Typically, solar EPCs provide performance guarantees for the solar power plant they implement. In fact, this is one of key expectations from the power plant developer. A typical solar EPC guarantees that a power plant will work at a certain level of efficiency.

Now, a good EPC ensures that clear financial remedies are in place to account for a scenario where the specified efficiency levels are not met. In such a case the project owner is in a much better position to make his investment. Performance guarantees and associated liquidated damage remedies allow project owners to pass the risk of an under performing facility to the EPC 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.

Typically, the performance guarantees provided by the installers are established through performance tests and indicated by a metric called the Performance Ratio (PR).The performance ratio is usually calculated after the first year of plant operation and usually the contracts also clearly state the compensation clauses that are applicable in case the performance ratio is not met.

A high-efficiency plant should enable the EPC contractor to quote a performance guarantee of a minimum 75% P.R., along with associated bank guarantees or financial compensation, in case the guarantee is not met.

You might want to check out these questions too on EPCs – Contract Terms and Value Adds

  • Can you avail a free quote from an EPC before you decide on them? – Here
  • How important is the solar EPCs’ transparency in transactions? – Here
  • How will the level of sub-contracting done by a solar EPC affect the power plant installation? – Here
  • What difference can a solar EPC’s skill in engineering design bring to the power plant? – Here
  • What kind of team profile should you look for in a solar EPC? – Here
  • What are the usual timelines provided by good EPCs for project completion? – Here
  • How much do EPCs charge for their services? – Here
  • What value addition can solar EPCs with good industry partnerships provide? – Here
  • What should I be aware of while signing contracts with EPCs? – Here
  • What are the certifications you need to look for in an EPC? – Here
  • What are the critical value-adds to expect from high-quality solar EPCs? – Here