Contracting guide

Constuction contract

The plant building contract regulates the structural condition and is the centrepiece for the construction of the biogas plant. The main regulation points are significantly depending on the concept and the size of the plant. From the perspective of the plant operator, in particular the following points are in need of regulation:

• whether the project is realised by an engineering company or as turnkey construction, the contract should possibly including all trades/crafts, agreement of specific performance and should contain detailed service specifications

• coordinated technical requirements of the plant are observed (e.g. minimum hydraulic retention time)

• bank guarantees or other valuable collateral can reduce the cost risk in construction as well in the warranty period

• a specific completion date should be agreed, also rules in terms of delays to compensate for revenue losses (penalty)

• clear rules for the test operation (scope, duration, power values, retries, etc.) and acceptance should be made

• agreements to "whether and how" of subsequent changes of the scope of work (reduction and / or extension) increase the flexibility, even if a request of change was not clear included in the contract

• a reduction of the statutory warranty circumference should be avoided. The aim of the plant operator is instead the longest possible warranty period

• a forward-looking planning covers a contractual right to supply spare parts to fixed or at least determinable prices (price adjustment clauses) for as long as possible

• usually, the payment will be agreed on progress of construction work. The amount of progress payments based on the economic value of the trades/craft or partial performance, the maturity date results from the project schedule / construction schedule. The payment of the last rate should not take place before the end of the express warranty, but in any case not before lodgement appropriate securities (warranty bond)

Management and maintenance contract

The biogas plant must be regularly serviced and maintained. Plant operators normally negotiate maintenance contracts for their biogas plant, occasionally supplemented by management contracts. If the plant manufacturer or constructors don’t offer maintenance services, the operator should demand written maintenance requirements. Intervals and amount of maintenance should be defined as detailed as possible in written form.

The following points should be taken:

• in addition to the plant construction contract a maintenance contract with the plants manufacturer or builder is recommend (negotiated at the same time)

• the term of the maintenance contract should not be less than the warranty period from the plant construction contract

• to obtain warranty claims, a maintenance contract is useful for the plant operators who has not the technical skills for maintenance

Substrates supply and digestate delivery contracts

In addition to the initial investment, the operating costs of the plant (e.g. for substrates and their delivery) determine in particular on the cost efficiency of the plant. Costs and arrangements for substrate supply are at an early stage to be considered in the calculation of profitability with an appropriate risk surcharge.

In substrate supply contracts, delivery volumes of renewable resources (energy crops) are usually defined on area basis, because the harvest is not fixed from the outset. In good harvest years, it may therefore come to an over-supply of substrates in poor to a shortage.

The exploitation of the digestate can also be negotiated in a contract after completion of the fermentation process and the corresponding storage of the digestate volume. In practice, it has been proven many times that the substrate supplier takes back the digestate to use it as fertilizer on his agricultural land.

In substrate supply and digestate collection contracts can be found - in addition to the usual rules on liability etc. - regulations on the following points:

• term of the contract, including rules on termination and contract renewal

• delivery quantities or information on cultivated area stating the expected yields and any minimum quantities delivered, including where appropriate options

• price adjustment mechanisms, usually based on an index or several indices (e.g. consumer price index, diesel fuel index or substrate price index), depending on the term of the contract

• harvesting business service and delivery logistics, i.e. agreements on whether the operator or the substrate supplier harvest, the chopping, the removal, silage plus compression of the substrates takes over where they are stored and how long they have to be stored / may as well

• digestate collection (volume, responsibilities, dates, periods, deadlines, prices) including logistics (in particular transport, storage, distribution) under consideration of the requirements for the application of digestate as fertilizer

Concession agreement with land owners

The construction and operation of a biogas plant on the property of the plant owner represents the rule. However, if e.g. an operated satellite-CHP – in own operation or by a third party –, or the produced raw biogas fully or partly supplied by pipelines or the generated heat transported via heat pipes, the consent of adjacent property owners may be required. For this purpose, concession agreements concerning law of obligations are concluded. The duration of such a concession agreement should correspond to the expected need.

The compensation schemes should, due to the long term nature of such a project, contain price adjustment mechanisms. The protection of the rights of use of land owned by others should necessarily be done by appropriate easements entry in the land register. This will ensure that the rights are not lost in the case of sale of land or in the event of the insolvency of the other party.

Grid connection terms and Power purchase agreement.

The terms for the connection of the biogas plant (CHP) to the low voltage grid are received by the Publc low-voltage grid manager after submission of a request application for this. The terms and conditions of energy supply to the public electrical energy transfer system are determined by the national energy transfer regulator and/or the national operator for the energy market as dictated by national laws.