FEATURE SPONSOR
LEGAL EAGLES
NEGOTIATING NEW O&M AGREEMENTS
Since the UK’s first onshore commercial wind farm opened in Cornwall in 1991, over 5000 wind turbines have been constructed in and around the UK, with almost 3000 of these constructed in the last five years alone.
It is still common for the Original Equipment Manufacturer (OEM) to provide operation and maintenance services along with the initial turbine supply, usually running for five years.
Increasingly a number of turbines are coming to the end of the original operation and maintenance period but require ongoing operation and maintenance. After the initial five year period a further O&M agreement will therefore usually be entered into (unless the developer maintains the turbines himself).
From our experience, there are a number of issues which need to be considered when negotiating the new O&M agreements. The funders will need to review and agree any new agreement which is not ‘on substantially the same terms’ as the original O&M agreement and most will not be. This should be done at an early stage as it can take considerable time to put in place new direct agreements and any other supporting documentation.
CONSIDERATIONS
Key points to consider in the new O&M agreement include what are the ‘standard’ services under the agreement and what components and consumables are covered by the ‘standard’ service fee. Both the owner and the funder will not
want to see any material deterioration in the services being provided – especially if the fee has increased! Cost, delivery times and obligations in respect of ‘additional’ services and components will also need to be considered.
WARRANTY & LIABILITY The warranty package offered under a new O&M agreement will be substantially decreased from the original agreement, however an availability warranty will still be included and both the owner and the funder will want to ensure that the availability percentage and the mechanism for calculating liquidated damages (and bonus payment, if included), is robust, adequate and proportionate.
Similarly limits on liability and caps on liability will also need to be considered in detail to ensure that the plant is adequately protected.
The skill is obviously to know the market and to ensure that the owner negotiates a ‘market’ position to minimise the comments from the funder, which can add further delay, but also to get the best position for the owner.
The last thing the owner wants is for the wind farm not to be covered due to delays in agreeing the new O&M agreement.
KEY THEMES Ensure…
• You allow adequate time (think in terms of months not weeks) to agree the new operation and maintenance agreement
• You engage with the funder at an early stage and once the owner and the contractor have got to a suitable position in their negotiations, provide the contract package for comment – this need not be the final version
The owner and funder will want to ensure that the ‘standard’ or ‘additional’ components provided under the agreement are covered by an appropriate defects liability period. The warranty package, as part of the turbine supply agreement and/ or the O&M agreement, covers various performance related warranties, such as power curve, availability and noise.
• You engage experienced advisors to minimise delays and to ensure you receive a ‘market’ package
Frazer Peavoy Director in the Renewables, Energy & Resources Group Walker Morris LLP
www.windenergynetwork.co.uk
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