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What if the wind stops blowing?

More and more we realize that good questions matter more than answers.

(Subsecretaría de Energías Renovables - República Argentina)

A few days ago, I finished my first semester teaching at Georgetown Law Center. Since the course has concluded (and papers are already graded), I can share some insights here. I had a great group of 18 students, from more than 10 different countries, pursuing either their J.D. or LL.M. degrees. As you can imagine, the course was around energy and extractive industries around the world. We discussed almost every relevant topic in the area: transparency and anticorruption, project finance, environment and social issues, FDI, rule of law, etc.

I can affirm (after more than 10 years teaching in several countries in the Americas) that the professor learns more than the students in every class, and I feel privileged of having this activity as an important part of my professional career.

Now, to the point. We were talking about risks in the development of energy generation projects. As you can imagine, the usual suspects were criticized: expropriation, natural catastrophe, economic crisis…Suddenly, one student raised her hand and asked: What if the wind doesn’t blow anymore?

After a few minutes of discussion, we realized that this question might have two ramifications: a) What is the consequence of non-provision of electricity under a PPA (power purchase agreement) in terms of obligations between the seller and buyer?, and b) What will happen in practical terms with the buyer (government, city, etc.) when it actually stops receiving power from the seller?

To answer these questions, I decided to check several PPA contracts and I decided to work with this, coming from the Republic of Argentina. Argentina, a very important country of Latin America, has lately made a push in order to return to normal economic development under President Mauricio Macri, after being stuck in a close-minded political regime for more than 10 years. The President, a well-seasoned businessman and skillful politician, is in the process of implement economic and legal reforms to secure Argentina long-term growth. Here you can see an analysis of his general energy policy and here a news report about the 2016 PPAs on renewable energy projects. (I have to admit that I like Mr. Macri policies and plans, and knowing the region as I know it, I really hope he succeeds).

(President Macri, left).