A tolling agreement is a legal contract between two parties, typically a power generator and a fuel supplier, that allows them to work together in the distribution and production of energy. This agreement specifies specific terms agreed upon by both parties, such as the price and duration of the agreement. Here are some of the benefits of a tolling agreement:
1. Cost-efficient production
A tolling agreement offers the advantage of cost-efficient production. The power generator typically pays the fuel supplier only for the fuel used during production, reducing the cost of fuel procurement. This means that the power generator does not have to pay for the fuel upfront, which can be a significant burden on their finances.
2. Predictable energy costs
A tolling agreement provides stable and predictable energy costs for both parties. This is because the price of fuel is usually fixed, and both parties are aware of the costs upfront. This allows the power generator to plan their pricing model and protect their profit margins.
3. Access to specialized equipment
Another benefit of a tolling agreement is that it provides the power generator with access to specialized equipment. The fuel supplier typically owns and operates the equipment necessary for the production of energy, which the power generator may not have access to. The tolling agreement gives the power generator access to this equipment, reducing their capital expenditure on equipment.
4. Transfer of risks
A tolling agreement allows for the transfer of some of the risks involved in the energy production process. For example, the fuel supplier is typically responsible for the procurement and delivery of fuel. If there is a delay in fuel delivery, the fuel supplier bears the risk rather than the power generator. This allows the power generator to focus on producing energy without worrying about fuel supply disruptions.
In conclusion, a tolling agreement offers many benefits to both parties involved in energy production. It provides cost-efficient production, predictable energy costs, access to specialized equipment, and transfer of risks. With these benefits, it’s easy to see why tolling agreements are a popular choice for energy companies.