Similarly to under the EPC arrangements, the Project will attempt to pass as much risk through to the Operator as possible.
This is achieved through the following:
- Incorporating as much of the annual price into the fixed and variable components, rather than pass through. If undertaken successfully, the risk of overruns on price are then for the Operator’s account. This is not always successful. However, the O&M fees may be relatively small compared with revenues, such that some uncertainty may be relatively easy for the project to bear
- Any compensation for risks outside of the control of the Operator which the Operator may enjoy will typically be limited to the compensation which the project enjoys from the offtaker. This is typical for, amongst other provisions, force majeure and change in law
- Any provisions which may lead to termination of the offtake contract, or any of the project’s other contracts, will, to the extent applicable, be mirrored in the O&M contract, often with a slightly more onerous threshold, so that the project can terminate the Operator before the other contract is terminated and attempt to fix the situation.
- The Operator will pay liquidated damages at a pre-defined rate per day of plant unavailability, or, if applicable, per percentage point downside performance, upon failure to meet the guaranteed performance levels of the plant. These liquidated damages are typically capped, and usually guaranteed by either a liquid, on-demand bank performance bond or a parent company guarantee
The Operator may be incentivised to perform by passing some of the financial reward of outperformance through to him.