With renewable energy tax credits for wind and solar technologies set to expire in the coming years, the industry has seen a recent surge in investment and development to capture these valuable tax benefits. One crucial agreement to almost every renewable energy development project is the engineering, procurement and construction (EPC) contract.
At the 2019 Renewable Energy Law Conference in Austin hosted by The University of Texas School of Law, successful EPC contract negotiation considerations and tactics were highlighted during the “EPC Contract Considerations for Renewable Energy Projects” panel. Below are five key takeaways:
- Prior to negotiating the EPC contract, each party should perform an internal risk assessment of the current project and consider potential avenues to mitigate such risks. Only by anticipating and planning for the unexpected can both parties appropriately protect themselves from future losses.
- Both parties should build buffers into their individual budgets to accommodate unexpected losses. Using the analysis in item 1 above, the developer can build in an increased projected cost budget and/or financing commitments, and the contractor can increase its contract price, in each case to accommodate the risks identified.
- The parties should work toward allocating risk to the party in the best position to prevent the loss. Although everyone would like to “win” on every issue, for the successful negotiation of an EPC contract, the parties need to consider who has the best ability to prevent losses (and should bear such burden). Negotiate EPC contract provisions with those considerations in mind.
- After allocating risks appropriately, the parties should obtain available insurance policies. Negotiations tend to move more quickly after the parties identify avenues to protect themselves against their primary risks and concerns, and insurance is an easy way to achieve those protections.
- Where risks cannot be appropriately allocated or insured against, work toward allocating such risks to the contractor and increasing the contractor’s compensation. Generally speaking, a contractor tends to be less risk-averse than the developer and is the party most easily allocated risks in exchange for additional compensation.