When Can Parties in Energy Projects Claim Force Majeure Due to the COVID-19 Coronavirus?

As the energy industry faces the growing impact of the coronavirus disease 2019 (COVID-19), commonly known as the “coronavirus,” or COVID-19, outbreak, questions arise about whether force majeure provisions may be invoked to delay performance or terminate contracts. Force majeure provisions, also referred to as “Act of God” clauses, are commonly included in project contracts to relieve parties from performing their contractual obligations upon the occurrence of an event beyond their control.

Energy projects are facing reduced demand and disrupted supply chains, as governments and businesses tell people to stay home in an effort to stem the spread of the virus. Contracting parties in the energy industry are growing concerned about the impact those disruptions will have on contract schedules and their ability to meet their contractual obligations.

Those disruptions concern not only project owners, but also investors and lenders, who may be relying on agreed upon project schedules to support the project’s eligibility to receive tax incentives and credits. For example, parties to US renewable projects may be at risk of losing tax credits if they are unable to meet start-of-construction or placed-in-service deadlines as a result of schedule delays. Newer energy industries, such as battery storage, may be particularly susceptible to manufacturing disruptions as their supply networks tend to be less developed than more established industries. Regardless, parties to energy project contracts are facing “an immediate and dramatic business concern for the industry as a whole.”