PPA Price Risk and Force Majeure

PPA Price Risk and Force Majeure

Lachlan Tait

15 years: Renewable energy & project finance lawyer

In the final video of this series, Lachlan expands on the area by outlining two more sector-specific challenges: PPA price risks and the impacts of COVID-19 as a force majeure event.

In the final video of this series, Lachlan expands on the area by outlining two more sector-specific challenges: PPA price risks and the impacts of COVID-19 as a force majeure event.

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PPA Price Risk and Force Majeure

9 mins 1 sec

Key learning objectives:

  • What are PPA price risks?

  • What are the impacts of COVID-19 as a force majeure event?

Overview:

In this video, we look at how contracts can be used to help overcome some of the challenges faced by renewable energy projects. We also examine how to ensure that force majeure clauses are drafted consistently across project contracts.

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Summary

What are PPA price risks?

PPAs that were agreed in the past when prices were higher can become relatively expensive, or "out of the money". These PPAs increasingly face the risk of the buyer seeking to renegotiate the price. A bankable PPA must exclude any contractual scope for price renegotiation except in limited circumstances. Aggressive buyers may go so far as to withhold payments or performance of other obligations in order to build leverage and force a renegotiation.

What are the impacts of COVID-19 as a force majeure event?

Covid and related lockdowns and border closures have had and continue to have huge impacts on industrial activity and supply chains around the world, as well as on electricity consumption and oil prices. One contractual impact of Covid has been a multitude of force majeure claims. Force Majeure clauses are designed to exempt a party from liability for breach of contract, where the party's breach is due to an event like Covid. Covid has been a major test for force majeure clauses, as well as for projects and project lenders. The impacts of Covid should be unforeseeable and unavoidable.


Access to relief should remain subject to standard conditions. Contracts must be both bankable in themselves and in interfaces with other contracts. Lenders are still key stakeholders and their interests must also be protected.

 

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Lachlan Tait

Lachlan Tait

Lachlan Tait is a lawyer specialising in renewable energy and project finance, and has been for 15 years. For the last 5 years he has worked in-house with renewable energy developers active across a range of jurisdictions, including both developed and emerging markets. He has participated in the negotiation, documentation and closing of numerous renewables project financings, involving a wide range of lenders including smaller national banks and international commercial banks.

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