Approaches to EPC Performance Guarantees
Inside this Article
To ensure that engineering, procurement and construction (EPC) contractors build systems that perform to meet contractual requirements, owners are using many types of performance guarantees. Weather-adjusted energy guarantees are common for many large systems because they place contractual requirements on the design-build team to install a system that meets the performance requirements stipulated in the contract with the utility or financer.
According to Ted Geisler, manager of Arizona’s Sun Program and power procurement consultant at Arizona Public Services (APS), weather-adjusted guarantees are preferred because they provide the owner and off-taker with an ideal basis for comparing a facility’s actual performance with the performance that a developer predicts during the solicitation process. Geisler elaborates, “As long as the facility is being properly operated and maintained in accordance with good industry standards, an energy guarantee measures the ability of the facility to perform as predicted—while removing the purely subjective variable of weather—demonstrating that the facility was designed and constructed to ultimately perform as required per the EPC agreement.”
Energy Guarantee Approach
Weather-adjusted energy guarantees require the EPC contractor to agree to minimum energy-production performance targets, which are adjusted for actual weather conditions.
How it works. During the proposal phase or the contract negotiations, the owner-developer and the EPC firm agree to a guaranteed energy production for a period of time. Common durations are 1 to 5 years. The guarantee establishes monthly, quarterly or annual MWh production targets based on a weather data set for the area. The production target is generated using PVsyst or a similar modeling program.
Once the project is in commercial operation, production and weather data are collected. The actual weather is then used to adjust the annual or monthly production target. If the actual production is greater than or equal to the adjusted target, then everyone is happy. Damages and cure remedies are implemented if it is below the target.
Benefits. This system uses one contract mechanism to account for several key design and performance measures. Further, the structure of the guarantee and the determination of damages are based on revenue from energy production, the issue that the owner cares most about.
“In a PPA structure, the off-taker assumes little risk since they pay only for energy delivered,” points out Geisler. However, APS is currently building more than 100 MW of new PV power plants across Arizona that the utility will own. Geisler explains, “In an EPC transaction where the off-taker is the facility owner, the offtaker is also assuming the risk for the facility’s future performance, since the cost of the facility will be paid prior to or at the commencement of commercial operation.”
The energy guarantee drives the EPC contractor to ensure proper plant sizing, design and installation required to meet the contractual generation specified by the owner. In addition, the guarantee ensures that the plant operates reliably. After all, the energy target is difficult to meet if the plant suffers from significant operation and maintenance issues.
Energy Guarantee Drawbacks
There are three main challenges associated with weather-adjusted energy guarantees. First, there are measurement error risks associated with the use of monitoring equipment. Second, there are risks associated with soiling effects, which are variable depending upon the frequency and quantity of rain. Third, there are modeling error risks.
Measurement error. Each of the instruments used to gather the on-site weather data needed to enforce an energy guarantee has the potential to introduce measurement error. Since these results are used to determine the weather-adjusted production target, there is a significant amount of uncertainty and risk associated with potential measurement errors.
All sensors have a certain amount of measurement error, the effects of which can vary with changes in temperature, light level and other conditions. All sensors and data acquisition systems drift over time. Key performance measurements such as module-back skin temperatures can vary from the outer and center portions of the field because of differences in convection. Each of these potential errors is a risk that the EPC contractor needs to mitigate.
The key measurements for modeling the weather-adjusted production value for a PV power plant are irradiance, temperature and utility production meters. While there is some risk of error associated with each of these measurements, irradiance errors have the largest impact on energy guarantee results. In the NREL conference paper “Evaluation of the Performance of the PVUSA Rating Methodology Applied to DUAL Junction PV Technology” (NREL/CP-550–45376), Daryl Myers notes that irradiance uncertainty of 2.5% at an irradiance value of 1,000 W/m2 is “representative of an exceptionally well-calibrated and -maintained pyranometer.” Inherent sensor error, sensor drift, bad connections and inaccurate calibration all contribute to measurement uncertainty. In combination, the magnitude of irradiance sensor measurement error in a typical PV data acquisition system (DAS) is often 4% or more. These errors can vary significantly depending on the duration of the measurement period.