Take or pay and deemed energy in a solar PPA: who pays when the power is not taken

By SolarQuant Editorial. Published 2026-10-05. Last updated 2026-10-05.

Take or pay and deemed energy decide who bears the risk when a plant could deliver power that the buyer or grid cannot take. Public contracts and guides allocate that risk in different ways, so each element of the clause has to be modelled as its own choice. On the example plant below, the same 5% curtailment leaves the year 1 DSCR at 1.30x or 1.21x, depending only on who pays.

What example does this article use?

The example is an invented 40 MWp ground-mounted solar plant selling all its power to one buyer at the plant substation, the delivery point. The buyer pays in USD under a 20-year PPA that starts at the commercial operation date. Every other case in this article is a "what if" on this same plant, and all figures are invented. Annual periods are used for simplicity, although real deals usually use six-month periods.

Item Example figure
Plant and contract 40 MWp, one buyer, 20-year PPA, USD
Year 1 generation, lender's case (P90) 70.0 GWh (1,750 kWh per kWp)
Degradation 0.5% a year
Tariff USD 80 per MWh, flat for 20 years
Year 1 revenue, P90 USD 5.6m
Revenue over 20 years, P90 USD 106.8m
Year 1 operating costs and tax USD 1.0m and USD 0.4m
Year 1 CFADS USD 4.2m
Senior debt USD 25.1m over 12 years at 7.0%, sculpted to a DSCR of 1.30x
Year 1 debt service USD 3.231m
DSCR levels Sizing 1.30x, lock-up 1.20x, default 1.10x
Curtailment case The grid cannot take 5% of year 1 P90 output: 3.5 GWh, worth USD 0.28m

In every curtailment case below, operating costs and tax are held at the base case. That is a simplification, because tax would fall a little when revenue falls.

What do take or pay and take and pay mean?

Take or pay and take and pay are two ways to promise payment, and public sources use both labels in more than one sense. Deemed energy is the volume that counts as delivered, and is paid for, although it was never delivered.

Four public sources show how far the labels differ:

The label alone therefore does not tell you what is paid. In our reading, Clifford Chance labels Mexico's second auction PPA take or pay although payment follows delivery. Read the payment trigger in the clause, not the heading.

Why does deemed energy matter for the revenue line?

Deemed energy matters because it makes revenue depend on what the plant could have delivered, not only on what it delivered. A lender's revenue line then needs an available energy series and a lost energy series, not a single generation number.

In our reading, the revenue line becomes the formula below. Delivered energy is always paid. Deemed energy enters the formula only to the extent the contract says it is paid.

Revenuet=Tarifft×(Etdelivered+Etdeemed, paid)\text{Revenue}_t = \text{Tariff}_t \times \left( E^{\text{delivered}}_t + E^{\text{deemed, paid}}_t \right)
Lost energy must be split by cause before it reaches revenue
Figure 1. drawn from the invented example · 1 flow, 3 outcomes

The rule differs by cause, so the next sections treat the trigger, exclusions, measurement and limits as separate choices.

In the example, the grid cannot take 5% of year 1 P90 output, which is 3.5 GWh or USD 0.28m. Because costs are held, a payment of zero removes the full USD 0.28m from CFADS of USD 4.2m.

Who triggers it, and what is excluded?

The trigger is the event that makes the buyer pay for undelivered energy. The exclusions are the causes carved out of that duty. Public sources treat these as two separate choices, so this section gives each its own table.

First, the trigger. Each row below is one variant from one source.

Variant of the trigger What the page says Source and country or region
The buyer cannot or does not take the power Payment is due if the seller can produce but the buyer is "unable to or does not take" the power IRENA and Terrawatt Initiative, Open Solar Contracts (model contracts)
Only a discretionary curtailment by the purchaser Some agreements pay only where the purchaser used a discretionary right to curtail, not in an emergency RCREEE user's guide (Arab states model)
Temporary transmission unavailability Compensation applies where power is not evacuated for reasons not attributable to the developer, backed by documents from the competent authority SECI standard solar PPA (India)
A curtailment imposed by the utility The developer is entitled to deemed dispatch if the utility imposes a curtailment ETP analysis of MEMR Regulation No. 5 of 2025 (Indonesia)
A defined system event or a buyer breach Deemed energy is the output that would have been available but for a system event or a buyer breach, such as failure to pay Onshore wind PPA, sixth bid window (South Africa)
No deemed payment Jones Day found no deemed availability payment if the utility cannot take the electricity Jones Day on the 2017 model PPA (Vietnam)
Left to other rules The PPA does not directly address the consequences of a curtailment in transmission Clifford Chance on the second auction (Mexico)

Next, the exclusions. Again each row is one variant from one source.

Variant of the exclusion What the page says Source and country or region
Events caused by the seller, and system maintenance Seller-caused events are outside the system event definition, and the curtailment definition leaves out constraints from planned or unplanned system maintenance Onshore wind PPA, sixth bid window (South Africa)
Energy oversupply Compensation rules for curtailment leave out oversupply, which the government treats as a market risk assumed by generators pv magazine on Brazil's compensation rules (Brazil)
Emergency curtailment In one variant described, an emergency curtailment is not paid RCREEE user's guide (Arab states model)
Force majeure, paid by the buyer Where a governmental force majeure prevents the project company's performance, the buyer is liable for deemed energy payments IRENA and Terrawatt Initiative, Open Solar Contracts (model contracts)
Force majeure, excusing the producer Force majeure excuses the power producer from performing US agencies, 10 Important Features of Bankable PPAs (United States)

In the model, each excluded cause needs its own row in the lost energy series. A single "curtailment" row hides which cause is paid and which is not.

