Although the adoption of solar power has skyrocketed in other states, Florida electric customers are only now beginning to realize solar’s economic and environmental benefits. To be sure, natural gas prices are currently low by any measure, and that translates to low electricity prices for the time being because gas-fired electricity plants account for so much of the state’s power mix. Even so, whether one considers the cost of solar by the cost of the fuel (sunlight is free), the cost of a solar farm averaged out over its useful life, or the cost of one unit of electricity that a solar farm produces, the cost metrics are on target to fall below fossil fuels and win the price war.
It is not surprising, therefore, to see Florida’s utilities beginning to take measured steps toward adopting solar power into their portfolios of electricity-generating assets. The most substantial investments have come from Florida Power & Light Company with three large solar farms that are currently under construction in southwest Florida. Even so, solar still accounts for less than one tenth of one percent of FPL’s generation portfolio, and this number is likely to increase with the widespread adoption of electric vehicles, coupled with global and federal pressures to reduce carbon emissions.
The label utility scale can mean different things to different participants in the industry, but under Florida’s regulatory structure, it is helpful to classify solar farms in excess of two megawatts as utility scale because solar installations that have a capacity of two megawatts or less qualify for standardized interconnection and net metering payments. Also, with currently available system designs, systems larger than two megawatts are ground-mounted rather than roof-mounted due to the area required to build such large installations. Finally, the purchaser of the power from such large installations has classically been a utility; however, more and more, private corporate enterprises with large power bills are building utility-scale solar farms for their own use.
Under the classic model, a developer is the project-owner and will form a legal entity to serve as the nexus of contracts between the project and all other parties, including the land owner, investors, lenders, construction contractors, engineers, consultants, and the utility that will purchase the power from the project under a power-purchase agreement (“PPA”).
On solar construction projects, the general contractor typically provides more than construction management services: the general contractor provides a turn-key engineering, procurement, and construction (“EPC”) service for the project owner; that is, the EPC contractor designs, engineers, procures equipment for, and builds the project, often subcontracting various scopes. As with any project, some scopes are segregated, such as when the project owner procures some equipment directly rather than buying it through the EPC contractor.
The thirty-percent Investment Tax Credit (“ITC”) has long fueled investment in these projects, but timing has always been critical. Previously, to qualify for the investment, the solar equipment had to be placed into service before December 31 of the year in which the investor sought to claim the credit. Consequently, strict schedules targeting substantial completion by November with steep liquidated damages for failure to do so characterized solar construction contracts under the previous ITC structure.
With the extension of the ITC and the so-called “commence construction” rule, the emphasis has shifted to commencing the project, either through actually starting construction activities or through procuring the requisite equipment. This autumn, the industry expects to receive from the Internal Revenue Service further guidance on the commence-construction rule.
The commence-construction rule might occasion a fourth-quarter uptick in project owners issuing to EPC contractors limited notices to proceed (“LNTPs”) to get the projects under way before year’s end; however, this instrument has always been a favorite of project owners willing to put at risk a limited sum before financial close for the sake of completing the project on time.
A project owner considering issuing an LNTP should bear in mind that even though an LNTP represents a commitment to pay the EPC contractor only a portion of the EPC contract price, that portion is often sizable in absolute terms—often into the millions of dollars—and the fact that the amount at risk is smaller than the whole does not mean that the LNTP’s contract documents should be any less comprehensive than the full contract’s contract documents—and this is especially true of LNTPs that the EPC contractor issues to subcontractors and materialmen. LNTPs are often inadequately short and are plagued with vague, short-form graphics that leave the parties’ responsibilities unclear, and this often leads to unnecessary disputes that can drain the project’s profits. Assistance from an experienced and efficient lawyer is recommended to achieve the LNTP’s time-sensitive goals without sacrificing legal protections.
Waiting until non-payment from a project owner or EPC contractor before considering remedies, particularly filing a mechanic’s, materialman’s, or construction lien on the property, is inadvisable because, although a lien is a powerful tool, it’s enforceability requires strict adherence to statutory provisions. At the earliest stage, be sure to consult with an experienced construction lawyer who is familiar with the solar construction issues that often prompt contractors and materialmen to file liens.
Florida law does not permit prospective waivers of liens in construction contracts:
A right to claim a lien may not be waived in advance. A lien right may be waived only to the extent of labor, services, or materials furnished. Any waiver of a right to claim a lien that is made in advance is unenforceable.
