Starting Commercial Operation is a great achievement for an energy generation project. In fact, it is the point where any project turns out to be a revenue-generating entity. This means that electricity generated by such a facility starts to feed the grid after COD. We will highlight the Commercial Operation Date (COD) definition and a number of examples below.
Moreover, COD date suggests that the employer is in a position to receive the payment for delivering each kWh. The commencement of Commercial Operation suggests that the commissioning and construction of the power plant have been completed.
What is Commercial Operation Date (COD)?
In relation to the power station, a Commercial Operation Date or COD date is the date when a procurer receives a Final Test Certificate. The word Commissioning or Commissioned means that a power station has successfully passed the commissioning tests.
To put it simply, Commercial Operation Date means the date when a project under Power Purchase Agreement (PPA) is complete and capable of starting its commercial operation.
Power Purchase Agreement and COD Date
After negotiating the terms of Power Purchase Agreement (PPA), the next step is the execution of a project. Each of the parties must meet Commercial Operations Milestones mentioned in the PPA.
The requirements outlined in a PPA affect the development and procurement timelines. For instance, below are some of the requirements that both the buyers and sellers must meet.
- The buyer should obtain State Regulatory Approval within a required number of days. If unfortunately, the State Regulatory Approval meets rejection, the buyer must terminate the process within a specific number of days
- The seller must have the required amount of financing to construct the facility. There must be a valid proof of financial capacity to complete the facility on time.
- The turbine, step-up transformer, and generator must have been delivered at the facility till the final date. Moreover, the seller should be in a position to commence commercial operation by the final date.
Even though there are some immaterial or minor snags, the facility still complies with the relevant grid standards and code.
Meaning thereby, all the concerned parties are confident that the facility can operate safely and in accordance with the guidelines.
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What Happens after Commercial Operation Date?
In fact, Commercial Operation Date is the beginning of a defect liability period. Here, the liability of the contractor regarding a particular facility also begins to tick down.
Following are the instances, which take place just after the Commercial Operation Date.
- The seller must start power generation at the facility
- Deliver such power to the point of delivery
- Sell it to the company
- The company must receive the energy and purchase it at the point of delivery
- Offer the services and products negotiated in a PPA
- The seller can’t interrupt or curtail deliveries for economic or any other reasons
These terms are incredibly important; hence clearly defined in every Power Purchase Agreement.
Some of the Most Important Considerations of COD
Every contract must give an opportunity to the employer for making a confirmation regarding the achievement of Commercial Operation (CO). This clearly suggests that the employer is in a position to operate a facility in accordance with the CO.
As a result, the employer can make some revenue, without considering the obligations, which the contractor still needs to meet. The Delay Liquidated Damages (DLD) are also dealt with at that point.
For instance, if the employer makes a claim regarding the achievement of the CO, the pending obligations of a contractor fall under the ambit of further DLD’s. The Employer can waive the DLD payments in favor of revenue generated through the sale of electricity.
However, this depends largely on the rate of such DLD’s.
If it is possible, an employer must relieve the contractor from such obligations.
Certificate Associated with the Contract
A specific type of certificate mentioned in the schedules of the contract is also an essential piece of document. It outlines what the employer has achieved at the time of Commercial Operations Date.
This usually relates to the definitions of Commercial Operations mentioned in the contract. This certificate also includes the specific liabilities, which the employer confirms as being fulfilled.
Most of the contracts usually state the requirements for Commercial Operation. These obligations are always a part of contract definitions. Talking about these specific requirements, a contract relates them to the commissioning and construction activities.
Inspection and Signing Off
The stakeholders such as utility company or lenders inspect and sign off the whole project. It involves the determination of achieved capacity and some other obligations mentioned in the PPA.
In addition, it also relates to the delivery of operational documents and some other documentation associated with financial obligations like insurance or guarantees. These requirements may differ with each project.
Hence, the negotiations regarding these terms depend on the anticipated risks linked with the project and Contractor.
Examples of Commercial Operation Date
When it comes to clarifying the Commercial Operation Date meaning, the examples mentioned below can help to understand this term.
The COD date is the first date when the facility achieves commissioning, has passed all the construction tests and received the required permits.
After obtaining the COD date, the facility can produce and deliver the energy in sufficient quantities. This also helps the operator to meet all its obligations under PPA.
The initial term of any PPA starts with the Commercial Operation Date. It continues to be there till the date agreed upon by both the parties.
If the project fails to meet the general criteria mentioned in the agreement, the possibility of early termination is always there.
The Commercial Operation Date (COD) is a date when the seller gives written notice to the purchaser regarding the completion of their facility. It further states that it is capable of generating and delivering the required amount of electric energy.
The seller sends this particular notice to the buyer prior to the expected event of Commercial Operation Date achievement (approximately 30 days before COD).
Conclusion on Commercial Operation Date Definition
While creating a power generation facility, time is the essence. The commercial operation date placed in service is proof of overall performance and completion of the facility. After COD Date, the facility starts to deliver its net output.
The producer confirms that it will get the required permit to generate wholesale sales of power. This type of authorization is in line with the Federal Power Act or any other law applicable to power generation and its distribution.