With the recent upcoming abolition of the RPS system and the introduction of the renewable energy auction system, the transaction unit price in the private PPA market has exceeded the existing long-term fixed-price contract unit price, highlighting legal disputes related to contract termination between power generation operators and obligated suppliers.
Attorney Sungwoo Kim of Law Firm Solaris, based on his legal expertise in the energy and environmental regulation sectors, contributed a column to a media outlet containing key legal issues and practical response plans for this matter.
The key contents of the contribution are as follows:
(Limits on the Application of the Principle of Change of Circumstances) Simple fluctuations in economic benefits, such as an increase in PPA unit prices, are difficult to be recognized as grounds for unilateral contract termination due to a change of circumstances under the Civil Act.
(Institutional Reorganization and Nature of Damages) Revisions to notifications such as management and operation guidelines do not automatically change the validity of contracts under private law, and whether reduction is possible depends on the legal nature of the money paid upon termination (scheduled amount of damages vs. penalty for breach of contract).
(Practical Risk Check) When converting to a new private PPA, it is necessary to not only review the practical benefits compared to penalty surcharges, but also closely pre-verify the private buyer's credit risk and plans for handling remaining RECs.
Law Firm Solaris will continue to provide in-depth legal analysis on institutional changes in the energy market and related regulatory issues.
- Link to the original contribution: [Solving Solar Issues through Law ⑨] Legal Issues on Early Termination of Long-term Fixed-price Contracts
- About Attorney Sujin Park: 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.