Wrap Agreement Epc

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However, as the BESS project finance market continues to evolve and equity remains the most typical source of financing, BESS projects have used alternatives to the turnkey EPC agreement to reduce the costs of supplying the owner`s equipment. If you are aware of these potential issues and consider them sufficiently before negotiating the relevant agreements, project owners can successfully resolve these issues and avoid potentially long and costly delays – for example, when resuming negotiations on technology licensing agreements if the EPC contractor requires full technology consolidation. or the resumption of negotiations on the EPC contract if lenders are not satisfied with the extent of the technological risk to the project. The preferred method for determining a project`s revenue stream is a long-term removal agreement. In the electricity sector, these contracts take the form of power purchase agreements. In a removal agreement, the contracting authority agrees with a solvent buyer to sell the entire production of the project to the buyer for a longer period of time at foreseeable fixed prices. The abduction agreement is often the most critical document in the financing of a project, as it defines the foreseeable source of revenue that forms the basis of the funding. Therefore, project owners and lenders should carefully consider and limit any provision that may alter or waive the buyer`s payment obligations. Failures and termination events must also be clearly and narrowly defined and limited to physical and persistent failures of the project and the project owner. Pricing structures may also vary depending on the needs of the owner of the asset. The most predictable pricing model for P&E companies is a fixed price, where the EPC contractor is hired for a single, fixed price for the entire scope of work.

Alternatively, P&E companies could opt for a less predictable structure that offers additional flexibility, such as .B a fixed pricing model, in which the agreement sets a fixed price for the entire scope of the project`s work, but includes room for adjustments for escalation if certain criteria are met. Additional pricing models beyond the fixation and the company are also possible. EPC contracts can take many forms, including the inclusion of variant structures and pricing models. The most comprehensive structure – the one that places the greatest responsibility on the EPC contractor – is the “full wrap”, where the plant owner hires the EPC contractor to manage all aspects of engineering, procurement and construction. Since there is no longer a single contractor who fulfills all contractual obligations, a third agreement is required. This is called a full guarantee, a unit where the offshore supplier or the parent company of the contractors guarantees the obligations of both entrepreneurs. This provides a single point of responsibility for the project company and lenders. Both contractors are also more likely to fulfil their contractual obligations. As you can see, EPC contracts are very complex but advantageous agreements. While the time and cost of developing an EPC contract contributes to the early stages of the project, the downstream savings can more than offset the initial investment, provided the energy and energy company selects expert advice to help shape the contract. Provided that appropriate tax and legal advice is sought and received, and provided that all related legal issues are adequately addressed in the shared contracts and “bundled” in the WAG, the benefits offered under a shared structure may be significant. These are long-term agreements, but they often include a right of termination for the project owner, which is subject to a mutually agreed termination fee.

Comprehensive, turnkey EPC agreements, in which the EPC contractor assumes full responsibility for the engineering, purchase of equipment, construction, commissioning, review and revenue of a completed project to the owner, have always been preferred by energy project owners and their project finance providers, largely due to the benefits of a single, solvent counterparty for all. Is responsible for the delivery aspects of a fully completed and properly executed project. EPC agreements that provide for owner-supplied equipment must regulate the division of responsibilities between the owner and the EPC contractor, which would typically be borne by the EPC contractor in a typical full EPC with respect to all equipment supplied by the owner (usually the batteries themselves for BESS projects) – including delivery, risk of loss, transfer of ownership, installation in accordance with the Policies/Recommendations of suppliers and warranties of the equipment. In addition, solvency and/or credit support issues in relation to the equipment supplier must be treated in the same way that the EPC contractor`s loan is resolved in the EPC agreement. The second source of income under the collection agreement is related to the actual delivery of the product. These payments are generally not fixed and are based on a formula linked to variable operating costs. Some removal agreements provide for floor and ceiling prices for this component. As with EPC contractual pricing, when reviewing supply or merchandise agreements, it is important to understand the circumstances that may change prices during the term of the contract. These agreements are usually long-term contracts. The preferred pricing model is a fixed price for the input, which is only subject to escalation over time. Alternative agreements include bandwidth prices with a reserve price and a maximum price. The less secure the pricing, the less certain the value of the revenue source and the more competition the project proponents have to rely.

An EPC agreement containing BESS project performance guarantees contains detailed test procedures as well as provisions for flat-rate compensation in the event that a built BESS project cannot pass the applicable performance tests. As with most EPC agreements, it is to be expected that the provisions on the amount of such lump sum damages and any ceiling applicable to such lump sum claims will be the subject of intensive negotiations. EPC agreements may also give the EPC contractor the opportunity to permanently “buy back” the performance of the BESS project by paying agreed lump sum damages, usually with fixed minimum performance levels that must be achieved or exceeded in all circumstances. Supply or raw material contracts are usually important contracts as part of a project finance operation. Almost all projects in this area require some type of fuel or raw material, which is converted into a source of income once a project has completed construction and started business operations. Dramatic fluctuations in raw material costs can significantly affect the value of a project`s revenue stream, and the unavailability of raw material can spell the end of a project. In many projects, the main equipment will require more maintenance after a longer known service life. For example, gas-fired power projects require that certain parts of the gas turbine be repaired or replaced after a predictable number of hours of operation. These repairs can be significant and the resulting failure of this work could have a material impact on a project.

The same applies to the uncertainty of the future costs of these repairs. A client and the equipment supplier enter into a long-term service contract (sometimes called a contractual service contract) to ensure the availability of the vendors to carry out the repair work. have the corresponding individual parts in stock; and to address the costs associated with repairs. Under this agreement, the project owner pays the equipment supplier a monthly fee, which typically begins with a long period of several years after significant completion. For this fee, the equipment supplier undertakes to perform the planned maintenance services for the covered equipment according to an agreed schedule, which is linked to the operating times of the project. Services include all parts, labor and technical services. In some long-term service contracts, services will also include unplanned maintenance. Prices for operations and maintenance services are usually a monthly fee plus reimbursement. Given the importance to the bottom line due to fluctuations in the repayment portion of the payment, special attention is often paid to the budget process in operations and maintenance agreements. As a general rule, the contracting authority and the service provider agree in advance on an annual budget and the service provider shall not be compensated for cost expenses that deviate from it. Exceptions to this rule are minor and intangible variances, expenses to remedy an emergency or crisis situation, or costs and expenses incurred as a result of a budget change approved in advance by the proponent. The substantive model provisions found in most project-funded EPC contracts are described above.

However, there are some discrepancies, including engineering, procurement, construction and management (EPCM) contracts, which are not closed contracts, as well as alternative price agreements with some risk sharing. Clients and contractors will often ask if it is possible to obtain financing for these structures. The answer is that financing is potentially available for everything, but the more the structure deviates from the norm and the more risks the project owner takes for construction, pricing and timing, the more lenders expect lenders to seek recourse from project promoters. Whether purchased by the EPC contractor as part of an EPC contract or by an equipment supplier under an equipment supply contract, typical performance guarantees of BESS projects include round-trip efficiency, capacity, loading/unloading speed, availability, start/response time speed, and noise. .