Complex project structures and risk strategies

A large-scale solar project is considered bankable if its components and orchestrators can demonstrate surety of performance to the financial entities funding the project. Components must have warranties and guarantees from their manufacturer that they will perform within specification over the project’s lifecycle, usually 20-25 years. Engineering and construction contractors provide surety through contractual vehicles such as performance guarantees; milestone based payment schedules and liquidated damages clauses for non-performance or delays.
Contractors with little solar experience may be forced to offer increased assurance to project financiers with letters of credit or higher “LDs” in order to guarantee their performance for this new scope of work, solar installation.
However, there are more similarities between large-scale solar project construction and other large-scale project construction like buildings, power plants, subdivisions etc. than there are differences. No matter what type of construction project, an EPC will always develop a plan to identify, assign and mitigate risks for any project.
Once risks are identified, they can be assigned to the party within the project scope that is most competent to mitigate that particular risk. Sometimes these risks remain unassigned and bounce around between parties unwilling to accept risk for things like a new technology deployment, a site that isn’t clearly suited for a solar installation or a schedule that is difficult to meet.
For solar projects, the highest risks involve performance of components: solar modules, inverters, power conversion equipment and mechanical structures. Additional but secondary risks include construction risk, schedule risk and non-standard installation risks.
Financiers review risk mitigation plans for a particular project to understand the risk they are assuming in financing the project.
For solar farms to gain a reputation as a predictable investment within the financial, utility and EPC communities, understanding their risk profile and addressing through common and accepted means of mitigation is essential.
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