Performance/price risk

Solar PV Solar PV

Description (What is the Risk)

The risk that the asset is able to achieve the output specification metrics and the price or cost of doing so.
Damage pollution accidents.
Meeting handback requirements.
Health and safety vandalism.
Equipment becoming prematurely obsolete.
Expansion.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner bears the risk of setting and meeting the performance specification.

The Private Partner will be paid based on the actual amount of power sold under the power purchase agreement. If the facility runs at a lower capacity than initially intended, it will effectively result in less payment received by the Private Partner.

The Private Partner will receive a fixed rate of Feed-in-Tariff with respect to the sale of power under the power purchase agreement up to 100% of the capacity factor. While it is possible for the facility to run at an increased capacity than initially intended, the price of power sold in excess of 100% of the capacity factor will the average wholesale price of electricity sold by the contracting authority, subject to a maximum amount equivalent to the rate of the Feed-in-Tariff under the power purchase agreement.

Adding more panels to what is specified under the power purchase agreement is not allowed and will be considered a material breach of the power purchase agreement. Therefore the Private Partner should ensure that advanced technology is used to ensure maximum export of electricity into the grid to ensure maximum revenue.

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

The Private Partner should ensure that appropriate guaranteed levels be included in the construction and operations contracts with damages payable by the contractors for a failure to reach those guaranteed levels.

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

The Contracting Authority may take certain limited performance risks such as the impact of shading on the energy production from a solar PV project from new developments adjacent to the site or restrictions on tree felling/pruning.



The impact of large scale intermittent renewables on the stability of the grid system is key risk associated with solar PV projects.



Comparison with Emerging Market

Contracting Authorities may seek protection against poor performance through performance ratio and/or availability guarantees. Contracting Authorities may also seek independent verification of energy yield assumptions during the procurement phase.

Back to Solar PV

Description (What is the Risk)

The risk that the asset is able to achieve the output specification metrics and the price or cost of doing so.
Damage pollution accidents.
Meeting handback requirements
Health and safety vandalism.
Equipment becoming prematurely obsolete.
Expansion.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner bears the risk of setting and meeting the performance specification.

The Contracting Authority does allow for a facility to run at a lower capacity than initially intended, but does not allow for a facility to run at an increased capacity than initially intended and therefore the Private Partner should ensure that advanced technology is used to ensure maximum export of electricity into the grid to ensure maximum revenue.

Consideration needs to be given to the ability of the Private Partner to achieve the necessary performance levels given the nature of the project and the emerging market in which it will be based.

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

The Private Partner should ensure that appropriate guaranteed levels be included in the construction and operations contracts with damages payable by the contractors for a failure to reach those guaranteed levels.

If the Private Partner achieves facility completion at a lower capacity than the initial contracted capacity, the Contracting Authority gives the Private Partner the ability post completion but before the longstop date (being 18 months post scheduled COD), at its own cost, and in the shortest possible time, to effect repairs or replacements to the facility whereafter the capacity of the facility will be re-assessed. This is in an effort to allow the Private Partner to run the facility at the contracted capacity, thereby optimising revenue and mitigating the risk of extended performance at a lower capacity.

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

The Contracting Authority may take certain performance risks such as the impact of shading on the energy production from a solar PV project from new developments adjacent to the site. The Contracting Authority will usually take the risk of grid failures or stability affecting the output of the plant.

Contracting Authorities may seek protection against poor performance through performance ratio and/or availability guarantees.



The impact of large scale intermittent renewables on the stability of the grid system is key risk associated with solar PV projects.



Comparison with Developed Market

Contracting Authorities may also seek independent verification of energy yield assumptions during the procurement phase. This is relevant in many emerging markets where the Contracting Authority is expecting a certain level of output from the solar PV project in order to meet the customer load requirements. We have seen some Contracting Authorities require the Private Partner to guarantee a minimum level of output so that the performance risk is fully transferred ?to the private sector.

Back to Solar PV