Why does CEC enter into long term power supply agreements?

In the electricity industry, it is a normal practice to have long term agreements (known as power supply or power purchase agreements (PSA or PPA), often ranging between 15-25 years. This is because an investor needs a significant capital outlay to build power infrastructure, which capital is usually borrowed from lenders (both commercial and development banks).

The repayment of these loans is over a long period, typically 10-15 years. Therefore, the lenders want to be sure that the borrower will be able to pay back the loan and a long term agreement between the generator or supplier of the power and the buyer is necessary to give the lenders comfort that the loan will be repaid. In fact, as everybody in the sector knows, the practice is that lenders demand and scrutinise copies of the PSAs and, if necessary, will insist on changes to their tenure in order to match the loan period. Of course, it is critical that the buyer is credible and able to settle bills over the duration of both the PSA and loan agreement.

In the case of CEC, its mine customers require the comfort of reliable and continuous power supply to support their long term investment decisions, typically associated with mining.

Power contracts protect the interests of both the supplier and the buyer (customer), not least in terms of committed offtake on the one hand and security of supply on the other.