PV Performance Guarantees (Part 1): Page 5 of 8

Managing Risks & Expectations

One of the first steps in contract negotiations is to establish some common definitions. These definitions ultimately determine the basis of measurement, which can be thought of as the hardware, software and numbers that need to be gathered in order to fulfill the performance guarantee. The most commonly used terms or concepts are specific production, performance ratio, temperature compensation and irradiance compensation.

Guidelines for a Successful Performance Guarantee

General recommendations:

  • Write the terms and conditions with input from all parties.
  • Establish a mutually agreeable basis for measurement that identifies the data to be measured, as well as the hardware and software required.
  • Identify the monitoring hardware and software needed to ensure equitable measurement.
  • Establish co-ownership of plant metrics.
  • Design the PV performance guarantee contract to ensure that performance is maintained over the project lifetime.
  • Establish firm dates and durations for O&M and guarantee phases.

For the developer or owner:

  • Keep the end in mind: It is essential to understand the true risks that need to be managed; those closest to the risk should manage the risk, and that may very well be the owner.
  • Do not ask for a performance guarantee for its own sake; it is essential to structure agreements to solve problems, such as plugging gaps in coverage.
  • Negotiate with the financier to find a balance for the ownership of risks.
  • Keep in mind that managing a PV performance guarantee takes time and money; clear and simple structures work best.

For the financier:

  • Take time to understand the terms of the warranties for major components.
  • Be willing to pay for the performance guarantee because it adds value.
  • Remember that performance guarantees are intended to ensure that systems perform, rather than to provide a mechanism for collecting payout damages.
  • Understand that ultimately it is the knowledge, experience and solvency of the EPC and O&M contractors that is being counted on to keep the system producing.

For the EPC contractor:

  • Understand the terms of the warranties for major components and fold them into the PV performance guarantee contract terms in full; do not promise more than the manufacturers do.
  • Only agree to back up agreements from the manufacturers within the scope of the supply agreement and make sure to have the contractual authority to insist on corrective action.
  • Perform accurate, detailed system simulations and agree with the client on the contract terms based on the modeled system.
  • Do not guarantee the weather; be careful to avoid contracts that quantitatively tie damages to historical weather data.
  • Pursue an arrangement that incentivizes meeting and exceeding performance expectations by trying to write incentives into the contract.

Specific production. The specific production or specific yield of a system is a modules-to-meter performance metric. It is the ratio of energy produced by the system (MWhAC) to the nameplate rating of the modules (MWDC-STC), which is usually expressed as MWh/MW. Specific production is a good way to compare various PV technologies because it basically predicts the system output of a specific technology within a given climate. In any case, the predicted result is typically based on hourly PV simulations using known system design parameters. The actual production measurement in the field can be taken at many points throughout the system, but it is typically taken at the production meter, which is located at or near the point of common coupling or utility interconnection point.

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