Blame it on the grid: When delays spark disputes in offtake agreements

Summary

Offtake agreements from greenfield energy projects (whether generation or storage) typically require the achievement of commercial operation by a specific target date. The target date, if missed, may give rise to an obligation for the Project Owner to pay the Offtaker delay damages, and if the relevant project suffers a prolonged delay, the Offtaker may have a right to terminate the agreement.

Of course, there are negotiated extension events that may cause the target (and sometimes sunset) date to be extended. Grid-related events are an area of frequent negotiation in an energy context, as recent projects have seen connection and commissioning delays, and the relationship with network service providers and the network operator as a key factor in a failure to achieve commercial operations within forecast timeframes. Naturally, as with complex delay events, the delineation of responsibility for these delays can be difficult to ascertain and so too whether relief ought to be granted for those delays.

The recent Federal Court case of Rimfire Energy Pty Ltd v BSF Co Pty Ltd (No 2)¹ illustrates the importance of the Project Owner exercising due care and diligence in complying with the technical requirements of the underlying contract when notifying delay. In short, when drafting these regimes or seeking to rely on them, it is important to ensure the various elements required to be delivered to support a claim are able to be, and are actually delivered. Here, Rimfire Energy was the Offtaker under two separate but materially identical Power Purchase Agreements (PPAs) to procure electricity from specific Project Owners and their respective to-be-constructed electricity generation facilities. Both projects experienced extensive delays and failed to achieve commercial operation by the target date.

Citing these delays, Rimfire issued invoices for liquidated damages to the Project Owners.² The Project Owners disputed their liability, asserting that they had extended the deadlines through valid Extension of Time (EOT) notices issued under each PPA. Rimfire countered that the EOT notices were invalid and argued that they failed to comply with the procedural requirements of the PPAs. The Court ruled in favour of Rimfire – for the reasons elaborated below.

Key issue and judgment

The dispute ultimately turned on whether the EOT notices were validly issued under clause 5 of the PPAs. Relevantly, that clause provided that the Owners would be entitled to an extension of time to the relevant target date if three things happen: (1) an ‘Extension Event’ occurs; (2) the Owners can demonstrate that they have been delayed, or are likely to be delayed, in achieving Commercial Operation as a result of that Extension Event; and (3) within ten business days after the full effects of the Extension Event are determined by the Owners, the Owners submit a written claim to Rimfire for an EOT.

The Project Owners submitted EOT notices attributing the delays to the government-owned Power and Water Corporation (PWC) after it introduced extensive testing and connection work programs that slowed down the processes for approving the projects. The definition of Extension Event included a “Connection Works Delay” but only to the extent that such delay was not caused by the Project Owners or their EPC contractor. However, the Court held that none of the EOT notices provided detailed particulars to demonstrate that the delays were not caused - wholly or in part - by the Project Owners themselves or their EPC contractor.

The Court found that the EOT notices failed to provide such particulars; vague references to PWC’s actions were insufficient, particularly in a complex commercial setting where pinpointing responsibility was essential.

The Project Owners also failed to establish that they had submitted the EOT notices within the 10-business day timeframe requirement in the PPAs, because they failed to provide evidence of when the full effects of the relevant Extension Events were determined by them (under the PPAs, this was the starting point for the 10 business day timeframe). O’Callaghan J emphasised that notification requirements serve a deliberate and crucial role in determining how and when a critical date should be extended.

Key takeaways

This case offers the following reminders for parties entering into or administering PPAs or offtake agreements:

• PPAs must be drafted with sufficient clarity, while being commercially realistic. Provisions addressing timeframes, delays, and risk allocation should be precise, with mechanisms that reflect the realities of complex infrastructure projects including concurrent causes for delay.
• A party seeking an EOT must strictly comply with notification requirements. An entitlement to an EOT only arises if the notice adheres to all substantive and procedural conditions set out in the relevant contract, and contains detailed particulars addressing each element for a valid claim. Failure to do so may result in a complete loss of this entitlement—as occurred in this case.
• Supporting evidence is key! Parties should maintain detailed, contemporaneous records of delays, clearly identifying their causes and steps taken to mitigate their impact. It may also be necessary to involve experts in this analysis. These records will be essential to substantiate an EOT claim.