How to negotiate plant performance guarantees with your EPC contractor ?


Solar PV plant performance not only depends on the selection of equipment’s, but also system sizing and system integration is equally important  to derive maximum yield from your plant. System sizing and system integration is typically done by a EPC contractor who have expertise in design and engineering of the solar project .Hence it is important to plant owners to select right EPC contractors . The plant performance is highly dependent on the workmanship of the EPC contractor, hence it should be duly negotiated and rule of the game should be pre-specified as part of the EPC contract through which the plant performance can be assessed and guarantees  related to plant performance can be forfeited in case a plant is under-performing .

Performance guarantee of a solar plant is typically specified in the form of project specific yield (Kwh/Kw) or in the form of performance ratio (PR). Performance ratio is most widely used parameter to asses the plant performance guarantee in most of the EPC contracts .Although the PR is explained in detail in our earlier blog articles in this article we like to outline most common approaches negotiated with EPC contractors for assessment of plant performance .

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Performance ratio guarantee attempts to justify the actual generation versus expected generation .However in performance ratio needs to be defined in detail as part of the EPC contract ,that how the solar radiation will be measured ,how the temperature corrections will be accounted ,how the DC wiring losses accounted  to arrive at an appropriate performance ratio guarantee and warranties .It should be noted that a typical performance ratio of 72-75 % is negotiated in case of crystalline PV plant and about 77 -80 % PR is negotiated with EPC contractor in case of thin film PV  plant.

There are various ways to prove PR ,however it should be duly specified in the contract and measurement and verification protocols should be pre-specified .

Performance ratio is the not the only factor which should be negotiated with the EPC contractor as the EPC contractor gives PR  guarantee for 1- 3 year and walk away .However the plant will remain for 20 years .Hence it is important that project developer rely on PR and also specify some of the other parameters while negotiating  and finalizing the EPC contact .It is equally important to negotiate performance guarantee for DC wiring losses ,inverter losses ,transformer losses and AC ohmic losses so that the plant design guideline are clear to the EPC contractor .while considering the design basis ,for example it is important that EPC contractor design the DC wiring and select appropriate DC cable based on 1% voltage drop .If it is not specified in EPC contractor. The EPC contractor may save the money considering 3% voltage drop. which may lead revenue loss of 40 Lakh per year in the project proponent. Similarly while selecting a appropriate  transformer should be specified by the  EPC contractor  which will have low losses under no load conditions, partial load and full load conditions as per the design basis of the project. Once the plant design parameters are finalized its equally imp that the plant also specify the weather parameter measurement protocol. For example it should be specified what type of irradiance meter will be used ,how accurately temp at module surface will be measured so that the plant performance can be corrected with reference to these weather parameters .the plant performance can also be negotiated based on performance ratio measured at array level PR at individual inverter level in a solar field. and accordingly rule of game should be properly define so that it is impossible to EPC contractor to run away from pre-specified guarantees and warranties.

Similarly most of the inverter suppliers provide performance guarantee of the inverter in the form of inverter efficiency which is relatively easier to  measure, as the input and output parameters at inverter level are well measured .However it is equally important that inverter efficiency guarantees and warranties negotiated not only at full loads efficiency but also partial load conditions.

Generally the performance guarantee at individual equipment level such as module ,inverter ,transformer are by the original equipment supplier and passed on by the EPC company to the project proponent .However it is good if this guarantees and warranties  are negotiated for at least five year period. The EPC contractor should have a good balance sheet so that the guarantees and warranties specified by the EPC contractor can be honored .There should be a liability limited to at 30% non performance negotiated with the EPC contractor . It is a common practice that the liability damage cause are evoked beyond a plus minus 10% lower value than the agreed performance guarantee .However in case EPC contractor is not able to upgrade the plant performance the damages for the whole life of the project needs to be compensated.

Article by,

Dr Sanjay Vashishtha & Rishikesh Muthyal

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