The solar PV market is experiencing substantial growth with a rapid increase in deployment of grid-connected plants, and analysts are expecting solar PV deployment to double to at least 1TW by the end of 2022.
Traditional strategies of constructing and selling solar plants after a short period are becoming less prevalent, with solar independent power producers (IPPs) driving strategies involving the long-term ownership and operation of assets. This involves an essential focus on life cycle costs and plant availability to ensure the return on investment over the long term.
The EPC contracts used within the solar PV market focus on time, quality and cost, alongside key provisions that reduce the exposure to risk of the owner and lenders, with the final delivered plant operating to specified performance metrics. Performance is guaranteed via contractors committing to output guarantees and/or performance ratio guarantees at key milestones, including commercial operation. If the guaranteed performance is not achieved, then owners have recourse to claim lost revenues via liquidated damages from the contractor. However, this is not desirable for either the owner (who has a plant that does not perform as anticipated) or the contractor (who must sacrifice margin to reimburse the owner for lost revenues).
However, older assets’ performance degrades over time, so how can risk be reduced and plant performance ensured over the long term?
The key to ensuring performance requirements are met, in both the short term and long term, is quality assurance (often referred to as “the hidden performance guarantee”). A robust quality assurance regime should be developed that encompasses design, procurement, construction, operations and maintenance, and, eventually, disposal.
Traditionally, owners have relied on readily available data to determine the quality components to be installed as part of the PV plant, such as the key industry benchmark “Bloomberg Tier 1” index for PV module manufacturers. Solar IPPs and prudent developers are becoming increasingly aware of the added value that quality assurance regimes and quality inspections can bring to projects.
What’s Included In A Quality Assurance Regime?
The typical quality regime will be project-specific and determine the procedures for equipment standards and construction standards, and it will be developed by the owner (at times in collaboration with the contractor and lenders). The regime developed by the owner will include:
Ensuring that all elements of projects comply with international standards or (where these are not present) industry standards is a good basis on which to develop a quality assurance regime. This is a minimum standard, however, and the regime should be adapted to ensure that key risks are mitigated or eliminated to the satisfaction of stakeholders. Local standards should also be accounted for when designing and constructing PV plants. Any specific requirements of the owner should be included, plus detailed information regarding materials and equipment, and a description of key construction and nonconstruction activities.
Quality inspections underpin the quality assurance regime. Quality inspection criteria and standards should be agreed upon with all stakeholders and undertaken within all the project disciplines.
A Quick Eight-Step Implementation Approach
An effective quality regime should carry minimal cost in relation to contract price when the costs of equipment failures and underperformance following construction are considered. In many cases, a robust quality assurance regime will provide a return on the original investment cost via additional revenues, as the constructed plant may outperform its design assumptions.
For example, IRENA identified that when quality inspections were implemented at PV module manufacturing facilities and on-site inspections were undertaken, PV modules exceeded their contracted performance by 2% to 3% (earning an additional $4,428 to $6,642 per megawatt per annum for a 20-megawatt solar plant.) Again, where inspections had been undertaken to identify and mitigate potential induced degradation (PID), then underperformance because of PID was reduced by 3% to 5%. With PV module costs still accounting for approximately 40% of the price of EPC contracts, the impact of quality inspections on a project’s effectiveness should not be underestimated.
Quality assurance is a win-win scenario: The potential for quality assurance regimes and inspections to give owners and lenders an increased level of comfort with regard to the performance of the plant is matched by the benefits to contractors through reduced failure rates and increased potential to meet performance requirements during warranty periods.
Our company, as a long-term owner and operator of solar PV projects with a strong commitment to whole life cycle operational excellence, considers quality assurance across each asset’s lifespan as key to future strategy and success.
As the deployment of solar PV installations continues, project quality assurance regimes benefit all stakeholders in ensuring project success and continued performance of assets throughout their life cycle. A good quality assurance regime can reduce costs, identify and fix issues before they occur or escalate in size and cost to remedy. It should be the first line item on the project budget rather than being “the hidden performance guarantee.”