Extended Discussion Clause Samples
Extended Discussion. “Force Majeure” Provisions A “Force Majeure” provision in an energy sale or PPA sets out each party’s respective rights and obligations in the event of an “Act of God” or event beyond the party’s reasonable control. Standard events of Force Majeure include wars and acts of terrorism; earthquakes, hurricanes and other natural disasters; labor strikes; embargos; and any other event or occurrence beyond the reasonable control of a party. Most often, upon the occurrence of a Force Majeure event, the contract will require the party claiming an impact from the event to notify the other party and begin steps to cure or address the event. Following written notice and upon beginning steps to address the impact, the “claiming party” is usually temporarily relieved of its obligations to perform under the contract. If the party claims that the event cannot be remedied and the contract cannot be fulfilled, the Force Majeure provision usually then allows that party to terminate the contract without penalty. In the context of a distributed-generation PPA between a third-party System Owner and a municipal government, where power is delivered from an on-site solar generation system to a municipal host-customer, the parties also may be concerned with moratoriums on the activities contemplated by the contract, events of non-appropriation, and concurrent but conflicting uses. As a result, force majeure provisions in the PPAs we reviewed generally contained standard Force Majeure definitions as well as events that are unique to government contracting. Many PPAs we reviewed included, as events beyond the control of the parties, government moratoriums on any activity related to the PPA and budget non-appropriation events. On the other hand, some PPAs addressed non-appropriation events separately and created alternatives for the parties to address events of non-appropriation, such as selling power to unrelated third parties or utilities, in the event of non-appropriation. In those PPAs, the definition of Force Majeure expressly excluded non- appropriation events. Whether an event of non-appropriation may be considered an event outside of the parties’ control will turn on whether the contracting party is also the budgeting or appropriating party. In circumstances where the customer may not have budgetary control, inclusion of non-appropriations may be appropriate. Similarly, where the definition of Force Majeure included government moratoriums or actions of other governmental auth...
Extended Discussion. Termination of a PPA Before a system is fully installed, connected to the utility meter, and operating, a PPA may be terminated for a variety of causes, such as convenience, failure to obtain necessary permits and approvals, or failure of a system owner to secure financing. These early termination rights are usually set out within specific timeframes, such as 30 or 60 days after the effective date of the PPA and may vary depending upon the parties’ anticipated lead time for securing equipment, conducting due diligence, signing an interconnection agreement, and so forth. When a PPA encompasses multiple sites owned by a single municipality, the parties typically ensure that early termination rights may be exercised in part, as to one or more sites, while leaving the PPA in effect as to remaining customer sites.
Extended Discussion. Facility Relocation Provisions The needs of a local government, including the need for, or use of, a specific building or facility, may change over time (e.g., a school or government building may be closed or repurposed). While it is unlikely, and inadvisable, that a prospective PPA entrant would seek to enter an agreement for a site that is expected to experience such a change, predicting local needs 10 or 15 years in advance is likely to be difficult. Providers are sensitive to this potential, which represents a risk that their investment in the system could become “stranded” with a change in ownership, use, or closure. The Model PPA template provided in this Toolkit addresses this concern with two provisions. The first allows the power customer to substitute a mutually agreeable replacement site for the facility, and holds the customer responsible for all relocation costs. It likewise provides that should the customer be unable to provide a replacement site, the customer is considered to be in default. In a default event, the customer is obligated to pay for the removal of the system and remit an early termination fee to the system owner, though where available, the system owner may exercise an option to retain the system on-site and sell electricity to another party. In the situation in which the power buyer sells or transfers its real property (that is, the PV system’s location), the PPA template provides several options: • With the system owner’s consent, the customer may assign the agreement to a new owner of the premises after demonstrating that the assignee has the financial ability to meet the purchase obligations; • The customer may elect to purchase the system if the conveyance takes place after the 6th anniversary of the commercial operation date; or • The customer may terminate the PPA and pay an early termination fee This general scenario is likewise laid out in some of the PPAs surveyed for this Toolkit, though several contain additional details related to the specifics of customer-borne costs, replacement site suitability (beyond simple mutual consent) and compensation due to the system owner if the replacement site has inferior insolation that results in lower revenue (i.e., a revised PPA rate that makes the system owner whole for foregone sales). While the PPA template is more general in these areas, the end result is the same; the system owner retains discretion to accept or not accept the substitute site. Further remedies, such as addi...