How is the deemed volume measured?

The deemed volume is the energy that counts as delivered for payment, and contracts set it in different ways. Four variants appear in the public pages.

In our reading, the modelling consequence is a counterfactual output series. An hourly formula needs the plant's output profile in the lost hours, because an outage at night costs nothing. A schedule or a capacity charge needs a different input, so check which one the clause uses before building the row.

Are there limits on what is paid?

Yes, in some public contracts the payment starts only after a threshold or a waiting period, and this is separate from the exclusions above. We found no public page that gives a cap on total deemed payments, so none is used here.

Three variants of a limit appear in the pages we opened:

These figures are examples from two named contracts, not market norms. The two figures are also a share of hours, not of energy. The 175.2 hours are 2.0% of the 8,760 hours in a year, but solar plants produce only by day, so the energy share differs.

In the example, we use an invented allowance: the first 2% of annual output lost is unpaid and the rest is paid. In our reading, a real model converts an hours threshold into energy using the plant's output profile, then tests the result against lock-up.

What happens to the contract term and the price after a curtailment?

Public pages say little about the term after a curtailment. For the price, they show at least three bases for deemed energy.

On the term, the variants are:

On the price, the variants are:

In our reading, an extension adds revenue only after the original term, so it cannot cure a DSCR breach in the debt years.

How do you model it?

You model it by adding a lost energy series to the revenue line and paying only the part the contract pays. These steps are our reading of how to do that; the clause variants above are what the public pages describe.

  1. Build the available energy series. Take the P90 year 1 output, apply degradation of 0.5% a year, and keep it before any curtailment.
  2. Add a lost energy row for each cause. Use separate rows for buyer or grid constraints, system maintenance, force majeure, seller-caused events and oversupply.
  3. Set a rule for each row. Choose paid, unpaid or deferred, using a switch so you can run the variants side by side.
  4. Apply any threshold or grace period. Convert an hours threshold into energy using the plant's output profile, and treat the first part as unpaid if the clause says so.
  5. Price the paid part. Use the tariff, the contract price or another basis that the clause names.
  6. Add paid deemed energy to delivered energy. Revenue is the price times that sum.
  7. Run CFADS, DSCR and the lock-up test in every period. Report the headroom to the lock-up level as lost revenue, so the reader sees how much more curtailment the case can absorb.
  8. Check debt sizing. Decide whether lenders size debt on the case with expected unpaid curtailment, and show the debt capacity of each case.

The headroom in step 7 comes from one line of algebra. You can add it to the model as a check:

Headroomt=CFADSt−1.20×Debt servicet\text{Headroom}_t = \text{CFADS}_t - 1.20 \times \text{Debt service}_t

What does the example show for each treatment?

Three cases on the example show how far one clause moves the lender's ratios. In each, the grid cannot take 5% of year 1 P90 output, 3.5 GWh or USD 0.28m, and costs and tax are held.

Paying nothing for curtailed energy leaves year 1 DSCR at 1.21x
Figure 2. invented example · year 1 · 3 cases, costs and tax held

Paying nothing still passes the lock-up test in year 1, but only just. CFADS can fall by a further USD 0.043m before DSCR reaches 1.20x. That is 0.77% of year 1 revenue. So unpaid curtailment of about 5.8% of output trips the lock-up, and about 11.5% reaches the 1.10x default.

The cases also change how much debt the revenue line supports. In the chart below, the same 5% curtailment repeats every year (an invented extension) and lenders size debt on that case.

Unpaid curtailment cuts debt capacity from USD 25.1m to USD 23.4m
Figure 3. invented example · DSCR sizing at 1.30x · 3 cases, curtailment repeated yearly

Repeated for 20 years, the 5% removes USD 5.3m of the USD 106.8m revenue if nothing is paid, and USD 2.1m with the allowance. Equity fills the debt gap, about USD 1.7m between the first and last case, because total funding stays at USD 40.0m.

What are the common mistakes?

Frequently asked questions

Is take or pay the same as take and pay?

No. The US agencies describe take or pay as a fixed tariff with a capacity charge for available capacity plus an output charge. They describe take and pay as a fixed tariff for all energy delivered. Other sources use the labels differently, so check the clause.

Does deemed energy mean the buyer pays the full tariff?

Not always. India's compensation formula uses the applicable tariff. Brazil's compensation rules use the contract price where a provision exists and a market settlement price otherwise. Check the price basis for each cause of loss.

Who bears curtailment risk?

It depends on the contract. The RCREEE guide says a right to curtail at will concerns lenders and should carry compensation. A study by Cruce, O'Shaughnessy and Xu found that fixed payment and time of delivery contracts tend to shift curtailment risk to buyers.

What if the PPA says nothing about curtailment?

In our reading, the developer then carries the risk unless other rules pay. Clifford Chance says the Mexican second auction PPA does not directly address curtailment in transmission. Jones Day found no deemed availability payment in Vietnam's 2017 model PPA, which leaves fixed costs exposed.

Sources

Pages opened on 5 October 2026. The example project is invented and has no source.