Energy Contract Performance Surety Bonds: Solar, Wind, Install, Decommission

Energy contract performance surety bonds are often required by state and federal conservation or environmental entities otherwise known as the “Obligee.” The entities regulating energy operations for drilling, exploration and production of oil and gas wells are responsible for the issuing of permits and compliance, well, solar and wind completion, drilling, and production, installation and decommissioning of wind turbines and solar grids. The Obligees conduct inspections of new well permitting and installation of wind turbines and solar power grids, decommissioning, plugging and restoration of well sites; compiles and tracks active and inactive site data and mapping; and provides for financial recovery in the event an operator fails to perform the duties to meet the obligee requirement.

Obligee and Bond Conditions:

The Obligee is the entity that requires the bond and/or other financial security for an energy project before any drilling of new wells, installation of wind or solar systems, plug back, or deepening of an existing well and removal of wind or solar equipment. The bond ensures compliance of federal and state laws. Failure to comply or perform in the manor prescribed by the Obligee may result in a claim filed against the bond or financial security. In the instance of a surety bond, if the Obligee files a claim against the surety bond, the owner, operator, or contractor (named as the principal on the bond form) will be responsible for repayment of the claimed amount if the claim is paid out by the surety.

The contract performance surety bond or financial security must be in place from the time of the initial permit up to completion of the energy project and most likely will not have the option to be canceled. The premium will renew on the bond on an annual basis for the life of the project. If the project transfers to new ownership, a new bond or financial security is required to fulfill the permit conditions. Failure to maintain a bond in most cases will result in a claim by the Obligee.

The contract performance surety bond also ensures in the case of a well proper plugging and for wind or solar removal of equipment and the land and surface restored to its natural space. The process of the decommissioning of wind and solar equipment and plugging of wells must pass through an inspection process and to ensure the surface restoration meets the standard requirements. The Obligee will release the bond upon passing the inspection and the premium for the bond will no longer be required.

Surety Bond Requirements:

A surety bond is required based on the Obligee’s requirements. In the instance of an oil or gas well, the bond may be conditioned on the depth and number of wells or type of well and plugging and land restoration when the well is no longer producing. For solar and wind systems, the bond may be for multi-years (up to 20 years) and ensures the removal of the equipment and land restoration.

The bond amount varies by each state or federal entity. In some cases the bond may only be $5,000 but other entities may require up to a $250,000 surety bond. Because the bond amounts vary, the applicant will need to contact the requiring entity to find out the particular requirements for the surety bond that is needed.

Depending on the amount of the bond and the specific wording in the bond form, an underwriter may require personal and business financial statements, resumes of experience in the specific industry, and in some instances the deposit of collateral which is a financial guarantee in the event the operator, owner or contractor were to default on the bond and cause claim actions.

The surety bond or financial security may be referred to as a performance bond or performance guarantee, financial guarantee bond or other such terms. Regardless of what the bond is called, SuretyGroup.com works with various sureties to get you the lowest rates possible.

How Much Will This Bond Cost?

The premium that you pay for an Energy Contract Performance Surety Bond is dependent on credit and the requirements for your project. For bond amounts over $50,000, personal and business financial statements will be required.

Did You Know?

Wind energy is now the 2nd fastest-growing source of electricity in the world, with a worldwide installed capacity of 539,581 megawatts (MW) as of 2017. WindEnergyFoundation.org.

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