Solar construction scopes fall into two broad categories: mechanical and electrical. Mechanical scopes include driving steel foundation piles into the ground, constructing the rest of the structure that will support the solar panels, such as a fixed-position rack or a system that tracks the sun’s position throughout the day, and mounting the panels onto the support structure. Mechanical scopes also include installing combiner boxes (although this component is becoming more rare), inverters, and transformers, as well as the steel or concrete foundations typically used to support these components.
Although constructing a solar farm is viewed by some as building a glorified erector set, the level of precision required in both the mechanical and electrical scopes are formidable. Performing wire terminations in the field is greatly curtailed by wiring and connectors that come pre-terminated and manufactured to facilitate rapid connection on the direct current collector side of the inverter. On the alternating current side, high-voltage interconnection with the electric grid through any configuration of transformers, switchgear, and substations dispel any notion that these projects are child’s play and present certain safety, code, and other liabilities that are unique to energy infrastructure projects.
Solar contractors and manufacturers must balance their obligations under all of the foregoing considerations with the highly competitive race to the bottom that is causing the cost of solar to plummet so precipitously. Not only are panel prices in free fall, but the efficiency that comes with experience, as well as design changes, such as the trend to increase system voltage from 1,000 volts to 1,500 volts, thereby saving on balance-of-system equipment, are all continually contributing to ever-lower EPC bids, which are quoted in prices per watt of direct current.
This race to the bottom forces contractors to assume perfect conditions when crafting their bids, but since unforeseen subsurface conditions, particularly adverse weather conditions, out-of-sequence work, poor coordination of the trades, damage to equipment, and labor-related issues can add equipment, labor, and overhead costs. Accordingly, all of the project’s documents should coordinate and allocate each such risk—from the PPA on down through the EPC contract to the subcontracts and purchase orders.
Among these risks are employee-related issues that include OSHA compliance, wage-and-hour rules, and discrimination claims. Regarding unions, Florida is a right-to-work state, and this tends to allow EPC contractors to tender bids that are relatively lower that would otherwise be the case.
Contractors and manufacturers should be aware that in addition to typical workmanship and material warranties, the solar farm is a revenue-generating power plant. As such, if a workmanship or product defect occurs such that it reduces the plant’s power output, it could trigger the system’s performance warranty. As the solar industry has developed and the feasibility of various warranty structures have been tested through disputes and litigation, it is important to discuss the warranty with an experienced lawyer who can work closely with the project’s electrical engineer to ensure that the warranty’s principal risks are understood and addressed in the contractual language.
Tim Hughes is an attorney in the Solar Industry Practice Group at Shumaker, Loop & Kendrick, LLP, where he advises stakeholders in utility-scale solar photovoltaic construction projects. To learn more, please visit http://www.slk-law.com/Industries/Solar.
 U.S. Dept. Energy, U.S. Energy Info. Admin., Levelized Cost and Levelized Avoided Cost of New Generation Resources in Annual Energy Outlook 2016 6 at tbl. 1(a) (Aug. 2016); Advanced Energy Economy, Competitiveness of Renewable Energy and Energy Efficiency in U.S. Markets (June 2015) (reporting average utility-scale solar photovoltaic prices ranging from $50 to $75 per megawatt-hour, compared to the lowest-cost form of natural gas-fired generation coming in at an average of $72 per megawatt-hour).
 For fuel mix numbers of all of peninsular Florida, see Florida Public Service Commission 2016 Ten-Year Site Plan Workshop FRCC Presentation at Slides 22–24 (Sept. 14, 2016). Renewables account for only one percent of all 55.6 gigawatts of generating capacity in peninsular Florida. Solar accounts for only one eleventh of one percent of all capacity in the state. By comparison, natural gas accounts for seventy-one percent. Id. The forward-looking numbers of the same report are not truly forward looking, since they do not take into account the Clean Power Plan, solar’s price competitiveness with other fuel sources, natural gas price increases, or increased demand from electric vehicles. Of the sixty-one gigawatts of planned capacity for 2025, solar is currently planned to account for only 1.2 gigawatts, or two percent of all generation. Id. Florida utilities’ 2016 ten-year site plans do not reflect the inevitable scale of solar adoption that the state will see in the coming years.
 See Bus. Renewables Ctr., Corporate Renewable Energy Transactions: Faster, Better, Easier (accessed Oct. 8, 2016).