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Governments around the world are increasingly investing in renewable energy projects as part of their strategic transition to clean energies. In this article, we take a look at some key considerations for structuring the construction contracts for such projects.
Renewable energy projects typically involve a number of discrete key packages of work. In an onshore wind project, for example, the owner will procure the wind turbine generators and the balance of plant, comprising foundations, site roads, crane pads, and other infrastructure, as well as electrical connections to the grid, substations, and transformers. For offshore wind projects, the owner will additionally procure vessels and harbor facilities. On a solar project, multiple vendors may be appointed to supply key equipment with other contractors responsible for installation and interconnections. Where battery storage is required, the battery units will also be sourced.
Traditionally, due to the high values of proprietary vendor packages, these contracts have been independently procured, with the owner appointing each contractor separately and taking responsibility for the management of any interface between those contracts. Increasingly (particularly in relation to onshore wind and solar projects), owners are looking to appoint one contractor on an engineering, procurement, and construction (EPC) or “turnkey” basis.
EPC contracting is a long-established procurement route on many projects, including power generation. The advantage for the owner is that a single contractor takes on full responsibility for the management of all packages, including any interfaces.
Key interfaces on renewables projects often arise in relation to design and programming. On a wind project, for example, the turbine manufacturer’s load calculations need to feed into the foundation contractor’s civil engineering design so that the foundations can support the wind turbines within the environmental conditions at the site.
In addition to the management of the process, in the event of problems resulting from design errors, the structuring of the contracts may have implications for liability. With split contracts, any claim goes through the owner. One contractor would not claim against another, but instead would bring a claim against the owner, who then passes that claim on to another contractor. The owner therefore takes the insolvency risk for any package contractor, and any claims by one contractor that exceed the limit of liability of the other will fall to the owner. Liability is typically limited by reference to a percentage of the contract price, meaning that protection for any individual problem would be much lower in this scenario than under an EPC contract.