Smooth Operator

by Bradley Arant Boult Cummings LLP

Arguably the hardest part of the PV power plant business comes once a project has been finished. Monica Wilson explores how successful operation and maintenance practices can boost a project’s lifetime profitability

The successful financing, negotiation and construction of a utility-scale solar power plant are significant achievements for all parties. However, owners and providers face an entirely new set of challenges once the plant is energised: the operation and maintenance (O&M) phase. The selection of and communication with the right O&M provider is key to securing successful long-term output of a plant.

An owner’s strategy for the optimal provider varies according to each specific plant and its unique characteristics, but several goals are common to every project: ensuring consistent and maximum energy output, preserving construction and manufacturing warranties and establishing a structure for response and mitigation of unforeseen issues. Ensuring energy output requires a foundation of knowledge of the technology and methods installed at the plant.

Preservation of warranties also requires an attention to conditions of operation, as well as care during the course of cleaning and other routine maintenance procedures around panels and equipment. Successful response procedures for unforeseen events involve both adequate real-time monitoring and analysis of plant output data and two-way communication between the owner and provider.

The right provider

Of course, the foundation for successful operation and maintenance of a plant is solid construction. Especially with the current trend toward requiring performance guarantees from EPC providers, many owners choose to engage their EPC provider or its affiliate as their O&M provider. This offers the EPC provider the advantage of better control over the performance guarantee during the O&M agreement, while also offering the owner a presumably easier standard for enforcement of the performance guarantee (because, if any problems arise, a common EPC and O&M provider removes any objection that either improper O&M or improper construction, respectively, caused the failure and therefore the other party is at fault).

The right O&M provider combines experience in the industry with the availability of personnel that allows seamless operation with prompt processing of abnormalities in output data. A successful O&M provider allows the owner to maximise plant output (and by relation, revenue) by understanding the constraints of the plant and by reacting appropriately to events that affect output (such as planned or unplanned outages or curtailments).

When such events occur, time is critical to mitigate damages of lost revenue: how quickly can the O&M provider notify the owner of the event, and how quickly can the O&M provider arrange for solutions to best respond? If the event is external to the plant, is the O&M provider able to communicate and coordinate with third parties (including the utility and/or relevant government agencies) to estimate the time and impact of the event? If the event is internal to the plant, is the O&M provider able to immediately engage the necessary vendor for troubleshooting or repair of problematic equipment?

The initial establishment of expectations between an owner and O&M provider is essential to this successful relationship. To that end, the O&M agreement should clearly set forth standards for operation, incorporating relevant laws and warranty documents. If the owner must comply with periodic planning and reporting requirements (whether government or utility-based), the parties should negotiate responsibility for content and delivery of the requirements into the O&M agreement. Especially if the O&M provider is a third-party provider (i.e., not the EPC provider or its affiliate), the O&M agreement should identify and protect both parties’ disclosure and use of confidential or proprietary information during the course of the O&M period.

A well-drafted, specific scope of services provided under the O&M agreement will save confusion and dispute between parties. An experienced O&M provider should be able to provide adequate proof of insurance and assurance of indemnity to the extent of the provider’s negligence or misconduct during performance of the services.

Problem response

However, the single most pivotal consideration in the O&M agreement is the negotiation of a response structure in the event of an issue impacting plant output. First, the parties must allocate risks between known potential events and unforeseen events that may arise during the plant’s operation. This allows both parties to act efficiently should any events arise and has the potential to become the deciding factor in the project’s profitability.

Different owners prefer different methods and timelines for notification of such events, but a clear response structure allows the O&M provider to reasonably react and work with the owner to mitigate the impact of these events. The earlier the provider identifies an issue and notifies the owner, the more likely several effective mitigation options are available. The O&M provider should promptly communicate any significant issues impacting plant output to the owner, allowing the owner to adjust expectations for revenue and select early mitigation options according to the owner’s portfolio needs.

Of course, the O&M agreement should also authorise the provider to perform any necessary emergency action needed in response to an event impacting plant output. In such a case, the agreement should require the O&M provider to identify this concern to the owner and assist as needed in the enforcement of warranty claims.

This communication is key to the successful O&M relationship. The valuable O&M provider is capable of managing not only daily tasks necessary for uninterrupted operation of the plant, but also of assessing the entire plant’s actual (and estimated) performance – and of communicating this assessment to the owner with constructive analysis of any issues affecting performance. Knowledge of the industry gives the valuable O&M provider a basis to offer options tailored to the owner’s concerns specific to an individual plant, communicate with third parties and to implement agreed solutions and mitigation options on the owner’s behalf.

Added O&M value

As the utility-scale solar power industry expands, current O&M providers seek ways to add value for their owner clients. Owners seek reliable, profitable projects that can be managed cost effectively by skilled O&M providers. New EPC and O&M providers continue to enter the industry, pitching various models of construction, warranty, maintenance and performance monitoring. Technology used to monitor plant output continues to evolve, as firms devise methods to collect additional and more immediate data on component performance.

Certainly the collection of this data is essential to the long-term success of plants and the continued development of utility-scale solar. But it is the processing and interpretation of this data by the O&M provider that may make or break a project’s profitability. As no current industry-wide standard for collection of this data exists, the owner’s communication of its expectations in data collection, reporting and interpretation through the O&M agreement is also critical to project success.

The evolving technology employed in utility-scale solar power plants will increasingly require greater skills and expertise from O&M providers. The growing preference for solar tracker systems in plants requires greater oversight and monitoring in the O&M phase (to ensure trackers function as intended). In the future, innovations, especially in battery storage, may change O&M procedures and functions, and as projects continue to evolve in complexity, the skilled provider will become even more critical to successful plant output over its lifecycle.

An owner’s O&M strategy establishes the baseline for decades of reliable plant output – and, consequentially, profitability. The owner’s selection of a qualified O&M provider and that provider’s negotiation of the parties’ expectations for risk allocation and communication in an O&M agreement becomes a formula for years of successful plant output. Finally, continual adaptation to new technologies, including effective interpretation of the results of plant output data, will significantly influence the evolution of operations and maintenance services and models.

Republished with permission. This article first appeared in Solar Business Focus in June 2014.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bradley Arant Boult Cummings LLP | Attorney Advertising

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