Warranties for traditional photovoltaic (PV) panels show considerable uniformity and standardization, but the market for concentrated photovoltaic (CPV) systems and warranties is still developing. The variation among different manufacturers’ warranties provides both hazards for the unwary and opportunities for the informed.
Unique Features of CPVâ€¨
The variety in the CPV warranty market stems from two unique technological features of a CPV system. First, CPV arrays track the sun and will only generate electricity if the arrays are aligned with the sun to within a few degrees. So every component of the CPV system—which generally includes solar cells, lenses, tracking hardware, tracking software, and a variety of other components— must perform as designed. While a traditional PV panel may not be producing maximum output when out of alignment, it is usually still producing at least some energy. A CPV system, on the other hand, will not generate any energy if the arrays are not properly aligned with the sun.
Second, CPV system components are usually manufactured by a number of unrelated companies. The company that designs and sells the CPV system may carve out different components from its warranty and pass along the warranties from the component manufacturers to the owner, or it may offer a more comprehensive systemwide warranty, even though it did not manufacture the entire system. In each case, understanding the protection offered by a warranty starts with identifying what the warranties cover, whether there are carve-outs, and who stands behind each of them.
Although advice from technical experts remains essential, a basic understanding of CPV technology is necessary to coordinate effectively among team members and to ensure that technical advice translates into informed business decisions and significant legal protections. This article focuses on the issues from the perspective of project developers and future owners of the CPV system, whom we collectively refer to as the “owner.” We call a company that designs and sells the CPV system to owners the “CPV manufacturer” and the companies that manufacture the various components of the system the “component manufacturers.”
Systemwide warranties are preferable because an owner need only submit a single warranty claim to address any of a range of problems that could cause reduced energy output. Although there may be some instances when it is clear which component of a CPV system is defective or underperforming, there will be other times when determining the root of a problem will present vexing technical and legal issues.
Without a systemwide warranty, the owner faces a significant evidentiary burden, because it will have to determine and at least initially prove which manufacturer is responsible for the shortfall. Although an owner may choose to conduct its own investigation into the cause and then pursue a specific manufacturer, this can be an expensive option, as the owner may have to hire outside experts. Even when the owner finally submits a claim, the manufacturer will likely insist on its own internal investigation. Alternatively, if the owner indiscriminately and simultaneously pursues claims against all of the manufacturers, each manufacturer will have an obvious incentive to point the finger at the others. Given the number of parties and the complexity of the underlying issues, there is a real risk that the dispute will not be resolved outside of a courtroom.
Proving such technologically complex claims in a single forum, whether court or arbitration, is extremely costly because of the delay in resolving the claim (during which energy output is still reduced), the fees paid for battling experts, and the legal expenses. These costs seriously diminish the value of any potential warranty claim.
Two common features of warranties make the situation even worse. First, it is likely that the warranties of the CPV manufacturer and the component manufacturers will have different forums and choice of law provisions. This means that an owner may have to pursue claims in several different forums and against several manufacturers at once, greatly increasing costs and creating the risk of conflicting outcomes of fact and law. Second, many warranties provide that if an owner makes a claim that is determined to be invalid, it must pay the manufacturer’s costs in processing, analyzing, and defending the claim.
Thus, even when an owner prevails against one manufacturer, it may have to reimburse costs incurred by the other manufacturers. These common warranty features typically lead to protracted, high-cost litigation. Although there may be some room to negotiate for a single forum and choice of law among all of the warranties, often the warranties provided by the component manufacturers are simply passed on by the CPV manufacturer after it has purchased the components. This scenario leaves little possibility for negotiation. Even if it is possible to negotiate the component warranties, the legal fees involved in such negotiations could be substantial.
Our recommendation has generally been that clients look for manufacturers who offer systemwide warranties, which solve these problems because the owner need only look to the CPV manufacturer. A number of the more prominent CPV manufacturers offer, or have been willing to offer, systemwide warranties. Although there may be countervailing considerations weighing in favor of a manufacturer that does not offer this type of warranty, the benefits of a systemwide warranty are clear from the owner’s perspective.
Warranties Based on Actual Outputâ€¨
Unlike traditional PV output warranties, where performance is measured by flash tests performed under standard test conditions, obtaining a meaningful measurement of the performance of a CPV system is not so simple. This is because, as noted, the system will only generate energy if the arrays closely track the sun. Thus, a flash test of the solar cells in a CPV array means little as far as the actual performance that an owner will experience.
Recognizing this issue, some CPV manufacturers provide systemwide warranties based on the actual performance of the CPV system. Such warranties are preferable because they provide assurance that owners will in fact get the production that they were promised. While components other than the solar cells themselves are likely covered by a five-to-10-year defects warranty, a systemwide warranty based on actual output effectively covers every component to the extent an issue interferes with energy production for a period of 25 years. This feature is especially important for a CPV system because problems with any of a number of individual components may lead to a total loss in energy output for the entire system.
Warranties based on actual performance make the most sense when the CPV manufacturer or one of its affiliates is responsible for engineering and construction, and is providing operation and maintenance services. In such cases, and with a properly negotiated warranty, an owner need only show that the actual performance of the CPV system is less than promised, and then demand that the CPV manufacturer address the issue. If the CPV manufacturer is not responsible for engineering and construction or does not provide operation and maintenance services, the issue becomes more complex because the shortfalls in performance may not be due to problems with the CPV system itself. This complexity, however, is still preferable to warranties that are limited to standard terms and conditions testing, because such limited warranties only cover the solar cells within the CPV arrays and leave an owner with no rights as to performance failures in any of the other components that make up a CPV system.
Conclusion and Recommendations â€¨
An owner planning a CPV system should employ an informed and well-coordinated team of engineers, business people, and lawyers who work together to ensure that warranty issues are addressed up-front in a coherent and comprehensive manner. Such efforts will go a long way toward ensuring that actual energy production will live up to the CPV manufacturer’s promises. Our experience has taught us that systemwide warranties based on the actual performance go a long way toward addressing the unique risks associated with CPV.
—Peter Dean is senior partner and Andrew D. Morris an associate in the Energy and Environmental Practice Group at Sutherland Asbill & Brennan LLP.