Last week there were two interesting stories around power purchase agreements. In one, Western GeoPower backed out of its PPA with PGE and the Calpine/PGE PPA proposal.

First, the standard agreement of PGE attempting to satisfy their renewable portfolio standard requirements and Calpine looking to get a post-bankruptcy win, the two companies announced that a 175MW contract was underway and that they would be seeking regulatory approval on upgrades to Calpine’s geothermal footprint at the Geysers. This is a good sign on multiple fronts and we’re encouraged to see the two companies come to an agreement around the output from the Geysers.

The Western GeoPower example is a little more troubling in terms of setting precedents. On the one hand, as capitalists, it could be a “good thing” – on the other hand, it could prove to be destructive for future developers dealing with PGE and other large IOUs. Essentially, WGP worked to secure an agreement with PGE for 25.5MW as a pre-requisite of securing funding – during the negotiations, PGE was able to secure power at a pretty cheap rate relative to present prices. In an effort to cash in on the new found heat (pun intended though we know it’s bad…) we speculate that WGP has backed out of its commitment to secure a better deal for the power to be produced by its project. The official statement on why the deal was terminated had to do with a technicality about delayed approval of the project by CPUC.

This cancelation could have a chilling effect on future PPAs as IOUs could, and now probably will, attach significant penalties for withdraw from a contract to protect themselves from this sort of activity in the future.