EPC Solvency and Grid Connection

What are the factors contributing to the difficulty of renewable energy projects?

• Solvency risks affecting engineering, procurement and construction, or EPC contractors
• Grid connection and stability issues;
• Price risks in power purchase agreements
• COVID-19 and force majeure, and related supply chain impacts and delays

What terms do EPC contracts include in order to help manage risks?

• EPC payment arrangements generally include mechanisms to avoid diversion of funds from one project to another
• If the project is falling substantially behind time, the developer may have the right to ask the EPC contractor to prepare a remedial action plan - incorporating measures to make up for the delays
• Developers may also have the right under the EPC contract to step in and take over either part of or all of the work if the EPC contractor is not doing its job properly
• The developer may be able to terminate the EPC contract altogether

Why is connection to electricity necessary?

Connection to the electricity network is necessary for all projects intending to export electricity to that network. Electricity networks are owned and operated by monopolist utilities that provide connection and export services. Boom conditions are driving high levels of market penetration for renewables, and high demand for network connections. High concentrations of renewables projects may lead to network instability. Different approaches exist for combatting this - one approach is to "curtail" generators connected in locations suffering from high instability. PPAs can provide contractual protection for curtailment by recognising "Deemed Energy". Deemed Energy regimes provide that, where generation is lost or does not occur as a result of risks allocated to the buyer, then the seller is deemed to have generated the lost electricity and the buyer must pay for it.