The COVID-19 pandemic has already created considerable uncertainty and has the potential to significantly disrupt renewable energy project EPC and supply chains worldwide.

Wind Energy

The wind industry is particularly susceptible to the effects of this disruption because project completion delays could preclude developers from qualifying for the full value of the production tax credit. Critical components for wind projects were already in limited supply prior to the pandemic, and developers may have no viable supply alternatives. Additionally, as COVID-19 spreads across the United States and results in mandatory shelter-in-place requirements, worker availability at project sites could also affect project completion timelines. Given these complications, the industry has begun seeing force majeure claims from EPC contractors, wind turbine suppliers and other vendors.

Solar Energy

Supply chain disruptions are also likely to affect the U.S. solar industry. Because of existing tariffs on Chinese solar panels, U.S. developers often purchase panels from Southeast Asia, where manufacturing facilities have yet to encounter COVID-19-related disruptions on the same scale as China. Although most Southeast Asia-manufactured panels are made with raw materials from China, the availability of raw materials is less vulnerable to disruption relative to manufacturing slowdowns in China. Nonetheless, given the uncertainty about the continued spread of COVID-19 and its impact on panel availability, an increasing number of force majeure notices are likely to be issued moving forward. Similar issues are affecting the availability of lithium ion batteries and related equipment necessary for battery energy storage systems.

Force Majeure – Generally

Force majeure clauses may relieve a party of its contractual obligations when an unforeseeable and extraordinary event prevents such party from performing its obligations despite mitigation efforts. Typically, force majeure clauses list “acts of God” and other specific qualifying events. If epidemics or pandemics are specifically included in a force majeure clause, then a party seeking relief from its contractual commitments may be excused from performance provided that the other requirements are met. Even if epidemics or pandemics are not specified, they may qualify as an “act of God,” or other like category, unless specifically excluded. Whether a global pandemic qualifies as an “act of God” may depend on the jurisdiction and case law addressing the scope of such claims. Global pandemics may also give rise to claims of commercial impracticability, impossibility and illegality.

COVID-19 has the potential to give rise to force majeure claims with respect to labor shortages, supply chain disruptions, enhanced site safety and “social distancing” requirements, delays in the issuance of permits and utility approvals, and the potential for government proclamations that require site shutdowns. Project owners and contractors need to carefully consider their options under EPC and related contracts and begin to actively take steps to mitigate potential impacts (e.g., by updating site safety protocols to limit the risk of infection, accelerating purchase and delivery of equipment and canvassing alternate sources of project labor).

Project Owner Considerations

Project owners should assume a high likelihood of COVID-19-related force majeure claims. The appropriate response will depend upon various factors, including the status of completion of the project, the credit and performance quality of the contractor, any applicable surety bonds, the nature and extent of any other third party deliverables and requirements (e.g., owner-supplied equipment, utility construction, back-feed and inspection requirements, permit issuance and close-out) and available schedule float to meet financing and offtaker timing requirements. For early stage projects (particularly if notice to proceed has not been issued), the owner may prudently elect to suspend projects until greater certainty regarding the impact of the COVID-19 situation becomes clear. For projects substantially under way, the risk of suspension must be weighed against the economic carrying costs associated with the projects.

Owners should identify and be prepared to assert their rights under applicable force majeure provisions. A standard owner response to a force majeure claim should include a timely written demand to the contractor to document specific impacts supporting such claim. Owners should evaluate whether other unexcused contractor delays may give rise to a “concurrent delay” defense to such claims. Owners should also request assurances from the contractor regarding its ability to continue to perform, request copies of any applicable surety bonds, and ensure that any required subcontractor flow-down and step-in rights are in place. Owners that are directly sourcing panels, inverters and other key equipment need to evaluate the possibility that they may have additional exposure related to delays in securing delivery of such equipment.

