Solar O&M: Where's The Dough? Posted on Apr 07, 2017
Solar operations and maintenance (O&M) provides the preventative and correctional technical activities that allow solar systems to perform at their best. As a result of the solar industry’s strong growth curve, O&M is a rapidly growing business opportunity for solar contractors.
The major goals of solar O&M are, as follows:
- Optimization of solar system production for increased asset revenue
- Source of revenue for O&M providers/solar contractors
- Reduction of risks for solar system owners and investors
- Protection of solar system value, revenue stream and longevity
- Compliance with applicable agreements and regulations
- Transparency on solar system production, performance, issues, risks and O&M activities
Some of the common types of solar O&M issues that occur with respect to solar projects include: damage to perimeter fences, ground erosion, transformer leakage, various inverter damage, broken conduit, combiner box damage, vegetation overgrowth, cell browning/discoloring, panel shading, shorted cell, natural damage, vandalism damage, racking erosion, unclean panels and animal nuisance.
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Since O&M business relationships are long-term – from 6 years to 30 years – and involve multiple parties, they are also complex. Any failure of the O&M services subjects every party in the O&M chain to liability. A solid O&M Agreement is key to protecting your solar business and asset. We provide a standardized O&M Agreements for these types of relationships.
If you want to customize our O&M Agreement or to create one from scratch, you might want to use the helpful checklist below created by one of the attorneys in our network. It contains some of the key legal considerations to take into account when developing these agreements and relationships.
O&M Agreement Checklist
1. Check Sections of Agreement That Need Technical Review- Scope of O&M services – how are “services” defined, exclusions, maintenance schedule, will certain assets be replaced as part of maintenance and included in cost
- Scope of service provider’s authority
- Performance standards to be achieved – how defined, who bears risk of exceptional circumstances such as force majeure, prescribed remedies for non-performance, such as liquidated damages
- Limits of liabilities
- Level of any liquidated damages
- Incentive mechanisms
- Provide a review process during the term of the agreement to review performance, investments, etc.
- If there is any third-party financing, ensure term of agreement at least as long as term of funding, PPA, or other third-party contractual agreements, as applicable
- Do termination provisions provide for termination for convenience? Is that okay with all parties?
- Provide mechanism allowing for additional services to be included within scope of service provider’s responsibilities (variations) and a procedure for resolving any disputes as to the costing of those additional services
- Is service provider to interface with customer?
- Is the service provider to be paid a fixed fee, reimbursable basis or combo of both? And are such fees subject to escalation over time?
- Reporting and monitoring of performance – what reports need to be prepared on a regular basis, who has the right to inspect and audit facility and reports, independent expert to monitor provider’s performance, what is the method for monitoring
- Control the reimbursable fee elements of a service providers fee – agree on a budget including how to resolve disputes and exclusions; set procedure to control the budget such as regular budget reviews, expenditure type or level approvals, and exceptions to the obligation to keep a budget such as to avoid emergency, prior approvals, and things outside service providers control; & the consequences of failure to stick to the budget such as potential material default with right to terminate, revision of financial limits above which approval is required, reimbursement obligations for any additional costs
- Provide an incentive in the fee for the service provider to perform – if the contractor performs well paid more, if performs badly paid less; for e.g., proportion of amount by which actual operating revenues exceed anticipated operating revenues or set up bonus based on lack of downtime or adjust fee by reference to anticipated/ actual performance standards
- Entitle owner to exercise rights of set off – for e.g., in case of defective services
- Interest/penalties if delay in payment to service provider
- Termination rights – material default, insolvency, revenue and/or performance failing below certain level for period of time, prolonged force majeure, change of control, loss of licensing rights, budget exceeded, convenience
- Upon termination – when is a party entitled to loss of profits, limits on lost profits, right to take over subcontractors, cooperation obligations, spare parts, royalty free license to use documents or technology to maintain perform O&M services, assignment of vendor service agreements
- Liability and liquidated damages – cure periods, reperformance of defective services or repay/replace defective parts, liquidated damage to be imposed, limits on liability, exclusions of consequential damages, liabilities to third parties and breach of laws, authority to employ substitute services at cost of provider.
We hope this blog post helps you get on your way to start doing O&M work or hiring someone who does.