Red Flags & Realities
8 November 2025
Background
Solar energy has become one of the most widely adopted renewable energy sources due to its clean nature and ease of deployment. Governments and organisations across the world are working hand in hand to accelerate its adoption to achieve Net Zero in the coming future.
In recent years, many new entities have ventured into solar projects by partnering with EPCC contractors. Some investors may lack prior experience in solar development or familiarity with how EPCC agreements are typically structured, therefore these projects are often driven mainly by the contractors. As a result, contractual terms may not always favour investors, leaving them exposed to risks such as project delays, system underperformance, or contractual disputes.
This article summarises the key performance guarantees that investors (e.g. Developers, Solar Power Producers (SPPs) or GENCO) should consider when signing an EPCC contract, helping them protect their interests and invest with greater confidence.
Key Performance Guarantees to Consider in Solar EPCC Agreements
The table below summarises the key performance guarantees should be considered by the investors (e.g. Developers, SPP or GENCO) in their Solar EPCC agreements.
Figure 1: Summary of Key Performance Guarantees in Solar EPCC Contracts
| PG No | 1 | 2 | 3 | 4 | 5 | 6 |
| Performance Type | Installed Capacity (DC) | Installed Capacity (AC) | Export Capacity (AC) | Performance Ratio (%) | Completion Delay | Non-Completion |
| Unit | MWdc or MWp | MWac | MWac | PR % | No. of days | – |
| How It’s Measured | Based on the total rated power of all solar panels (from the module nameplates). | Based on the total rated output of all inverters (from the inverter nameplates). | Measured at the grid connection point using the export or main meter. | Calculated as the ratio of actual AC energy output to theoretical output under standard test conditions, adjusted for site irradiance. | Counted as the number of days beyond the agreed completion date. | When the project is terminated or abandoned. |
| Suggested Compensation | Compensation per MWdc shortfall. | Compensation per MWac shortfall. | Commercial Operation Date (COD) not permitted until the agreed export capacity is achieved. | Compensation per PR % shortfall. Option to reject or not take over if PR % is below threshold. | Compensation per day of delay. | Forfeiture of performance bond / call on letter of undertaking / parental guarantee to recover full damages. |
| Securities | Milestone-based payment released upon verification of agreed % MWdc installation. | Milestone-based payment released upon verification of agreed % MWac installation. | Achieving export capacity shall be a condition precedent (CP) for COD. | Performance Bond. Suggested limit based on the total agreed compensation amount. | Parental Guarantee and/or Letter of Undertaking | |
Source: Self-produced by author (2025).
Are These Guarantees Really Too Stringent?
Some EPCC contractors may argue that the performance guarantees or compensation limits suggested above are too stringent. However, investors must recognise that once a project is awarded and a Notice to Proceed is issued, the investor’s role becomes largely passive, as the planning, execution, and delivery rest entirely with the EPCC contractor.
If an EPCC contractor challenges the need for these guarantees, perhaps the investor should pose the following questions to the EPCC contractor:
If the answers to these questions are “unlikely”, then there is no reason for the EPCC contractors to contend that the guarantees are unreasonable.
It is worth noting that many of these guarantees have been successfully implemented in other projects and can be fully avoided by the EPCC contractor by meeting the agreed terms and performance obligations.
Final Thoughts and Recommendations
These guarantees are not penalties but risk-mitigation measures designed to ensure that the investors or project developers ultimately receive a functional, reliable, and revenue-generating solar plant as promised.
Investors should not be exposed to risks or penalised due to the EPCC contractor’s non-performance. Therefore, it is fair for investors to seek compensations if the agreed performance levels are not achieved or if the plant fails to meet the contractual requirements.
There may indeed be other factors or practical considerations that influence the EPCC contractor’s position, investors should therefore weigh these factors carefully before finalising any contract.
Tip: Where appropriate, it is advisable to seek professional advice from independent technical consultants or legal experts to ensure that the guarantees are fair, balanced, and reflective of real project risks.
Author’s Note: This article is written from the author’s personal perspective and past experiences. It is intended to help investors, project developers, and general stakeholders, better understand the subject matter.
© 2025 Sentinel Insights. This article is based on professional experience, research, and may be refined using AI tools for clarity. Constructive discussion is welcome; however, hostile or misrepresentative criticism will not be entertained. Referencing is permitted with proper credit. Unauthorised use, reproduction, or redistribution is strictly prohibited and may result in legal action.
Trusted Guidance for Sustainable Power
© 2026 Sentinel Energy Resources Sdn Bhd 201601021738 (1192677-T) – All Rights Reserved.
