Page 69 - North American Clean Energy July August 2015

Not all EPCs handle the procurement of hey mandate the use of a particular 3rd party independent engi- that is inferred to be the project Final Completion point, is a false

capital goods; it is a substantial inancial neer, legal team, and sometimes an auditor to review the records
cap. he operating life of the facility extends well beyond that point
burden to carry. But most EPC contracts are of the project and the owner. Smart long-term owners will work with performance dependent almost entirely upon the strength of
built upon milestone payments, often with closely with their inance providers and utilize the same 3rd parties the underlying fundamentals. he process of evaluating these fun-
timing obligations. Failure to meet timing early in the diligence process—before inance diligence begins—to damentals is the topic of part II in the September/October issue.

requirements will usually trigger liquidated avoid redundancy and added costs.
damages that can ruin the EPC’s returns.
Described above are the most basic functions involved in a pro- Bryan Banke is the managing director for asset management at
In addition, considerable costs, including ject from initial development through inal completion. hey ap- Renewable Energy Trust Capital, Inc.
labor, equipment, engineering, and permits pear distinct and separate but in reality are blended, interdepend-

are incurred by the EPC between the mile- ent layers. Even the pointy top of the Renewable Project Pyramid
Renewable Energy Trust Capital, Inc. | www.renewabletrust.com
stones.
Smart EPCs take the irst stage very seri-
ously because all subsequent steps rely on

it. Price too high and never win a contract.
Price too low, win the contract, and risk an
unsuccessful completion. And beyond a suc-
cessful completion lies the EPC warranty

period often overlooked in the EPC pricing
and regarded as a corporate expense. Sub-
sequently, it frequently receives grudging
support and has been known to sink the

fortunes of many EPC contractors. It is the
duty of the project owner when negotiating
the EPC contract to ensure the warranty

language is watertight and that the EPC is
willing and inancially capable of meeting
its obligations.

Long Term Owner /Financier
In this build-and-lip scenario, all of the
risk gauged and mitigated by the developer
and EPC eventually gets re-evaluated by a

prospective buyer of a completed project
and any inancial partners who may provide
equity and debt. his is the classic due dili-
gence typically thought of: reviewing the

work of others. hese entities are looking
at the:
1) economic viability of the deal;
2) errors, misrepresentations, missing or

incorrect information, and missing ac-
tion items;
3) health of the EPC, of-taker and OEMs,
warranty viability, and technical risk;

4) complete document set including con-
tracts, approvals, warranties, and as-
builts.

he costs of due diligence for the long-term
owner are not negligible. hey are mostly
wrapped up in legal and independent engi-
neering review, but there are expenditures

associated with every step of the project
diligence from initial screening through the
deal close. In addition, there are often non-

refundable exclusivity fees or deposits that
place great importance and time limitations
on the long-term owner’s early diligence
eforts.

For established projects purchased prior
to NTP, the long term owner assumes all
of the known development risk plus the
completion risk tied to the action items yet

to be completed. here is never a guarantee
of successful completion so assuming this
responsibility requires an all-encompassing
comprehension of the project and what

transpired up to the point of purchase.
Financial institutions or individual inves-
tors tend to delect a majority of diligence
costs to the long-term owner (or lessee).

North American Clean Energy 69