COVID-19 raises legal, other renewables issues; stimulus neglects clean energy

Lawyers from major international law firm Eversheds Sutherland on Wednesday pointed to a multitude of needed changes in global clean energy contracting, power purchase agreements, force majeure provisions, lending and other areas in the renewables sector that have surfaced out of the COVID-19 pandemic.

On a webcast sponsored by the London-based law firm, a partner based in Beijing said the coronavirus has "been contained" in China and that the initial negative impact on the world's largest supplier of solar and wind generation products "is now manageable."

The attorney, Jay Ze, said China's global sales of renewable energy equipment such as solar panels and wind blades and turbines began falling in January and continued falling through February.

"Production of renewable equipment in China," Ze said, "is back up to 70% to 90% of factory production capacity," and Chinese companies are "fulfilling international orders."

He said that the risk China manufacturers now face are the "changing conditions elsewhere," and as European countries and the US combat the spreading virus, demand for imports from China "will likely see a decline."

Ze noted that China's own engineering, procurement and construction services were affected by restrictions on travel of its large workforce, thus "delaying projects both at home and abroad."

Two US-based Sutherland attorneys noted that wind and solar project developers with power purchase agreements signed with utilities and private buyers prior to the outbreak of the virus should possibly consider force majeure language in their contracts.

Tom Warren, based in Atlanta, said developers' force majeure clauses need precise wording laying out what is preventing or delaying the supply of power to a counterparty.

He noted that many developers likely did not include in their contracts events such as the COVID-19 virus or government shutdowns in their notice of future performance provisions.

Thus far, however, developers and off-takers in the US are "going ahead with projects, and not postponing them," according to JP Boutin. "Utilities are also reluctant to delay," he said, though some delays are "being worked out."

Warren said long-term effects have not been seen, though that could change. "Some utilities have delayed some requests for proposals, or RFPs," he said.

"We are also seeing volatility in the [renewable energy credit] markets," he said.

Lenders and borrowers

"There have been significant developments over the last few weeks," said Madeline Tan, a Sunderland partner based in New York, "with supply chain worries increasing."

But, Tan said her lending clients have not seen defaults or waivers on their loans. She said, however, that "borrowers should draw down as quickly as they can."

One concern now is with the role that tax equity plays, or has played, in financing renewable projects. The economic slowdown associated with COVID-19 is affecting the "appetite" investors have for tax equity, and thus tax equity's availability as an investment tool.

Amish Shah, a Sunderland partner based in Washington DC, said during the Wednesday webcast that "there is now talk" about bringing back the 1603 cash-in-lieu-of-tax credits program that the US Treasury was tasked by Congress to run in early 2009.

Known by its Internal Revenue Service code, 1603 was originally designed to provide wind and solar developers with up to 30% of the cost of a project's construction in the form of cash that was directly paid into a developer's bank account.

The cash incentivized lending at a time when investors had little appetite for production tax credits.

"However, none of this was in the stimulus bill," Shah said, regarding Congress' $2 trillion stimulus package. Nor were there any extensions of the investment tax credit and the production tax credit in the legislation.

Renewable industry workforce

On Wednesday, the White House and Senate leaders reached an agreement on the massive coronavirus spending bill designed to alleviate the economic impact of the outbreak.

Wednesday morning, the Solar Energy Industries Association, which has been concerned with the impact of the virus on its 250,000 person solar workforce, said, "There are several elements in this legislation that can help solar businesses and solar workers, including long-term unemployment insurance, business loans and provisions that support employee retention and other employee protections."

The American Wind Energy Association said its priority is the safety of its workforce but said it was "disappointed that clean energy sector relief did not make it into the phase three stimulus package."

AWEA said it would continue working with Congress and other renewable energy leaders "to find solutions to the specific challenges COVID-19 is causing our members."

It said, "Relief provisions ensuring renewable projects can secure financing and meet safe harbor continuity schedules are critical to preserving a strong domestic clean energy sector."