Guaranteed Sunshine: Performance and Testing of Solar Power Projects -

This article is the third of three articles on solar power projects and discusses testing and performance guarantees in the context of engineering, procurement and construction (“EPC”) contracts for solar photovoltaic power projects.

Guarantees that a power generation facility will achieve designated levels of performance and clear financial remedies for a project owner, constitute key requirements for project sponsors. This is especially so for structuring a bankable project and seeking limited or non-recourse project finance. Performance guarantees and associated liquidated damage remedies allow project owners to pass the risk of an underperforming facility to the contractor(s) responsible for designing and/or constructing it. This protection allows the project owner to make up the revenue shortfall for such under-performance so that the project company has sufficient project funds to repay its lenders and earn the expected return on equity. Understandably, the technology type that a power project deploys has a significant impact on the structuring of performance guarantees and the testing used to establish whether a power facility meets such performance guarantees.