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24 October 2025
Solar farm construction contracts are in focus following
fascinating insights into the continuing global uptake and expansion of renewables, and particularly solar, within the 2025 mid-year report of Ember, a global energy think tank.
Headlines include renewables overtaking coal, for the first time ever, to be the leading source of global electricity production and solar and wind generation outpacing electricity demand growth.
Solar energy is leading the charge for renewables, with costs continuing to decline. Ember reports solar grew by a record 31 per cent in the first half of 2025, and is, therefore, likely to extend its record of being the fastest-growing source of electricity for 20 consecutive years.
Within the public sector, solar farms present an opportunity for local authorities in particular to further environmental objectives and generate revenue through electricity sales.
Planning, implementing and maintaining solar farms involves various phases, but the construction itself is fundamental to get right.
With further increasing uptake of solar in mind, we take a look at some of our top tips for solar farm developers to help ensure you get the construction contract right for your solar farm project.
Contractors are generally apprehensive about fitness for purpose type obligations, which require works to meet a specified standard or performance level.
This is a more stringent requirement than a contractor’s obligation to apply reasonable skill and care in their works, for example.
However, obligations which require a certain performance level or similar fitness for purpose style obligations can be important in the solar context.
A key factor for a solar farm’s viability is the performance of the solar modules (and other equipment), and the amount of electricity generated as a result.
The business case for a solar farm is likely to be based on the units producing a certain minimum amount of electricity and therefore a reliable projected revenue stream.
Equally, the performance of solar units can generally be tested/established with much greater certainty than other construction works.
Accordingly, employers should consider requiring contractors to ensure that the solar farm, once built, achieves specified, measurable performance levels at completion on an absolute basis – instead of a requirement to simply exercise reasonable skill and care in doing so.
Commissioning and testing within the scope are vital in this regard. Equally, KPI mechanisms measured against guaranteed performance levels can provide a useful tool to incentivise better performance.
This often takes the form of a Performance Ratio Guarantee where the contractor guarantees a level of actual output of energy to a theoretical maximum output (adjusted for irradiance and other factors) for a period following construction.
Performance of the generating station below the guaranteed level may result in liquidated damages for underperformance.
Similarly, incentive payments (sometimes a percentage of revenue obtained under a power purchase agreement (PPA) or supply agreement for a short period) may be agreed with the contractor to incentivise diligent construction and maintenance of the generating station.
As solar speciality in the private sector grows, we are seeing an increasing trend of firms conducting both the construction phase of the solar farm, and the subsequent operation and maintenance services.
Whether this is a useful arrangement for an employer will vary on a case-by-case basis, but it has advantages such as avoiding arguments about whether the works or maintenance contractor is responsible for defects or problems that could arise later down the line.
For this reason, it is seen in practice that an engineering, procurement and construction contractor will enter into an operation and maintenance contract for a minimum period of two years following the construction completion date. This ensures incentives are aligned during the early years of the operation of the solar farm.
When, under a single contract, a contractor conducts both the construction and the maintenance of a project, it is essential to ensure that the terms and scope are properly considered.
Parties should be careful to ensure that, ideally, scopes, obligations and liabilities under each phase are separate and distinct, or, if overlap is required or terms cross-referenced, these terms are properly clear and function effectively.
Having what is essentially two different contracts in one can be a minefield for conflicting terms, which causes confusion and makes disputes more likely.
Taking care to ensure obligations under the construction contract are properly reviewed considered against any maintenance obligations is therefore crucial.
Solar farm developers are likely to already have agreements in place which deal with the supply and sale of electricity, such as a supply agreement or PPA with either a licensed supplier or private wire offtaker.
A grid connection agreement should, in almost all cases, be in place before construction commences. Developers should consider referencing these agreements in the works contract to ensure alignment of obligations and technical requirements.
For example, terms ensuring the building contractor does not cause the employer to be in breach of a grid connection agreement, supply agreement, or PPA (or where the contractor does cause such a breach, it is liable to the employer for such losses) can help ensure the employer does not hold sole liability in the event of breaches which are, in reality, caused by the contractor.
Equally, the contractor may need to be required to liaise and coordinate with other parties under those contracts, and ensure the solar farm meets certain standards or requirements as set by those other parties.
Solar farm projects generally have lots of moving parts, so ensuring the works contract interacts effectively with these other agreements and stakeholders creates a more coordinated approach.
Contractors, however, will understandably want to be clear on who these parties are and the terms of the contracts they must adhere to.
With solar projects, product warranties and/or guarantees from manufacturers can be an important source of security for an employer.
Unlike many other types of construction projects, solar farms rely heavily on the performance of specific pieces of equipment. This clearly involves the modules themselves, but also inverters, cabling and batteries etc.
Accordingly, manufacturers will often provide a guarantee or warranty against equipment supplied, but this will be provided to the contractor (or subcontractors) as they will generally be purchasing the equipment before installation.
Employers should consider obligations to assign/transfer product warranties and guarantees to them following completion of the works.
This is particularly important in the event that a contractor itself is not providing any direct guarantee of performance of the works via fitness for purpose type obligations (see point 1 above).
Obtaining manufacturers guarantees provides a source of protection for the employer in the event of performance failure of applicable equipment.
Solar farm equipment can be suitable for “free issue” by the employer. This is an arrangement whereby the employer procures certain equipment itself, e.g. the solar modules, and supplies this for free to the contractor.
There may be situations where the employer, due to whatever market advantages it may have, is able to procure certain equipment at a lower cost than if this was done by the contractor, noting the contractor would charge overheads within the cost for the equipment.
An employer may therefore obtain the equipment directly, and supply this to the contractor who then takes responsibility for the equipment and for incorporating it into the works.
The price for the works should be reduced, reflecting the fact that the employer has supplied the relevant equipment.
Note however that contractors may be hesitant to accept liability for underperformance of equipment it has not itself supplied. They may also be concerned about a loss of margin on the cost of the supply of the equipment. Regarding liability for underperformance, concerns can be mitigated through, for example, collateral warranties being required from the equipment supplier to the contractor under the equipment’s supply agreement.
Sharpe Pritchard regularly advises project developers and local authorities in relation to solar farm construction (under both standard form and bespoke contracts), operation and maintenance services contracts, and related electricity connection, supply and sale agreements. To find out how we can assist you, call us on 020 7405 4600 or email us at enquiries@sharpepritchard.co.uk.
Junior Associate
