One of the five conditions required to effectuate the power purchase agreement by Palau Public Utilities Corporation (PPUC) is before Olbiil Era Kelulau (OEK) for its approval.

President Surangel Whipps Jr. requested OEK to authorize the Minister of Finance through a joint resolution to “enter into the Government Support Agreement”—a condition required to execute the Power Purchase Agreement between PPUC and Solar Pacific Energy Corporation (SPEC). SPEC won the IPP bid to build and operate a 20MW solar energy generation facility and sell power to PPUC.

“This Government Support Agreement is a 25-year agreement for the Republic of Palau to obtain clean, affordable, renewable energy which will make up 20% of the electrical grid with the option of increasing to 45% solar power,” explained Whipps’s letter to OEK.

It is considered a “light” sovereign guarantee, stated Whipps, because Palau neither provides payment support nor is required to make termination payment in case of PPUC default.

The agreement requires the Republic of Palau to assist PPUC to establish an escrow account of $3 million.

The deadline for the Government Support Agreement to be signed is April 14. Otherwise, Solar Pacific Energy Corporation risks losing funding from its lenders for the project.

Two of the five conditions required to be met before the Power Purchase Agreement can be effectuated are pending. The five conditions include PEA approval, gov’t support agreement, signed lease agreement, right of way agreement, and escrow account agreement.

All the conditions have been met except for Government Support Agreement and Escrow Account.

To meet Palau’s commitment to a 45% renewable energy target by 2025, PPUC embarked on a mission to obtain an independent power producer agreement with a private producer for renewable energy nearly 6 years ago. The initial contract proposal won by Engie EPS was killed in the Senate for being too expensive. The proposal was to sell power to PPUC at the same rate of 20 cents per kWh for 30 years.

In the 2018 Senate Committee’s report on the resolution, it stated, “Falling fuel prices and the global downward trend in the cost of solar PV technology raises questions on whether the fixed 20 cents per kilowatt-hour is justified…and that Palauan people can demand a better price.”

The report added that the year 2025 is the target year for achieving 45% renewable energy and that there is time and room for improving the deal.

PPUC power rates as of April 2, 2022, are 34 cents for residential with 150 or less Kwh, and 46 cents per kWh for residential over 151 kWh. For commercial and government, the rate is now 46 cents per kWh.

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