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Coronavirus - Impact on the international Wind Energy industry

  • Global
  • Coronavirus
  • Energy and infrastructure

03-03-2020

Following the detection of a new coronavirus strain of pneumonia in Wuhan, China in late 2019 (now named ‘COVID-19’), the subsequent scale of the outbreak and the measures undertaken by various governmental authorities to contain it, have resulted in a rising number of claims from companies connected with the manufacturing and servicing of onshore and offshore wind turbines.

A number of international wind turbine OEMs use production facilities in China for various components of their wind turbines and they will undoubtedly have been keeping a close watch on the performance of these facilities over the past few weeks and monitoring any slowdown in production.

Whilst events such as COVID-19 are unpredictable in nature, it does not mean that customers and OEMs will not have regulated for such events in their contracts. Wind turbine supply and service and warranty agreements will generally contain ‘force majeure’ provisions, a term which is derived from the French civil code, but its meaning will depend on the jurisdiction and context in which it is used. Typically, a triggering force majeure event must make the performance of the affected party’s contractual obligations, in the time and manner specified in the contract, impossible or commercially impractical, not just difficult or unprofitable.

For the international wind turbine OEMs, who may have experienced Chinese supply facilities not operating at full capacity due to the 14-day quarantine requirements or logistical delays and bottlenecks on deliveries, the force majeure provisions of their contracts may be viewed as a way of alleviating any risk of delay and failure to perform, but these practical difficulties may not necessarily amount to force majeure.

As set out in one of our earlier updates on COVID-19, there are a number of points that need to be considered by customers when they receive a force majeure notice, including whether:

  • the outbreak or the measures undertaken by the Chinese government or the governments of other countries affected by the coronavirus fall within the definition of force majeure in the contract;
  • the outbreak or the measures undertaken by the Chinese government or the governments of other countries have impacted upon performance or the performance of their contract counterparty under the relevant contract;
  • the force majeure clause includes any other provisions (or time bars) which need to complied with; and
  • they have received sufficient information in relation to the force majeure event, the asserted causes of force majeure, how it has affected the relevant party, and updates on the claiming party’s continued inability to perform.

Typically the terms of the force majeure provisions in the contract will require the OEM to demonstrate a causal link between the force majeure event being asserted and the impact on performance being claimed. The terms are also likely to require the OEM to demonstrate how it is mitigating the effects of such an event, and how it could not have reasonably taken precautions against the same. It is also worth noting that under English law, a contract simply being more expensive for an OEM to perform will generally be insufficient to qualify as a force majeure event.

On 24 February, The Global Wind Energy Council reported that the supply chain disruptions and installation delays in the wind industry will be “moderate”. However, this is a situation that is still unfolding and the position may worsen if other areas of the global wind industry supply chain are affected by the outbreak outside of China. In the meantime wind farm developers and owners should review the provisions of their supply and service contracts carefully and continue to monitor the situation closely.

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