Renewable Energy Projects: Structuring

Operations & Maintenance ContractsNegotiating Owner and Operator Obligations, Services, Termination, Indemnification,

Force Majeure, and Other Key Provisions

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THURSDAY, AUGUST 23, 2018

Presenting a live 90-minute webinar with interactive Q&A

David Cayce, Partner, Mercer Thompson, Atlanta

Ashley Wald, Partner, Holland & Hart, Denver

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RENEWABLE ENERGY PROJECTS:

STRUCTURING OPERATIONS &

MAINTENANCE CONTRACTSSTRAFFORD

THURSDAY, AUGUST 23, 2018

1:00 – 2:30 PM EDT

WELCOME

• David Cayce, Partner, Mercer Thompson LLCdmcayce@mercerthompson.com

– David represents clients in solar, wind and other renewable and conventional power plant transactions, including development activities and negotiating agreements for the construction, procurement, operations, maintenance, site control and purchase and sale of generating facilities . David also assists clients in the formation of international and domestic joint ventures, co-ownership arrangements and tax-equity finance.

• Ashley Wald, Partner, Holland & Hart LLP

akwald@hollandhart.com– Ashley provides sophisticated guidance to clients in the solar,

wind, hydropower, and natural gas industries as they develop energy projects and related infrastructure across the United States. She assists her clients at all stages of energy project development and finance, from site acquisition through commercial operation, with particular emphasis on construction contracts and power purchase agreements.

OVERVIEW

What we’ll cover today:

• Operations and maintenance programs

• Overview of project development

• Key issues in O&M Agreements

• Risk Allocation

• Other Considerations

• Q&A

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O&M PROGRAM GOALS

• Improve project performance and output

– Increasing the probability of exceeding the

expected performance

– P-50/P-90 projections

• Minimize costs of providing project O&M

• Enhance confidence in

– The asset’s ability to perform

– And thereby, its ability to generate long-term

revenue

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O&M PROGRAM ELEMENTS

• Asset management

• Operations

• Monitoring

• Scheduled maintenance (preventative)

• Unscheduled maintenance

– Corrective work

– Conditions-based maintenance

• Guarantees

• End of Term Procedures

9

OVERVIEW OF PROJECT DEVELOPMENT

identify new market select site(s)acquire or control

landassess resource

acquire permits obtain transmissionnegotiate PPA or

off-take agreementsdesign project

major equipment supply

negotiate installation/BOP/EPC

contractsfinance project install infrastructure

testing and commercial operations

operate and maintain project

ensure debt and contract compliance

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OVERVIEW OF PROJECT DEVELOPMENT

• Contract Objectives

– Enforceable

– Define Parties, Relationships and

Responsibilities

– Allocation of Risks

– Establish a complete and fully integrated legal

and contractual infrastructure

– Provide a basis for financing or sale

– Avoid (or at least win) disputes

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KEY PROVISIONS - SERVICES

• Consider:

– What’s In Scope

• Scheduled Maintenance

• Unscheduled Maintenance

– What’s Out of Scope

• Payment mechanisms

• Specified Scope Exclusions

– How to handle changes

12

KEY PROVISIONS – PERFORMANCE OBLIGATIONS AND REMEDIES

• Performance Obligations:

– Standard of Care• Prudent Operating Practices

• Applicable Laws/Permits

• Owner’s Requirements

• Equipment Warranties

– Remedies• Law v. Equity Courts/Remedies

• Payment of money

• Sole versus cumulative

• “Extraordinary remedies”

13

KEY PROVISIONS – OWNER’S OBLIGATIONS

• Payments

– Interim Service Fees – New Construction

– Periodic Fixed Fees and Variable Fees

– Timeliness/Disputed Amounts

• Access

– Physical Access

– Data

• Coordination with others

• Real Property Rights/Permits

14

KEY PROVISIONS – TERM AND TERMINATION

• Term; Renewal; Extensions

– Procedures at end of Term

• Termination

– Termination for Convenience

– Operator Defaults

– Owner Defaults

– Remedies

15

KEY PROVISIONS – WARRANTIES

• Warranties and Guarantees

– Express warranties• Parts Warranties

• Services Warranties

– Implied warranties

– Disclaimers

– Availability and Performance Guarantees

• Existing OEM Contractual Warranties

• Preserving Equipment Warranties

– Coordination with EPC Agreement

16

KEY PROVISIONS – LIMITATIONS ON LIABILITY

• Consequential damages

– Conspicuous waivers

• Other limitations

– Overall cap on direct damages and calculation

• Typical carve-outs

– [Gross] Negligence

– Third party indemnities

– IP

– Others?

17

KEY PROVISIONS – INDEMNIFICATION

• Allocates responsibility for certain losses between the parties

• Covenant language

• Losses:

– Losses resulting from damage to a Party’s property or injury to a Party’s personnel

– Fines and penalties

– Taxes

– Others

• Losses resulting from third party Claims

18

KEY PROVISIONS – FORCE MAJEURE, CHANGE IN LAW, AND CHANGE ORDER RELIEF

• Force Majeure

– Carefully review “laundry list” definition

– Think about other requirements

• Change in Law

– What types of changes could arise?

– Who bears risk?

• Change Order Relief

19

KEY PROVISIONS – INSURANCE

• Contractor policies

– General Commercial Liability

– Automobile

– Workers Comp and Employer’s Liability

– Excess Liability

– Coverage for Subcontractors

– Primary Insurance

– Waiver of Subrogation/Additional Insured

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KEY PROVISIONS – INSURANCE

• Owner policies

– All-Risk Insurance

– General Commercial Liability

– Automobile

– Workers Comp and Employer’s Liability

– Excess Liability

– Waiver of Subrogation/Additional Insured

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KEY PROVISIONS – INTELLECTUAL PROPERTY AND DATA

• Contractor-Owned IP

– Drawings and manuals

– Models

– Software, including monitoring and control

– Design information or documents, if any

• Jointly developed IP

• Owner-Owned IP

– Project data

– SCADA or monitoring system data

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KEY PROVISIONS – INTELLECTUAL PROPERTY AND DATA

• License for Owner to Use Contractor IP

– Non-exclusive, perpetual, irrevocable, royalty-

free and non-transferable

– Use restrictions

• Contractor indemnity for infringement

– Third-party claims of infringement of their

intellectual property

– Exceptions and Limitations

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STRATEGIES FOR MONITORING AND MANAGEMENT

• Monitoring practices

– Use quality monitoring equipment

• Secondary periodic checks to overcome inherent

inaccuracies in monitoring systems

– Publish data through effective reporting media

– Ensure transparency of measurement

protocols and procedures

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STRATEGIES FOR MONITORING AND MANAGEMENT

• Outage Management

– Annual Meeting to Calendar Scheduled

Maintenance Outages

– Be mindful of off-taker restrictions in PPA

– Periodic Status Reviews and Technical

Reviews

25

OTHER CONSIDERATIONS

• Common Mistakes

– Payment terms

– Making Assumptions

– Rushing

– Ignoring “boilerplate”

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