Royal Decree 463/2020, of 14 March ("RD"), has declared Spain to be in a state of emergency to deal with the health emergency caused by Covid-19. The state of emergency is to remain in force until at least 11 April. The measures contemplated in or adopted under the RD restrict or limit the free movement of individuals across Spanish territory and the free conduct of a large number of business activities. These measures impinge, directly or indirectly, on the construction and operation of power generation facilities.

1.- Suspension of administrative time limits 

The third additional provision of the RD states that "terms are suspended and time limits for dealing with procedures of public sector entities are interrupted". Such periods "shall resume when this Royal Decree or any extensions thereto cease to be effective". Not only deadlines but also administrative procedures are to be considered suspended (unless it is determined, based on valid reasons, that such procedures will continue,  provided that the applicant agrees to or requests the continuation).

2.- Suspension of limitation (prescripción) and expiry (caducidad) periods 

The fourth additional provision of the RD states that “the limitation and expiry periods applicable to any remedies and rights shall be suspended whilst the state of emergency or any extension thereof is effective".

3.- Impact of the suspension on the procedures for authorising the operation of power generation facilities

In addition to the temporary suspension of administrative deadlines, the following must be taken into account:

• The right of individuals to file written applications and requests with the Administration (including, where applicable, by electronic means) is not suspended. Nor is the provision of the necessary guarantees for applications for permits to access and connection to the electricity transport and distribution networks.

• The Administration's material activity (e.g. study of allegations, preparation of proposals for resolutions, etc.) is not suspended. However, the Administration’s legal activity is.

• The suspension does not apply to non-administrative procedures or procedures handled by non-public sector entities. This refers, for example, to procedures leading to the award of permits for access and connection to the electricity supply and distribution grid handled by companies managing such networks.

The suspension of limitation and expiry periods applies to any access and connection rights awarded before 28 December 2013 for facilities that have not been put into operation.  Pursuant to the eighth transitional provision of Law 24/2013 on the Electricity Sector, power facility owners are allowed to put their power facilities into operation until 31 March 2020. Failure to do so will result in the forfeiture of any guarantees provided, the loss of the right to specific remuneration and the invalidity of any approvals obtained. However, this deadline should be considered as extended for 18 days (i.e. the period comprised between the RD's effective date and 31 March 2020) from the day following the date on which the state of emergency ceases to apply.

If the expiry of access and connection rights is a consequence of the operation of public services, the relevant administration could be held liable to the facility owner for any damages suffered.

The measures taken as a result of the declaration of the state of emergency have an impact on EPC agreements related to power generation facilities. These measures may also have an impact on other long-term agreements, including development or co-development services agreements (DSA), operation and maintenance agreements (O&M) and even agreements that guarantee the availability of land (leases or surface rights), power purchase agreements (PPA) and financing contracts.

1.- Potential application of force majeure clauses

The Spanish Civil Code provides that, except in cases expressly provided by law or in contract, an obligor is not required to perform his obligations in the event of force majeure, i.e. "events that could not have been foreseen, or which, if foreseen, were unavoidable" (Article 1105). 

For force majeure to arise the event must be beyond the control of the parties, irresistible, unforeseeable or unavoidable, making it impossible to perform the obligation. In addition, there must be a causal relationship between the event and the result. In other words, the event must consist of a force beyond the parties' control, which excludes fault.

Pandemics have traditionally been considered by case law as events of force majeure, especially when binding and enforceable administrative measures are in place that make it impossible to comply with a contractual obligation.

The most important effect of force majeure is the release of the obligor from the duty affected by the event and the exoneration of liability for the obligee's damages. In addition, if performance is temporarily impossible, the obligor will not fall into arrears. Spanish case law has made it clear that force majeure does not affect generic obligations such as financial obligations, allowing at most for temporary non-performance or delay.

2.- Potential application of rebus sic stantibus clauses

Rebus sic stantibus clauses (Latin for "whilst things stay like this") have been defined by case law as the rule which allow one of the parties to a contract to mitigate the negative impact of the contractual risk resulting from an unforeseeable and extraordinary alteration of the circumstances existing at the time of execution of the contract which leads to imbalanced performance. While force majeure excludes the possibility of performance of an agreement, the sudden change in circumstances embodied in the rebus sic stantibus clause does not prevent the contract from being fulfilled, even if it breaks the financial equilibrium of the obligations. 

In the context of long-term or continuous contractual relationship, this clause is a remedy to restore the economic equilibrium altered by a change in the circumstances at the time in which the contract was entered into. Case law has not ruled out the possibility of applying the rebus sic stantibus clause to one-off performance contracts where performance has been deferred, but its application is more exceptional and restrictive than in the contracts of consecutive nature.

Classical case law has been very restrictive in the application of the rebus sic stantibus clause and has required the following conditions to be met: (i) an extraordinary alteration of the circumstances existing at the time of performance of the contract compared to those existing at the time of execution; (ii) an excessive disproportion between the parties' obligations, resulting in the breakdown of the contractual equilibrium; (iii) the existence of unforeseeable causes; and (iv) the absence of any other damage relief method. However, since the Ruling of 30 June 2014, the Spanish Supreme Court has relaxed the application of this doctrine, stating that the circumstances of the case must be assessed objectively, taking into account the basis of the transaction and the risk derived from it and, in particular, the existing social situation.

In any case, the Supreme Court requires that two assumptions be given for its application: unpredictability of the risk (singularly, no allocation in the contract of the risk arising, excluding the normal risk inherent or derived from the contract or that assumed explicitly or implicitly by a contracting party ) and excessive onerousness in the fulfilment of the contractual obligations derived from the supervening circumstances. On occasions, the Supreme Court has also required the permanence or duration of the alteration, so that the disruption of the benefit balance is not merely episodic or transitory.

The application of the rebus sic stantibus clause may result in contracts being amended or terminated. Amending a contract, a solution more consistent with the principle of preserving legal transactions, is the preferred option applied by the courts, especially in the case of long-term contracts.

3.- Power purchase agreements and financing of power generation facilities

The measures implemented in the wake of the declaration of the state of emergency to deal with the Covid-19 pandemic have resulted in a sharp fall in energy demand. Increased demand from households does not offset the drop in industry consumption. This fall, together with other factors, may bring down the price of electricity in the pool.

The following chart shows that the market forecasts that the decline will be higher initially, then stabilise and lessen:

A fall in the price of electricity might impact the execution of executed PPAs and the entering into of new PPAs associated with the development of renewable energy projects. Significantly, one of the key elements in securing project financing is that the developer enters into a PPA that gives some assurance to future revenues.

As for existing PPAs related to facilities that have not yet been put into operation, it should be examined whether an event of force majeure justifies the delay in starting the delivery of energy.

In the case of ongoing agreements, the use of the rebus sic stantibus clause would not seem reasonable a priori precisely because the price of energy is the underlying factor in these agreements, which, in addition, typically include specific mechanisms to protect the parties against price fluctuations (exit clauses, price floors and ceilings, etc.). However, contracts should be analysed on a case-by-case basis.

4.- Recommendations

In the actual circumstances, you are advised to:

• check whether contracts include a force majeure clause or other similar provisions.

• Immediately notify the obligee of any delay in or impossibility of performing the obligations as a result of the measures taken by the authorities to deal with Covid-19, providing supporting documentary evidence.

• Promptly implement damage-mitigation measures.

• Gather as much evidence as possible of the occurrence of the circumstances preventing the performance of the contractual obligations and of the measures put in place to mitigate potential damage