How to plan for supply chain delays affecting UK green energy projects
Published on 27th Oct 2022
What to consider to avoid or mitigate delays when planning a new project
The energy crisis has highlighted the need for the widespread construction of new power-generation assets in the UK to help reduce reliance on imported fuel sources and stabilise pricing.
But any new development carries the risk of delay and subsequent default in the supply chain. This can lead to issues connecting the project as well as a risk of the subsequent termination of connection or offtake arrangements due to breach.
Allow for delay
Project plans should factor in timescales for labour and materials shortages. Planners should communicate regularly with suppliers, put insurance in place and, if required, source alternative suppliers promptly.
Planners should gain early visibility of construction milestones in the grid-connection offer. Those engaging a third party (such as an independent connections provider (ICP)) should ensure that there is adequate buffer time built into the connections programme to manage delays at an ICP level. This should include ensuring the ICP submits a detailed design to the distribution network operator (DNO) and obtains approval as soon as possible to ensure this does not have a knock-on delay or lead to missing further development milestones.
Engagement and dialogue
When delays are likely, there is a need to engage promptly with all parties affected in the supply chain. For example, if the project is at connection stage, engage with either National Grid or your DNO (as applicable) to seek adjustments to the milestones in the connection documents, as failure to meet the milestones could result in a breach of the connection documents and termination of the connection offer.
Delays may also be caused by DNOs when there is a lack of capacity on its network meaning it cannot connect a project. Ensure dialogue is maintained with your DNO so any delays are known about as soon as possible and can be factored into the later stages of the project development.
If the project has been awarded a contract for difference (CfD) or capacity market agreement (CMA), you will have committed to construct the project in accordance with the defined milestones in, as applicable, the CfD or CMA. The milestones and availability dates under the arrangements should be set to allow for delays in the construction timeline. The counterparty to these arrangements – the low-carbon contracts company – should be engaged with in a timely manner regarding any delays to avoid non-delivery liability arising.
Protect your position
If you are contracting with a party for the supply of materials or to undertake work on your behalf, ensure your contract undergoes specialist legal review to ensure your project is properly protected. For example, where you are contracting with a party to undertake work in relation to your project, it is likely that your intended contractor will issue its standard terms and conditions, which may contain broad exclusions on liability together with a financial cap. Consideration should be given as to whether the intended terms are sufficient to deal with any delay, including enabling a claim if required.
Beware of rushing it over the line
If a project is delayed, it is important to avoid the temptation to choose the quickest resolution to reduce the delay and get the project over the line if that results in "cutting corners" and significant knock-on risks or problems. Doing so could lead to a long list of issues to resolve at a later date, including disrupted generation, which could take months or years to resolve and be very costly (with potentially limited recourse available). If you're considering "bending" some of the contractual or regulatory requirements to completion we recommend you stop and take legal advice on the potential implications.
Route-to-market implications
A delay in the construction of an asset will result in a delay to its operational life, meaning that where a power purchase agreement (PPA) has been entered into, the purchaser under that PPA – whether an end user or utility – will not receive the contracted volumes by the envisaged timeframes and may need to source alternatives in the market. Should this situation arise, it may wish to recover the losses it incurs in doing so through its PPA, creating a liability for the project.
If you would like to receive more information on this topic, please contact Deborah Harvey, Head of our International Energy Innovation subsector at Osborne Clarke.
