages of a TAPPA is that the tolling party can earn revenue from the power plant in periods of low demand without having to bear the risk of selling the excess power. The tolling customer, on the other hand, can optimize its energy portfolio by obtaining power from multiple sources.
TAPPA agreements are commonly used when a company requires a reliable and stable supply of electricity, but it is not feasible to build its own power plant. For example, a TAPPA agreement may be used when a hospital or data center requires a guaranteed power supply without investing in new power infrastructure.
TAPPA agreements are typically long-term, with a contract ranging from ten years to even thirty years. The agreement usually includes the following provisions:
Pricing: Tolling agreements typically provide for a fixed price per kilowatt-hour. The pricing can be connected to the fluctuating price of fuel, or it can be a fixed price regardless of market conditions.
Capacity: The agreement will specify the maximum capacity of the power plant that the tolling party will make available to the tolling customer. If the tolling customer exceeds the maximum capacity, they will be charged an additional fee.
Duration: The contract will specify the term of the agreement, which is typically ten to thirty years.
Termination: The agreement should include provisions for termination, including penalties for breach of contract.
The use of TAPPA agreements is increasing as electricity generation and distribution become more complex. They are advantageous for both the tolling party and the tolling customer, providing a reliable and stable supply of electricity at a predictable cost.
Overall, a tolling agreement power purchase agreement is an essential tool for businesses seeking to secure a steady supply of electricity without the risk associated with building their own power plants. As the demand for renewable energy and sustainability increases, the use of TAPPA agreements is likely to grow even more popular.