Contractor Considerations

Contractors should review contractual force majeure provisions and take note of the applicable substantive and procedural requirements. Compliance with these requirements will be critical to the success of any force majeure claims. Best practices include making an initial force majeure notice regarding potential impacts before they may be quantified, with updates as better information becomes available. Contractors should also seek assurances from subcontractors and suppliers regarding their ability and intention to continue to meet downstream obligations. Any applicable sureties should be notified to preserve remedies and to actively involve the surety in the decision as to how to best mitigate impacts. Contractors should meticulously and regularly record any time, cost and efficiency impacts in order to preserve the basis for future claims. Contractors should also note the extent to which the contract affords relief for cost impacts as well as schedule delays. A likely contractor strategy will be to seek an “open book” change order in which the contractor is willing to proceed on a time and materials basis, as opposed to the typical fixed price EPC structure with strict schedule requirements.

Other Project Stakeholders and Considerations

Contract provisions aside, managing COVID-19-related impacts will require active and ongoing discussions between owners, contractors, key subcontractors, sureties, offtakers, utilities and other key project participants about how to move forward. Ultimately, all such parties have strong incentives to go forward, but given the unique and unprecedented scale of this pandemic, it is critically important that key risks be identified and equitably allocated among the parties.

COVID-19 impacts may also affect project owners’ ability to achieve required commercial operation dates and other key milestones under offtake contracts. Unless excused, failure to achieve such milestones may entitle an offtaker to delay liquidated damages. Like EPC contracts, offtake agreements typically contain force majeure provisions excusing project completion delays. A comparative analysis of such provisions is important to assess the ability to claim force majeure based upon underlying contractor claims. Developers should note, however, that even if a qualifying force majeure event occurs, such extensions may be limited if the offtake agreement limits the duration of force majeure relief or specifies outside completion dates for which no equitable extension is permitted. Finally, for hedges and other financially settled offtake arrangements, force majeure events typically do not excuse settlement obligations unless expressly stated to the contrary.

Owners also need to consider the liquidity of the credit markets and the extent to which construction and take-out financing will be available. Financing agreements do not contain force majeure provisions and may have outside commitment dates or MAE clauses, which excuse a decision by the financing provider to not provide committed financing.

The COVID-19 pandemic has also disrupted strategies for ensuring that solar and wind projects will satisfy the “beginning of construction” requirements for purposes of the ITC and PTC, including with respect to both the procurement of equipment and the placing in service of projects. An analysis of these issues prepared by Troutman Sanders tax attorneys is available here

Troutman Sanders LLP is actively working with owners, contractors, and others who have been or may be affected by supply chain disruptions. We are available to set up calls and/or videoconferences or otherwise provide guidance on particular issues for clients.

The Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act, which are part of the Families First Coronavirus Response Act (FFCRA), go into effect April 1. Employers with fewer than 500 employees are subject to the Act. The Emergency Paid Sick Leave Act requires employers to post a model notice which the Department of Labor (DOL) has now provided. Each covered employer must post this notice in a conspicuous place on its premises. Recognizing the current situation where many employees are teleworking or otherwise not at the employer premises, the DOL has stated that an employer may satisfy the posting requirement by emailing or direct mailing this notice to employees or by posting this notice on an employee information internal or external website. Employers with fewer than 500 employees who have not already done so should do so today — before the Act goes into effect.

The DOL also has posted a series of questions and answers that are useful in complying with the Act. These questions and answers are updated from time to time, so check the DOL’s website periodically for those updates. The DOL’s statement on the definitions of “health care provider” and “emergency responder,” which are quite broad and which those connected to health care should consider. (See DOL Guidelines #55-57). Employers with fewer than 50 employees should also review the DOL’s statements on the potential exemption of those businesses. (DOL Guidelines #4, 58-59).

Please visit the Pepper Hamilton LLP / Troutman Sanders LLP COVID-19 Resource Center for COVID-19 news and developments, recommendations from leading health organizations, and tools that businesses can use free of charge. Please reach out to members of the COVID-19 Task Force of Troutman Sanders and Pepper Hamilton, or an attorney with whom you work, for guidance about COVID-19.

