Solar Power Plant Evaluation – What are the performance guarantees provided by the installer?

One of the key requirements for a power plant owner is the performance guarantee promised by the solar installer. When the installer guarantees that a power plant will work at a certain level of efficiency and also lays out clear financial remedies in case the efficiency levels are not met, the project owner is in a much better position on his investment.

Performance guarantees and associated liquidated damage remedies allow project owners to pass the risk of an under performing 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.

What kind of performance guarantees is provided by the EPC/installer?

EPC contracts for solar photovoltaic projects, like many power-sector EPC contracts, typically provide for a testing regime that establishes the performance of the relevant facility or component. 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.

What do you need to know about performance ratio?

In an industry filled by technical jargons, mostly construed to confuse the developer, PR is an easily comprehensible indicator that can be used to determine the quality of the functioning and architecture of the plant. Before investing in a solar power plant, go through the current EPC contracts and check for the clauses attached to the performance guarantee. The performance ratio of a photovoltaic system is the quotient of alternating current yield and the theoretically possible yield of the generator’s direct current.This factor takes in all the region specific inputs like solar radiation, temperature, and other atmospheric conditions. Unlike Capacity Utilisation Factor, the PR is a very good indicator of the actual quality of a power plant and can be used to grade them irrespective of regions

In real life, a value of 100% cannot be achieved, as unavoidable losses always arise with the operation of the PV plant (e.g., thermal loss due to heating of the PV modules). However, High-performance PV plants can reach a PR of up to 80% as per the SMA, the leading solar inverter manufacturer in the solar Industry

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.

At Solar Mango, we have seen that most good quality solar power plants easily have a Performance Ratio for the first year as 80 to 85%.  Some installers also give guarantees in terms of the units that can be expected from the solar power plants, in which case you can easily cross check the actual data with the promised data.But this is not very much in practice in the industry.Due diligence on the PR obtained during the first year of the power plant, if the power plant is a year old, is a basic guideline you should use to assess your purchase decision. If the plant is not a year old, you simply must go through the EPC contract to ensure that a high performance ratio is guaranteed for the same.

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