By Gene F. Rash and Steven J. Stuart
It is no secret that the current presidential administration’s pursuit of 100 percent clean energy by 2050 should be a boon for the already growing solar industry. Estimates vary with some analysts predicting unprecedented growth rates for any industry. Increasingly, there will be more opportunities in both the public and private sectors, with correlated risks to companies serving the sector.
Aside from the growing number of utility-scale solar facilities, several legislative initiatives will help ensure the success of smaller new construction and retrofit opportunities. Each project-type has unique legal considerations. Due to each of these author’s respective involvement in a wide variety of power plant projects, this article highlights specific opportunities and threats inherent with constructing solar facilities given the investment push in solar energy.
The Substantial Completion Deadline is an Expensive One to Miss
For either a photovoltaic (“PV”) or concentrating solar thermal (“CST”) power project, construction work itself can proceed rapidly and often must because of the involved tax credits, investment terms and loan guarantees that are central assumptions to business cases justifying the construction of a large facility. Typically, an EPC (engineer, procure, construct) contract arrangement is utilized by project owners. Solar project investors and owners prefer the EPC arrangement in large part because the EPC contractor manages the entire project’s design and construction. Accordingly, the EPC contractor and the subcontractors carry large amounts of risk under tight timelines in exchange for the contract price.
Sophisticated contractors are accustomed to managing long-lead items within the normal climate of the construction industry. But contingency plans for failed equipment such as PV modules, actuators, or electrical substation components must also be implemented. Early emphasis on understanding and planning for SCADA requirements rather than awaiting the end of the project to address the same is a typical best practice. Managing risk has become even more difficult with the current climate of material escalation, manpower shortages, and production delays. Sizeable liquidated damages associated with failing to meet substantial completion are a common hazard.
Not surprisingly, substantial completion typically drives the project’s critical path. Substantial completion is often tied to the facility’s ability to produce power and connect to the power grid – both dates being their own important milestones carrying discrete subtasks. Like with all contracts, the words matter. How substantial completion is measured and defined is critical for the project team to understand and work towards.
Often, substantial completion does not require completion of the entire project site’s civil scope of work. This can mean that important components of civil work remain after substantial completion, and, depending on the remaining civil scope and necessary modifications to the same during construction, perhaps due to changed conditions, the remaining civil work can carry substantial cost. It is much more expensive to perform civil work after array installation and initial operation of the facility. It is exceptionally more expensive where significant grading and retrofit applications, such as adding stormwater pumping systems or redirecting stormwater through other means, are required for ultimate operation and maintenance of the facility. Proactive, consistent collaboration, communication, and management of expectations are central tenets of a successful solar project.
Each Project Site Is Unique
Due in part to the sheer size of utility-scale solar facilities, local conditions often spawn issues. These range from the abilities, quantity and cost of skilled workers to variables such as the soil conditions at the site. The contractor’s means and methods should account for the unique site access and soil conditions onsite while maintaining productivity and installation tolerances of completed components. For example, in dual-use agrivoltaic facilities, the EPC team must be careful to not overly compact the native soil during construction because of the negative effects on planned crop growth. The spacing below and between the trackers is also critical for the dual-use function.
In closed basin site locations, native infiltration rates may be the relied on means for surface water management. Sloppy earthwork operations or lack of stormwater management during construction – and many other factors – can severely impact the assumed native soil infiltration rates, increasing the risk of flooding within the solar plant site itself, particularly in closed basin sites, or downstream in open basin sites. In open basin site locations, water runoff and erosion control must be actively managed. In either type of basin, absent an easement or other legal mechanism, it is typically required by the pertinent jurisdictional authority for post-development surface water runoff to not exceed pre-development surface water runoff. Over the course of several hundred acres, a slight deviation in slope or stormwater infiltration rate can have enormous impacts on surface water management.
Perimeter and interior access roads also often cause challenges. It may seem simple, but the project team should agree on the width of the roads early on – critical for equipment to clean panels in arid conditions and maintain vegetative growth in other conditions. Likewise, the project team should agree early on the required surface of the roads – whether they are gravel or native soils, for example. Within the context of meeting the seemingly more complex power generation requirements for substantial completion, site grading, maintenance, and operations can evolve into an expensive afterthought.
Like all construction projects, cohesiveness between owner-provided documents and contractor-generated documents helps ensure mutually acceptable final conditions and payment. An owner should expect a contractor to rely on owner-provided geotechnical reports and boring reports. These are valuable documents but limited by their innate sample-sizing.
Rock, structurally inadequate soils, high groundwater, and existing infrastructure are not uncommon to incur during foundation and pile installation. Like retroactive grading after substantial completion, retrofitting or remediating inadequate foundations and piles late in the project can be very expensive. Owners and EPC contractors must have fair contractual mechanisms, like differing site conditions or changes clauses, to equitably address the unforeseen and to progress with the project.
Due to the unique characteristics of solar power generation facilities, along with the rapid improvements in technology and speed of construction, solar is attractive in many areas with favorable conditions. This includes both fast developing countries and the United States. Aside from innate climate characteristics such as cloudy or rainy days, solar offers a predictable output of power that benefits investors, owners, users and ultimately spurs economic growth. The coming years will further prove out solar power’s immense benefits and capabilities, so long as the industry mitigates the risks inherent with the anticipated growth.
Gene F. Rash and Steven J. Stuart are partners with Smith Currie & Hancock, LLP, a leading nationally ranked construction law firm. Their practices include contract drafting and litigating large-scale utility and infrastructure projects throughout the United States and abroad. They can be reached at firstname.lastname@example.org and email@example.com, respectively. Learn more: www.smithcurrie.com.