Power Purchase Agreements (PPA) can be an incredible tool for clients and often lead to more sales of projects for an EPC when pitched right. The concerns many EPCs can have are the extra layers of contracts and due diligence required when a PPA provider is involved in overseeing the construction process. Luckily, many of the elements within an EPC contract and the associated required documentation throughout the build are tasks that most EPCs already regularly do. Below are some main components of the EPC contract that you can expect to see when using a PPA provider for a commercial solar energy system build.
Most PPA providers, including Solaris Energy, have a standard template for milestone payments for commercial-scale projects. These are based on completed steps in the construction process as proved by certain documentation and, for some, site visits by a third-party contractor. At Solaris Energy, we work with our EPC partners in adjusting milestone amounts so neither party is upside-down or over-extended at any point throughout the construction process.
Also included in the EPC contract are payments terms. These typically range from 30-90 days. The typical term for Solaris Energy is on the shorter end at 30 days with prompt payment on that 30th day. If both parties are satisfied with milestone completion and Solaris can pay our EPC partners earlier than 30 days, we will.
Developing a construction project always comes with some risk. The size of a commercial solar energy system and the cost as a whole means there is a risk level that requires some insurance. This will typically include the need for the EPC to garner a construction rider and umbrella policy, both of which are industry standard practice.
Best practice whether an EPC works with a PPA provider or not is to ensure the roof warranty is not voided due to the construction of the solar energy system. It isn’t expected that the EPC hold a roof warranty, but that the EPC communicate with the building owner or manager to determine the manufacturer of the material. The EPC can then contact the manufacturer to determine if there is still a warranty. If so, it is standard practice for the company to do a pre- and post-work check to determine any additional damage. In the unlikely case there is some, the manufacturer will typically request a fix by the EPC and then reinstate the warranty.
PPA providers do require revenue-grade monitoring. This is critical to ensure correct production data, which is used by the owner/operator to invoice the client correctly. AlsoEnergy is the most utilized these days and what most solar financiers, including Solaris Energy, use. Notably, this real-time visibility into solar production can be a selling point – giving the host/offtaker great marketing benefits and insight.
Unfortunately, there are some liquidated damages incorporated into the EPC contract, but they should be very reasonable to accommodate if the system is well built. When the solar energy system is commissioned, there will be a performance test requirement. For Solaris Energy, the requirement is insolation adjusted, 95% of its nameplate capacity. This is typical for most solar financiers.
Due to the nature of PPAs, the COD date is critical for investors, bank loans, and other financial partners. When the EPC contract is in negotiations the EPC can pick a date of their choosing for COD. This could provide 1 to 6 months of leeway, but once signed it must be adhered to. Unfortunately, if the date is not met this is one area PPA providers cannot be flexible on and there will most likely be financial penalties for the missed energy and revenue.
No one likes a change order, so it is best to work closely with the PPA provider on the front end to ensure all details are ironed out. That said, sometimes they cannot be avoided, such as a change from the AHJ. When an EPC becomes aware of the need for a change order it is best to let the PPA provide know as soon as possible. This will help ensure timely payments for the build. If there is a catastrophic event the EPC contract does allow both parties to back out of developing the solar system, but this is highly unusual and by far the last option for all parties involved.
Detailed Scope of Work
The EPC is the expert when it comes to what needs to get done for the job. This is why most often the installer is asked to write the scope of work in the EPC contract. If needed, Solaris Energy can provide a template to assist with the process.
EPCs interested in the complete checklist of items Solaris Energy requests during the construction process can find more information posted on our website.
Be sure to check out our other trainings and educational resources for EPCs:
ABOUT SOLARIS ENERGY
Based in Fort Collins, Colorado, and grown from non-profit roots, Solaris Energy is an experienced, value-driven solar development, finance, and asset management firm, public benefit corporation and 1% for the planet member. The company accelerates the widespread deployment of distributed solar energy systems by offering non-residential customers low-cost financing to reduce their environmental impact, increase their bottom line, and participate in the worldwide shift to renewable energy. Solaris Energy’s dedicated team of passionate individuals has been providing these services since 2008, building a strong track record of proven and cost-effective renewable energy solutions across all sectors of energy consumers.