The renewables sector is feeling the impact as COVID-19 begins to cause disruptions to supply chains due to the spread of the virus. This sector is heavily reliant on global supply chains for raw materials and components, as well as an available workforce to build, operate and maintain the power plants.
Whilst 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 as a result of the pandemic. Examples of the practical impacts COVID-19 is having in the renewables sector supply chain are:
Imports/Exports stopped or slowed down: several 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. Notwithstanding the foregoing, the specific scope of these measures varies according to each jurisdiction and the criterion of implementation adopted by its authorities. In the specific case of Spain, the publication of Royal Decree Law 10/2020 and the lack of definition of what is meant by "essential activity" and "non-essential activity" has caused uncertainty in the sector.
Factories and test facilities closing/reducing output: many countries are adopting differing approaches as to whether or not production must halt, and this is changing almost daily. This is the case with Royal Decree Law 10/2020 and its precedent, Royal Decree 8/2020.
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.
Restrictions on foreign investment: some countries have adopted restrictive measures for foreign investment in the energy sector under Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 on the control of foreign direct investment in the Union. This is the case in Spain with the amendment introduced in Law 19/2003 by Royal Decree-Law 8/2020, which includes a new article 7 bis, suspending the regime of liberalization of certain direct investments in Spain for the supply of essential inputs (where the energy sector is expressly included, understanding as such those that are regulated by Law 24/2013, of the Electric Sector and Law 34/1998, of the Hydrocarbon Sector) and if the foreign investor is directly or indirectly controlled by the government (including public bodies) of a third country or if the foreign investor has made investments or participated in activities in the sectors related to the aforementioned essential inputs (energy).
Renewables is also a sector packed with tight contractual deadlines with liquidated damages for delay. Many power producers 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, so that it is generally not possible to relocate such offsets.
Specifically, 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, force majeure or by virtue of "rebus sic stantibus" clause.
This note looks at the implications of COVID-19 on agreements subject to Spanish law and highlights other contractual hints and tips that both owners of power generation facilities from renewable sources and suppliers of goods and services should be aware of.