Construction risk

Solar PV Solar PV

Description (What is the Risk)

Labour dispute.
Interface/project management.
Commissioning damage.
IP right breach/infringement.
Quality assurance standards.
Defective material.
Latent defects.
Subcontractor disputes/insolvency.
Cost overruns where no compensation /relief event applies.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

Private Partner assumes all these risks, except:

- where certain construction work is dependent on contracting authority work/related infrastructure work being completed in which case risk could be shared; and

- where a labour dispute falls within the definition of the force majeure event under the power purchase agreement, in which case the risk could be shared.

Mitigation Measures (What can be done to minimize the risk)

The Private Partner shall seek to pass these risks to the contractors under the EPC contract or O&M contract, as the case may be. Also, certain risks can be further mitigated through insurance.

Government Support Arrangements (What other government measures may be needed to be taken)

If standards change after the tender, the Contracting Authority may consider increasing the payments to account for increased costs of compliance or Private Partner will be excused from compliance with the new standard.

Comparison with Emerging Market

Associated risks that can increase construction costs such as anti-dumping levies on solar panels (as applied in Europe recently) should be considered. Risks generally seen as low based on strong global track record for solar PV projects in recent years.

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Description (What is the Risk)

Labour dispute. Interface/project management.
Commissioning damage.
IP right breach/infringement.
Quality assurance standards.
Defective material.
Latent defects.
Subcontractor disputes/insolvency.
Cost overruns where no compensation /relief event applies.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

Private Partner assumes project management and construction risk unless certain work is dependent on Contracting Authority work/related infrastructure work being completed in which case risk could be shared.

Private Partner takes labour dispute risk unless political.

Private Partner takes risk of IP right infringement.

Private Partner required to construct to specific standards.

Private Partner takes risk of cost overrun where no compensation/relief event applies.

Mitigation Measures (What can be done to minimize the risk)

Private Partner will attempt to address by passing through obligations to the construction contractor and the management services contractor (if applicable).

The transportation of the solar PV panels is best mitigated by the Private Partner ensuring that it has adequate insurance in place, where applicable. The transportation of the solar PV panels is also mitigated by the Private Partner passing through that risk to the EPC contractor.

Government Support Arrangements (What other government measures may be needed to be taken)

Construction risk is generally passed to the Private Partner. The Contracting Authority will usually take responsibility for force majeure events in country and change in law to the extent that such events affect construction of the project.

Comparison with Developed Market

Risks such as delays in refunds of goods and services tax, import duties and restrictions and restrictions on using foreign workers should be considered.

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