The renewables sector is feeling the impact as COVID-19 begins to cause huge global disruption to supply chains. The renewables sector is heavily reliant on global supply chains for raw materials and components, as well as an available workforce to physically build, operate & maintain the power plants.
Whilst we note that Chinese factories are now at various stages of restarting and ramping back up capacity, production across the rest of the globe is currently being hindered and disrupted. Examples of the practical impacts COVID-19 is having in the renewables sector supply chain are:
- Imports/Exports stopped - countries are enacting different measures concerning import of goods and services from COVID-19 high risk countries. The European Commission has allowed each Member State to adopt measures (proportionate and not prejudicial) aimed at safeguarding the health of its citizens and to prevent the spread of the virus COVID-19.
- Factories and test facilities closing/reducing output – countries are adopting differing approaches as to whether or not production must halt, and this is changing almost daily.
- Reduced workforce – employees not coming to work due to self isolation, sickness or fear of risks.
- Travel bans – many countries have begun to close borders. Certain work in the sector (such as specialist installation or operation and maintenance) may require overseas-based specialists who are unable to get to the location of work due to travel restrictions.
Renewables is also a sector packed with tight contractual deadlines and liquidated damages for delay. Some independent power producers (IPPs) are finding a mismatch between the relief they must grant to their EPC and O&M Contractors and the relief they are entitled to under the Power Purchase Agreement. There are also often deployment deadlines in countries’ auction systems.
The above all means that customers and suppliers are keen to understand their liabilities under their contracts should COVID-19 cause delay, and to work collaboratively to find solutions. Of particular interest is whether liquidated damages remain payable by the supplier, and whether the supplier has any other options such as suspension, termination or entitlement to increased costs under the change in law clause.
This note looks at how English contract law on force majeure and frustration applies to the COVID-19 pandemic, and highlights other contractual hints and tips that both customers and suppliers should be aware of.