With the recent move toward abolishing the RPS system and introducing a renewable energy auction model, the transaction unit prices in the private PPA market are exceeding the existing long-term fixed-price contract prices. Consequently, legal disputes regarding contract termination between power producers and obligated suppliers are emerging as a prominent issue.
Attorney Sungwoo Kim of Law Firm Solaris, based on his legal expertise in the energy and environmental regulation sectors, contributed a column to the media containing the core legal issues and practical response plans for this matter.
The key details of the contributed article are as follows.
(Limits on Applying the Principle of Change of Circumstances) A simple fluctuation in economic benefits, such as an increase in PPA unit prices, is difficult to be recognized as a ground for unilateral contract termination due to a change of circumstances under the Civil Act.
(Institutional Reform and the Nature of Damages) Revisions to notifications, such as management and operation guidelines, do not automatically alter the validity of contracts under private law. The possibility of reduction depends on the legal nature of the money paid upon termination (liquidated damages vs. punitive penalty).
(Practical Risk Review) When transitioning to a new private PPA, it is necessary to examine the actual benefits compared to the penalty, as well as carefully pre-verify the private buyer's credit risk and the plan for handling remaining RECs.
Law Firm Solaris will continue to provide in-depth legal analysis on institutional changes and related regulatory issues in the energy market.
- Link to the original contribution article: [Solving Solar Issues through Law ⑨] Legal Disputes of Early Termination of Long-Term Fixed-Price Contracts
- Introduction of Attorney Sungwoo Kim: https://solarislaw.net/member-coo
Legal Issues Surrounding Early Termination of Long-Term Fixed-Price Contracts
With the upcoming phase-out of the RPS system and the introduction of a renewable energy auction model, private PPA market prices have exceeded existing long-term fixed-price contract rates. This shift has led to growing legal disputes between power producers and obligated suppliers.
Attorney Sungwoo Kim of SOLARIS published a legal column analyzing key contractual issues and practical responses to this shift.
Key takeaways:
(Limits of Rebus Sic Stantibus) Rising PPA market prices alone do not grant valid grounds for unilateral contract termination under the Civil Code.
(Regulatory Revisions and Penalty Classification) Amending administrative guidelines does not automatically alter private contract terms. Legal remedies depend on whether termination fees are classified as liquidated damages or punitive penalties.
(Practical Considerations) Power producers considering a shift to private PPAs must weigh termination penalties against expected returns, evaluate counterparty credit risks, and plan for remaining RECs.
SOLARIS will continue to deliver practical legal guidance on changing energy regulations.