Classification of COVID-19 as Force Majeure event – grants relief to solar developers under the solar PPAs?

The outbreak of COVID-19 has landed us in tumultuous times impacting, in unprecedented ways, both the public health and safety and the global businesses and economy. The solar power developers are equally affected by this pandemic; with the impact being different for under construction projects and operational projects.

A solar power project developer, as a first step, needs to ascertain if COVID-19 would qualify to be a force majeure (“FM”) event under the power purchase agreement (“PPA”) (the main contract for a project developer) and all its other project documents (such as, EPC contracts (i.e., construction contracts), land procurement agreements, evacuation arrangements) and financing agreements. And, importantly, basis the project documents what reliefs and/or additional costs would the project developer be entitled to or need to bear in such a scenario.

It would be useful to briefly discuss the concept of FM here; which is a civil law concept and not a common law concept (which India follows). The term ‘force majeure’ is a French term that literally translates to ‘superior force’.

While Indian law does not specifically provide for the concept of FM, one provision to address such issues is the concept of frustration of a contract provided under Section 56 of the Indian Contract Act, 1872. This Section provides that a contract is frustrated (rendering the contract void) if either (i) there is an agreement between two parties to perform an impossible act; or (ii) a contract to perform an act becomes impossible or unlawful due to a change in circumstances beyond the control of the parties after the contract has been executed.

FM is a concept which is contractually agreed to provide for situations falling short of frustration concept. And this concept mainly provides that, upon the occurrence of certain specified events (such as act of god, natural calamity, act of war, etc.) which temporarily makes it impossible to perform the contract after the contract has been made would excusethe parties from performing their obligations under the said contract.

The rationale for FM clauses is to save the affected party from the consequences of anything over which the party has no control [1].

ET Energy World
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