Infocast’s Wind Power Finance & Investment, February 4-6, brings together the industry’s leading developers, investors, lenders, turbine suppliers, EPCs and attorneys to gain valuable insights into industry trends, receive market updates on the finance and investment landscape, and efficiently network with industry leaders.

Troutman Sanders Capital Projects & Infrastructure Section Leader, John Leonti will serve as an interviewer on the Fireside Chat – Wind 2020 and Beyond.

Wednesday, February 5, 2020, from 9:30 am – 10:15 am

The fireside chat will be a conversation discussing what the wind industry can take from 2019, and what to expect in the years to come.

Interviewer: John Leonti, Partner, Troutman Sanders

Interviewee: Tom Kiernan, CEO, American Wind Energy Association

Benefits:

1.Learn directly from the CEO of the American Wind Energy Association what trends to be on the lookout for in 2020 and the future.

2.Network with key players from the finance and investment community to connect and share information about upcoming projects and deal-making opportunities.

For more information or to register click here.

Infocast’s Projects & Money, January 14-16, brings together the project finance community to connect, share information about upcoming project opportunities, get the latest market intelligence on the trends in the markets and hear the best available perspectives on the financing and deal-making landscape.

Troutman Sanders Capital Projects & Infrastructure Section Leader, John Leonti will serve as a moderator on the panel listed below.

Panel Description

Tax Equity Perspectives

Thursday, January 16, 2020, from 9:30 am – 10:15 am

The panel will provide an update on the key trends in tax equity. The panelists will also discuss what the wind & solar industry can expect from tax equity during the rush to qualify projects for remaining tax credits. During the session, they will address issues such as:

  • How is the upcoming phase out renewable tax incentives driving current investment decisions? What is the availability of tax equity?
  • Tax equity’s view on the strategies and risks around qualification for remaining credits
  • How does tax equity get comfortable with C&I structures, hedged merchant projects and other emerging structures?
  • Tax equity’s perspectives on solar + storage, wind + storage and the emergence of wind + solar + storage

Moderator: John Leonti, Partner, Troutman Sanders

Panelists:

Gary Blitz: Co-Chief Executive Officer, AON M&A TRANSACTION SOLUTIONS

Rod Eckhardt: Partner, SEMINOLE EQUITY PARTNERS

Gary Kerr: Vice President of Analysis & Structuring, SOUTHERN POWER COMPANY

Benefits:

  1. Learn the latest trends and upcoming project opportunities in the project finance space.
  2. Network with key players from the project finance community to connect and share information about upcoming projects and deal-making opportunities.

For more information or to register

For a 15% discount, please use discount code: 200114

The U.S. News – Best Lawyers® “Best Law Firms” report has named Troutman Sanders LLP as the 2020 “Law Firm of the Year” in Energy Law. Only one law firm is awarded “Law Firm of the Year” in each nationally eligible practice area. Rankings are based on a rigorous evaluation process that includes the collection of client and lawyer evaluations, peer review from leading attorneys in the field, and review of relevant law firm data.

Troutman Sanders has counseled energy clients for nearly a century. Of the firm’s 650 attorneys nationwide, more than 100 practice in the energy sector, serving clients day-in and day-out across all facets of the regulatory, project finance, corporate, tax, environmental, and real estate needs of its clients, offering strategic business and legal counselling to guide clients through the unique and complex challenges that face the energy industry. 

“We are very proud to be recognized by U.S. News & World Report – Best Lawyers® as the top national firm for energy law,” said Amie Colby, a partner in the firm’s Energy practice and chair of its Regulatory and Finance Department. “The recognition highlights Troutman Sanders’ unrelenting commitment to provide the best client service to our energy clients and beyond.”

To read more, click here.

 

Infocast’s Mid-Atlantic Renewable Energy Summit, July 17-19, 2019, will bring policy-makers & regulators together with utilities, IPPs, developers of wind, solar & storage projects, investors, financiers and other industry stakeholders to examine the biggest PJM market challenges, navigate the complicated landscape, and take advantage of the vast opportunities for renewable energy in the market.

Troutman Sanders Capital Projects & Infrastructure Partner, Stuart Caplan, will serve as Summit Chair on July 18-19.

