+27 71 448 3496
leon@whyafrica.co.za

Climate change could overturn force majeure clauses in renewable energy contracts

Share Article
A lack of sun could impede the operations at a solar plant significantly, which can affect legal contracts. Image credit: Leon Louw for WhyAfrica

Climate change could overturn force majeure clauses in renewable energy contracts

Traditionally, force majeure clauses in business contracts cover businesses against failure to deliver on their contractual obligations when an extraordinary event that is unforeseeable and beyond their control takes place. 

Currently, some contractual parties pay little attention to the clause, using it in standard, boilerplate formats of either all-in clauses covering almost any “act of God” or lists that include several adverse eventualities like hurricanes, wars and terrorist attacks.

But climate change and the many unexpected weather patterns it is bringing about globally means that force majeure clauses should not only include destructive weather-related events like floods and storms.

Legal advisors must also provide for the lack of weather conditions like wind or sunshine that could significantly affect the quality and quantity of natural resources that fuel the production of renewable energy.

“The best route to take is to draft a force majeure clause that encompasses weather conditions that could affect the expected performance of a renewable energy facility,” says Hannetjie Marais, legal advisor at Inlexso.

Historical weather patterns no longer reliable (Climate change could overturn force majeure clauses in renewable energy contracts)

Companies that own renewable projects typically undertake financial modelling for their projects in the development phase. The model covers all the stages of the project – from inception to decommissioning – and considers factors like historical weather data and the technology that is used.

“The objective is to get a full picture of what the total revenue of the facility will be over its lifetime. But because of climate change, businesses can no longer rely on historical weather information such as wind data to help develop an accurate financial model. We are seeing significantly less windy conditions in some geographical areas, which affects the production of wind energy,” says Marais.

Some wind farms in the Eastern Cape have experienced their worst operating periods in the past two years due to lower wind availability. They are unable to harvest enough wind to meet their production targets, with the result that they deliver less wind energy to their clients.

“We have always been concerned about adverse weather events such as flooding, tornadoes and earthquakes,” says Marais. “But business performance is evidently also being affected by the absence of certain weather conditions which have never been catered for in force majeure contracts before.”

“In future, lawyers will have to be pro-active and diligent in envisaging what the potential impact of climate change will be on renewable energy projects and their production – and draft force majeure clauses accordingly.”

It follows that businesses and sectors that use and rely on renewable energy could also be affected by adverse weather conditions, including the mining, manufacturing, industrial and agriculture sectors.

“Any weather anomaly can have a disastrous impact on renewable energy facilities. Flooding can prevent access to facilities or completely submerge the facilities, and seismic activity could disturb the delicate balance of wind turbine facilities,” says Marais. “Geographical location is now a much bigger factor in deciding which renewable energy sources and technologies businesses opt for.”

Defending force majeure clauses in court (Climate change could overturn force majeure clauses in renewable energy contracts)

When a force majeure clause is worded correctly, for example by defining an event as an act of God or a weather event caused by climate change, the clause can be defended in a court of law or in front of a legal tribunal. This is because the signatories to the contract have agreed, by signing the contract, that climate change is not foreseeable.

“I think it is unavoidable that we will have to take this to court sooner or later,” says Marais. “There will be disputes where one party needs to prove that a weather event was caused or is linked to climate change. Some might be upset if the traditional view of force majeure is overturned, but this will be a development of our legal system.”

Marais says that there is not yet a local and international legal precedent for the enforcement of force majeure clauses covering unexpected weather patterns related to climate change. International case law is only beginning to address the matter, with most of the case law emanating from the United States. International rulings are relevant to South Africa in the sense that the country refers to English case law rulings in some areas like construction law.

Pro-actively addressing risk (Climate change could overturn force majeure clauses in renewable energy contracts)

There needs to be a greater awareness that climate change and new weather patterns are increasingly having an impact on businesses. “We have to act now and put provisions, clauses and systems in place that will protect our clients in various business sectors for the next 20 years,” says Marais.

“Businesses typically enter long-term contracts, which implies that you have one chance to protect the business against the risks it will face in the course of its activities.

In the worst-case scenario, a business needs to be protected against not meeting its debt coverage ratios and its loan being called up by its financial institution as a result.

It is prudent to follow a new way of thinking and be pro-active in protecting your enterprise instead of waiting for disruptive or damaging events to occur. Climate change is affecting us here and now.”

Climate change could overturn force majeure clauses in renewable energy contracts 

WhyAfrica provides on the ground information and business intelligence about the sustainable utilisation and extraction of natural resources in Africa, and can assist your company through:  

  1. Membership:
  • WhyAfrica’s membership offers great business insights to you, your company, and clients.
  • Amongst many other benefits, we will publish editorial content about you or your company on the WhyAfrica online platform and on all WhyAfrica’s social media pages – the annual fee is R5,500 and you can find out more or subscribe here: https://www.whyafrica.co.za/product/membership/ 
  1. Sponsorship:
  • WhyAfrica’s annual 45-day African Road Trip takes place in July and August. We will visit more than 30 project sites and this year we plan to visit the Limpopo Province of South Africa, Zimbabwe or Botswana, Zambia, Malawi, Tanzania, and Kenya. Sponsoring the Road Trip, or to be a WhyAfrica member, gives you unparalleled insight into the business environment of the countries that we travel to and the project sites we visit.
  • To be a member or sponsor allows you access to invaluable, on the ground, business intelligence and a great marketing opportunity for all companies doing business in Africa.
  • The main aim of our Road Trips is to promote Africa as an investment destination and to showcase Africa’s greatest companies, and projects to our large global audience, which includes a list of potential investors, venture capitalists and serial entrepreneurs.
  • To view the photos of last year’s Southern Africa Road Trip click on the gallery link or follow our Instagram account at why.africa https://www.whyafrica.co.za/road-trips/whyafrica-road-trips/. 
  1. Advertising:
  • We publish daily online articles on our WhyAfrica platform and post them on social media every day. Our combined online reach is more than 45,000. In-article banner ads are highly successful advertising tools as is advertising space on our website.
  • In addition to our bi-weekly newsletters, we publish two printed- and two interactive digital magazines per year. The printed magazines are distributed at major events and conferences throughout the year, and also on our WhyAfrica Road trips.
  • Digital magazines are e-mailed to all our subscribers and shared on our social media platforms. A copy of the latest edition is automatically attached to all our outgoing e-mails.
  • WhyAfrica magazines provide great marketing opportunities. There are also in-article and on-line advertising opportunities at exceptional rates. Contact me for more information on leon@whyafrica.co.za or give me a call.
  • To subscribe to WhyAfrica’s free newsletters and magazines click on the link and register: https://www.whyafrica.co.za/subscribe/  
  1. 4. Partnerships
  • Maximise your African exposure and link with our large business network through becoming one of only 10 WhyAfrica partners. We have only five prime partnership positions left for 2023, so contact me at leon@whyafrica.co.za before the end of March to get the best deal.

Climate change could overturn force majeure clauses in renewable energy contracts

Share Article

Sectors

AgricultureEnvironmental Management & Climate ChangeEnergyESGInfrastructureMiningPolitical EconomyTourism and ConservationWater Management