PPA Price Risk and Force Majeure

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.