Troutman Sanders Capital Projects & Infrastructure Partners, Hayden Baker, Stuart Caplan and Andrew Schifrin will serve as moderators on the panels listed below.

Panel Description

The Capacity Market Changes & Their Impact on Renewable Energy Project Developments

Thursday, July 18, 2019, from 10:30 am – 11:30 am

The entire renewable energy development community in the Mid-Atlantic market is closely monitoring the continuing changes to market rules and how the capacity market reform is working itself out in 2019 and beyond. This session will analyze:

  • What changes might mean for new renewable projects
  • Wholesale level activity- rules on new projects from wholesale perspectives
  • How the continued development of renewables and RPS’ affect the wholesale market
  • How does the MOPR impact new projects?
  • Potential impacts of nuclear and coal subsidies on markets
  • Carbon pricing – zero emission credits

Moderator: Stuart Caplan, Partner, Troutman Sanders

Panelists:

Agustin Abalo, Director, M&A Origination, CYPRESS CREEK RENEWABLES

Jason Barker, Director, Wholesale Market Development, EXELON

Bruce Burcat, Executive Director, MID-ATLANTIC RENEWABLE ENERGY COALITION

Charles Koontz, Director, Transmission Strategy, CORONAL ENERGY LLC

Panel Description

The Rise of Corporate Renewable Energy – Opportunities & Challenges in the Mid-Atlantic Region

Thursday, July 18, 2019, from 3:50 pm – 4:35 pm

Corporations are exponentially procuring renewable energy all over the country. In the Mid-Atlantic region, there are a number of projects being planned. This session will discuss:

  • What and where the opportunities for C&I projects are within the region
  • Corporate renewable economics- do they make sense for this market?
  • How will PJM reconcile corporate demand for renewables with transmission issues?
  • Challenges- how to account for a supply/demand mismatch as it relates to the grid, land use, and regulations
  • Financing options & structures for C&I projects

Moderator: Andrew Schifrin, Partner, Troutman Sanders

Panelists:

R. Brent Alderfer, CEO, COMMUNITY ENERGY, INC.

Andrew Levitt, Senior Business Solution Architect, Applied Innovation, PJM INTERCONNECTION

Harry Singh, Vice President, GOLDMAN, SACHS & CO.

Kelly Snyder, Senior Origination Manager, East Region, EDP RENEWABLES NORTH AMERICA LLC

Panel Description

Offshore Wind- Opportunities & Challenges for the Region as Offshore Gains Traction

Thursday, July 19, 2019, from 11:45 am – 12:30 pm

The offshore wind sector continues to gain attention, especially on the east coast. PJM, with its prime location in the area generating most interest, is in a prime position to take a piece of the $300 billion estimated in potential investment to the national wind energy capacity.

  • Where are the biggest opportunities in Offshore Wind for the region?
  • How much potential capacity does offshore add to the mix and what will be its impact on the Mid-Atlantic market?
  • What approaches are being considered for integrating OSW and how do they consider project costs and schedules?
  • What are the challenges of coordinating OSW procurement within and between states?
  • How will the market wrestle with the economics of OSW?

Moderator: Hayden Baker, Partner, Troutman Sanders

Panelists:

James F. Bennett, Chief, Office of Renewable Energy Programs, BUREAU OF OCEAN ENERGY MANAGEMENT (BOEM)

Kris Ohleth, Senior Manager – Stakeholder Engagement – ØRSTED

Nancy Sopko, Co-Director, UNIVERSITY OF DELAWARE

Benefits

  1. Get the latest information about the business development outlook and what financial alternatives you can turn to in the market.
  2. Network with key players from the renewable energy community to connect and share information about upcoming projects and deal-making opportunities.

