Covid-19: Ill wind or sunshine after rain for corporate PPAs? | Fieldfisher
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Covid-19: Ill wind or sunshine after rain for corporate PPAs?


Belgium, Germany, United Kingdom

The arrival of Covid-19 brought many negotiations for corporate power purchase agreements to an abrupt halt in Europe, but this may not be all bad news for the sector.

  Before Covid-19 forced the mass lockdown of industries across Europe, the market for corporate power purchase agreements (CPPAs) was booming. Demand for clean energy was soaring and renewable energy suppliers were in a strong position to negotiate terms with corporate buyers.

Following the imposition of drastic government measures to curb the spread of the virus, including the temporary closure of offices, manufacturing plants and some transport systems, the negotiation process slowed to a crawl at best.

By the end of June, most European countries were starting to show some positive signs of restarting CPPA discussions – particularly in the Netherlands, Belgium, Germany, Spain, Portugal and the UK – although some concerns remain to be alleviated.


While the initial hiatus in contract negotiations was partly due to logistical factors, there was also nervousness about CPPA pricing, following a steep decline in energy demand and the corresponding nosedive in electricity prices.

Even as negotiations resume, this continues to be a sticking point, as contracting parties are unsure about how to price energy under future CPPAs.

In wholesale energy markets, traditional demand patterns have shifted as industry and the wider workforce change their working patterns, with more people working from home.

Energy pricing is notoriously difficult to predict, and while power pricing for projects two-to-three years away from construction had rebounded close to pre-pandemic levels by mid-July, there is still understandable nervousness in view of the bleak economic forecasts for most European countries for the remainder of 2020.

Covid-19 and contracts

In a CPPA contract, generally speaking, the obligations are for the generator to produce electricity, and for the buyer, to take that electricity and pay for it. These obligations are not obviously affected by Covid-19.

That demand for electricity has decreased, or that customers cannot pay for the electricity, are not directly related to these contractual obligations.

This has given rise to some complex negotiations between CPPA parties, and more are likely to follow as the economic fall-out from Covid-19 persists.

In UK contracts, there is generally a strict two-pronged test for invoking force majeure that parties (anecdotally) are finding difficult to satisfy by demonstrating the impact of Covid-19 on their operations.

In civil law jurisdictions across most of Central and Western Europe, there is more leeway to discuss the implications of Covid-19 on parties’ ability to perform their contractual obligations in good faith.

There are still several questions regarding the enforceability of energy supply contracts pending resolution by lawyers and arbitrators, but as lockdown restrictions begin to ease, it seems that many are trying to take practical measures to avoid contractual disputes.

With the benefit of hindsight, the lesson from Covid-19 is that parties should be as specific as possible in change of circumstances clauses in contracts.

Since the start of the Covid-19 pandemic, there has been much greater focus on specific “corona clauses” and more detailed material adverse change (MAC) clauses, involving significant back and forth between parties.

This is a broadly constructive development, if it results in contracts with provisions that mitigate damages in the short term and, in the medium term, provide mechanisms for restoring the economic balance originally envisaged at the start of the contract, without the need to resort to expensive litigation.

Opening up the market

Prior to the Covid-19 lockdown, there was significant pressure on timelines for signing and delivering CPPAs.

Now that a lot of CPPA projects have been put on hold, there is more flexibility for projects to be negotiated under different subsidy regimes, such as feed-in tariffs (FiTs) and contracts for difference (CfDs), or their equivalent in other jurisdictions.

Similarly, auctions (many of which were oversubscribed) and tender deadlines were frozen or pushed back once the pandemic took hold, giving participants more time to consider their options.

Applying the brakes to the frenzied pace of Europe’s renewable energy market may have a beneficial impact on the CPPA sector in the long term, if it redresses some imbalances in bargaining power.

What next for the CPPA market?

On the developer and financing side, there is reluctance to sign CPPAs for near-term delivery while energy prices remain low and future demand continues to be uncertain.

On the corporate side, companies are unwilling to commit to volumes in the near-term until they know what they will require once economies begin to recover.

Longer-term projects, which are not due to start construction for at least two years, have been largely unaffected by the lockdown, and scheduled energy tenders for big wind farms are continuing to go ahead.

The Covid-19 pandemic has given the still largely immature CPPA market a chance to pause and reflect on its direction of travel, and what emerges may be a more sophisticated sector than it was pre-crisis, provided access to credit and energy market volatility improve.

This article was authored Fieldfisher energy experts Daniel Marhewka, Lis Blunsdon and David Haverbeke and was based on a series of webinars around the launch of Fieldfisher's thought leadership report "Think GIG: The rise of corporate PPAs".