Specific issues of technical due diligence of operational RES projects

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The latest amendments to the Law of Ukraine "On the Electricity Market" entered into force, which made it difficult or nearly impossible to develop new solar and wind energy projects. Projects over 1 MW automatically go to auctions with low quotas. In addition, there are practically no opportunities for new connection to the DSO and TSO grids in the “interesting” regions for renewable energy sources.

These factors led to the active growth of the new market - sale of operational projects. Moreover, the main buyers in this market are foreign companies.

For us as an engineering company, this trend is very beneficial, because it allows us to fully develop our competence in conducting technical audits (due diligence) of SPP and WPP projects. Despite the fact that our experts have been participating in such audits since 2013, including for EBRD, audits of operational projects have their own specifics that are often new for us.

Over the past year, we conducted technical due diligence for twelve SPPs with a total capacity of 165 MW in several regions of Ukraine. During the audit, the following aspects were checked:

  • Permits (initial data for design, including the grid connection agreement and technical conditions; construction permits; documentation for the sale of electricity)
  • Site conditions (geodesy, geology)
  • Analysis of design solutions and used equipment
  • Guarantees of EPC contractor and suppliers of panels and inverters
  • O&M Agreement - Availability Ratio, scope of work, responsibility
  • Operational reports - statistics failures, use of spare parts, warranty activation
  • Compliance with health and safety rules as well as ecology standards during operation
  • Analysis of the financial model
  • Inspection of the facility

As could be expected, the permits for the projects were generally fine, which is not surprising. After all, it is impossible to obtain a license for generation without going through a full inspection of documentation from NEURC. It is impossible to deliver electricity to the grid without fully implementing the Grid Connection Agreement and without concluding agreements for the distribution, transmission and dispatching. Thus, the comments in this part mainly concerned the missing documentation - the data room should be complete and show the entire history of the project development.

Analysis of site conditions and design solutions in some cases identified risks, for example, design solutions did not provide for effective surface drainage systems. As a result, areas can be regularly flooded, which can even lead to erosion in case of a respective slope - we recorded this during the on-site inspection.

In terms of labor and equipment warranties, a risk factor may be that most EPC contractors prefer to reduce the 10-year labor warranty specified in Civil Code to 2 years. Warranties for equipment are basically standard everywhere - both for modules and inverters. Warranties on metal structures, in particular, in terms of rust, can sometimes be problematic.

Analysis of maintenance and operation agreements revealed many risks for the owner and for the investor. The main one is the lack of a full-fledged formula for the Availability Ratio written in accordance with the best international practices. Of course, service organizations strive to follow their economic interests. So, we face an unclear liability for station downtime, minimum frequency of cleaning solar modules from snow and dust, insufficient frequency of cable and electrical equipment inspections, etc. The percentage of the SPP usability time for operation is generally underestimated - in the analyzed contracts, we met figures of 95-96%, while international standards recommend 98-99%. I am talking about the number of hours the plant will be ready for operation, which must be provided by the service company. Otherwise, the company is penalized for every percentage of the deviation. Thus, all considered O&M agreements needed serious revision to protect the investor’s interests.

I would also like to note that the leading O&M companies have adopted the practice of maintaining full-fledged reporting only in the last couple of years. Therefore, the analysis of the history of operation and statistics of breakdowns of stations, which were put into operation in the period before 2018-2019, was quite difficult.

There were no questions about occupational health and safety. In terms of ecology, the risk (minimal for the investor) was caused by non-observance of all standards of waste management at an industrial site. In practice, we see that environmental issues for SPP, unlike for wind farms, are not that significant. The exception was a case where the protection zone of a water reservoir prescribed in the Water Code was not respected.

Inspection of facilities turned out to be very interesting for us. Of course, we have been doing a visual inspection of access roads and on-site roads, an inspection of the condition of solar modules, metal structures and electrical equipment before. New for us was the thermal imaging analysis of the solar panels using a drone as well as measurements of the current-voltage characteristics of the strings. This work we did together with partners, and it allowed us to identify problematic modules, even at the level of an individual cell or diode. Selective measurements of the I–V curves showed how the work of the strings corresponds to the standard test and nominal indicators. Based on this, we can make a conclusion about both the wear of the panels and the need for repair work to restore the performance of the SPP.