For more information or to register

For a 15% discount, please use discount code: 192335

Last week, New York legislators endorsed Governor Andrew Cuomo’s ambitious clean energy goals, adopting the Climate Leadership Community Protection Act that targets an aggressive expansion of on- and offshore wind development and the integration of solar and battery storage resources onto the electric grid.  When implemented, the new legislation will require the complete decarbonization of the State’s electric system by 2040, net-zero emissions by 2050 with the use of carbon offsets and includes nearer-term targets for solar, batteries and offshore wind.  Governor Cuomo is expected to sign the bill into law soon.

Expanding on Governor Cuomo’s previous clean energy goals, the new legislation sets targets of: 6 gigawatts of solar capacity by 2025, 3 gigawatts of energy storage by 2030 and 9 gigawatts of offshore wind by 2035.  The latter is by far the most ambitious target of any state in the country.

As interim steps, the law requires:

  • 2030: at least 70 percent of the State’s electricity be generated by renewables (defined broadly as hydroelectric, wind, solar and certain bio-mass resources), an increase from the previous 50 percent target;
  • 2040: the electric grid must operate with 100 percent zero-emission generation; and
  • 2050: cut all greenhouse gas emissions by 85 percent compared to 1990 levels and eliminate 85 percent of the State’s economywide emissions by 2050, the most stringent economywide carbon target in the country.[1]

The State already has relatively low-carbon generation compared to other states, thanks largely to four nuclear power plants and the largest hydroelectric fleet of any state in the Eastern Interconnection.[2]  In 2018, 5 percent of New York’s power was generated by solar and wind energy; but total emissions-free generation accounted for over 50 percent, with 32 percent nuclear and 22 percent hydropower.[3]  The remaining 41 percent was generated by natural-gas fired resources, largely downstate.[4]  However, with the planned retirement of Indian Point,[5] the State is expected to lose approximately 2,000 MW of nuclear generation capacity by 2021.  The other three upstate nuclear plants are also likely to retire, but not until 2030.[6]  As such, the State’s push to become a cleaner electric grid will be a challenge because these carbon-free MWhs will first need to be replaced before making incremental progress towards 100 percent carbon-free.

Also, with onshore wind development largely expected in Western New York, and load centers primarily downstate, a significant build-out of large-scale regional transmission lines will likely be required.[7]  Such transmission has historically been difficult for the state to plan, site and develop.[8]  Approximately 80 percent of the State’s over 11,000 circuit miles of bulk transmission lines entered service before 1980.[9]  Over the past two years, however, the State’s grid operator – the New York ISO – has selected three major transmission lines as part of two competitive public policy transmission solicitations following the New York Public Service Commission’s establishment of a Public Policy Transmission Need.[10]  Once complete, the projects will add the largest amount of free-flowing transmission capacity to the New York bulk power system in more than 30 years.[11]

A potential benefit of offshore wind – among others – is its proximity to New York City and Long Island.  According to an initial New York ISO assessment, the injection of up-to 2,400 MW of offshore wind downstate may be feasible considering a variety of additional injection points.[12]  Additional reviews and studies will be required given the increased State goals to identify impediments to increasing the offshore wind target.  Separately, NYSERDA is expected to announce the winners of its first offshore wind solicitation for up-to 800 megawatts of capacity soon.

New York has joined a growing list of states and other jurisdictions with 100 percent clean energy requirements, including: California, Nevada, Hawaii, Washington, New Mexico, Washington, D.C., and Puerto Rico,[13] though none as early as 2040.  Despite some early excitement at the federal level about the Green New Deal with the new U.S. Congress, new U.S. energy legislation is not expected in the near-term.  And at the federal agency level, the current U.S. Environmental Protection Agency is intent on weakening earlier attempts at clean energy and greenhouse gas reduction initiatives, including through its recent Affordable Clean Energy Rule.  With inaction at the federal level, it falls primarily to the states to advance clean energy and greenhouse gas measures.  When implemented, the Climate Leadership Community Protection Act will solidify New York as one of the leaders in clean energy policy.


[1] A 22-member Climate Action Council composed of heads of various New York state agencies, and members appointed by the Governor, the Senate, and the Assembly will create a scoping plan.  Every four years, the council will issue a comprehensive report on state greenhouse gas emissions and progress, and adjust its plan as needed.

