Coronavirus: Eskom issues force majeure notices to wind farms

Out-Law Analysis | 02 Apr 2020 | 12:01 pm | 2 min. read

South Africa's public electricity utility, Eskom, has issued a number of force majeure notices to operators of independent wind power plants, with lower demand caused by the country's lockdown in response to the Covid-19 pandemic reported as the reason.

The media reported on 1 April that Eskom "told operators of some independent wind power plants that it won't need their power at certain times of day due to lower demand amid a national shutdown". The lockdown imposed by the South African government began at midnight on 26 March.

Eskom's decision, if successfully and lawfully implemented, is likely to have a revenue impact on the affected projects and cause real consternation among investors, project sponsors and lenders. The 22 operational wind farms affected are seeking legal advice on whether the force majeure notices are legally valid, according to the South African Wind Energy Association (SAWEA).

The question of whether Eskom has a competent legal basis to claim force majeure in terms of the underlying power purchase agreement (PPA) as applicable to wind projects under the Renewable Energy Independent Power Producer (REIPP) programme is a reasonable one. Our initial view is that the affected parties should not blindly accept the force majeure notices issued by Eskom in the reported circumstances.

Our initial view is that the affected parties should not blindly accept the force majeure notices issued by Eskom in the reported circumstances.

The PPA contains a closed and therefore definitive list of force majeure events. These are, in abbreviated form:

  • fire, explosion, tempest, flood, ionising radiation, riot and civil commotion;
  • any failure by Eskom or any Responsible Authority, utility or other like body to carry out works or provide services or authorise the IPP to carry out works;
  • any accidental loss or damage to the facility;
  • any off-site failure or shortage of fuel or transport;
  • any blockade or embargo;
  • any delay in obtaining any consent;
  • official or unofficial strike, lockout, go slow or other labour dispute affecting the construction and energy industry;
  • war, civil war, armed conflict or terrorism;
  • nuclear contamination;
  • chemical or biological contamination of the facility or the site from any of the events referred to above; and
  • a 'compensation event' as contemplated and defined in the Implementation Agreement.

If an event falls within the definition of force majeure as contained in the PPA, it must also directly cause Eskom to be unable to comply with its obligations under the PPA in order for the event to be classified as a force majeure event.

It appears from the media statement that Eskom is relying on the lower demand caused by the lockdown to support its assertion of force majeure. This reliance is not competent as lower demand cannot be seen as an event of force majeure. Eskom is not relying on the lockdown or the Covid-19 pandemic itself as an event of force majeure, and even if it did we are of the view that such a situation does not fall within the definition of force majeure in the PPA as stated above. In any event, lower demand, whether arising from an epidemic, plague or pandemic, is not specifically mentioned in the definition of force majeure.

Even if Eskom could establish a valid force majeure event, the second part of the test in the PPA requires that the event directly cause the affected party to be unable to comply with its obligations. In this instance, there simply are no events or circumstances which would render Eskom unable to purchase the produced power from the affected projects.

There are indeed certain contracts and projects that are impacted directly by the lockdown, and for which the lockdown would be classified as an event of force majeure. However, Eskom appears to be pushing the envelope if, as reported, it is seeking to rely on the force majeure provisions under the PPA as relief from its payment obligations towards IPPs. The other question to be raised is why the event, even if competent under the PPA, would be limited to wind generation capacity - which, coincidentally, is more expensive on average than solar.