ARC News • March 30, 2021

Performance ratio guarantee and energy output guarantee are two common types of guarantee given by the engineering, procurement, construction and commissioning (“EPCC”) contractor for the installation of a solar photovoltaic (“PV”) system. In order to determine which form of guarantee works best for you, let’s explore the concepts of both guarantees.

Performance Ratio Guarantee

Performance ratio guarantee focuses on the performance efficiency of the PV system, and it is not subject to the weather impact that affects the energy output of the PV system. In the event the PV system does not perform up to the guaranteed system efficiency level, the EPCC contractor will either rectify the PV system to improve the performance efficiency to the guaranteed level or compensate the customer of the loss of saving between the actual generation and the guarantee performance. The performance ratio guarantee provides more certainty and fairness to both the EPCC contractor and the system owner as neither party can control when the sun shall shine.

Energy Output Guarantee

On the other hand, energy output guarantee is a more straightforward approach in which the EPCC contractor shall guarantee on the minimum energy can be produced by the PV system. In the event the PV system is unable to achieve the energy output guaranteed by the EPCC contractor, the EPCC contractor shall compensate the customer of the loss of saving between the actual generation and the energy output guaranteed. However, this is generally perceived as a less appropriate approach as the EPCC contractor is obliged to provide guarantee on the environmental factors where no one is able to control them.

Best Form of Guarantees?

In order to determine which form of guarantee works the best, it would depend on the mutual agreement between the EPCC contractor and the customer as both options have their own pros and cons that may bring different values to different customers based on their needs and requirements.

While the summary above might look simple, it is vital to engage with professional advisors to review the EPCC contract prior to the execution of the same.   

This Article is co-written by Yeo Shu Pin (Partner) and Serene, Tee Jia Qing (Legal Executive) of Messrs. Afif Rahman & Chong

Disclaimer: Every attempt to ensure the accuracy and reliability of the information provided in this publication has been made. This publication does not constitute legal advice and is not intended to be used as a substitute for specific legal advice or opinions. Please contact the authors for a specific technical or legal advice on the information provided and related topics.