[2] See The New York ISO Power Trends 2019, at: https://www.nyiso.com/documents/20142/2223020/2019-Power-Trends-Report.pdf/0e8d65ee-820c-a718-452c-6c59b2d4818b?t=1556800999122.

[3] Id.

[4] Id.

[5] Press Release: Entergy, NY Officials Agree on Indian Point Closure in 2020-2021, Entergy, Indian Point Energy Center (June 21, 2019), at: http://www.safesecurevital.com/entergy-ny-officials-agree-on-indian-point-closure-in-2020-2021/.

[6] See Order Adopting Clean Energy Standard, CASE 16-E-0270, Aug. 1, 2016, at: http://documents.dps.ny.gov/public/Common/ViewDoc.aspx?DocRefId=%7b44C5D5B8-14C3-4F32-8399-F5487D6D8FE8%7d.

[7] The New York ISO Power Trends 2019 at 19, 36 and 61-62. See also NYISO Interconnection Process (June 21, 2019), at: https://www.nyiso.com/interconnections.

[8] Id. at 18.

[9] Id.

[10] See Press Release: NYISO Board Selects Transmission Projects to Meet Public Policy Need, Apr. 8, 2019, at: https://www.nyiso.com/-/press-release-nyiso-board-selects-transmission-projects-to-meet-public-policy-need; and Press Release: NYISO Selects NextEra Transmission Project to Increase Access to Hydro Power, Oct. 2017, at: https://www.nyiso.com/documents/20142/3067023/NYISO-Selects-NextEra-Transmission-Project-to-Increase-Access-to-Hydro-Power.pdf/a23ec9bc-4d0d-6369-49cc-e4a897764eb4.

[11] New York ISO Power Trends 2019 at 60.

[12] NYISO, Offshore Wind Injection Assessment (Dec. 1, 2017), at: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=2ahUKEwjFuuC5xoXjAhVIh-AKHcQBBK4QFjAAegQIAxAC&url=https%3A%2F%2Fwww.nyserda.ny.gov%2F-%2Fmedia%2FFiles%2FPublications%2FResearch%2FBiomass-Solar-Wind%2FMaster-Plan%2F17-25n-Offshore-Wind-Injection-Assessment.pdf&usg=AOvVaw07Px9LCSdSmLap0vj0seiC.

[13] Sierra Club, 100% Commitments in Cities, Counties, and States (June 25, 2019), at: https://www.sierraclub.org/ready-for-100/commitments.

The New York State Department of Environmental Conservation[1] (“NY DEC”), the state regulatory body charged with conserving, improving, and protecting New York’s natural resources and environment[2], has proposed a new rule aimed at curtailing New York’s nitrogen oxide (“NOx”) output.[3]

The United States Environmental Protection Agency, under the Clean Air Act, sets National Ambient Air Quality Standards (“NAAQS”) for harmful pollutants, including ozone.[4]   As of October 1, 2015, the eight-hour NAAQS for ozone is 0.070 ppm.[5]  Ozone comes in “good” and “bad” varieties.  “Bad” ozone is formed from a chemical reaction in which NOx is a main ingredient.[6] Continue Reading New York’s New Rule to Lower NOx Emission

New York Partner Justin Boose will serve as a panelist for an upcoming webinar, “Energy Storage Projects,” scheduled for Tuesday, May 21, at 1:00pm-EDT.

This CLE webinar will provide energy counsel guidance on effective methods in financing energy storage projects and overcoming regulatory compliance challenges in deal structures. The panel will discuss key compliance challenges impacting energy storage, effective deal structures for financing and mitigating risks, and key tax considerations in developing and financing energy storage projects. Click here to register.

Troutman Sanders Capital Projects & Infrastructure Partner, Justin Boose, will moderate a panel providing insight into Solar and Power markets during the Solar Power Finance and Investment Summit 2019 at The Omni La Costa Resort & Spa on March 19 – 21, 2019.

Continue Reading Troutman Sanders Partners to Present at Solar Power Finance and Investment Summit