Proposed Renewable Regulations in Texas Might Trigger Force Majeure and Change in Law Clauses

The renewable energy industry in the United States is facing new headwinds in the form of state legislation that could delay, disincentivize, or even potentially prevent the completion of planned solar and wind projects. For example, the Texas State Senate recently voted to enact new burdensome regulations on solar and wind generation of a certain scale. Critics of the bill claim that these measures are designed to slow renewable energy expansion in the state of Texas. 

Could laws like Texas Senate Bill (SB) 819 trigger change in law or force majeure clauses if they delay or prevent the construction/operation of renewable energy projects in Texas? Some parties may have specifically allocated permitting risk in their existing contracts. Others may not have foreseen this issue because of Texas’ reputation as a relatively de-regulated energy market. Whether a change in law or force majeure clause captures this situation will depend on the language of each individual contract. 

In this alert, we explore the role that change in law clauses, force majeure provisions, and specific permitting language may play for solar- and wind-generation projects in Texas as parties seek to manage the risk of potential permitting delays attributable to the requirements provided by SB 819.

SB 819 Background

Texas SB 819 passed with a Senate vote of 22-9; it must still pass the House. The bill adds new permitting requirements from the Public Utility Commission of Texas for solar and wind projects with a capacity of 10 megawatts (MW) or more before construction or operation can commence. Existing facilities interconnected prior to 1 September 2025 are excepted. SB 819 adds minimum setback requirements from property lines and habitable structures, unless written waivers are obtained from neighbors. The proposed legislation requires an Environmental Impact Statement with review by the Texas Parks and Wildlife Department and imposes a new annual environmental impact fee. Applicants will also be required to satisfy public notice requirements. Finally, the bill would prohibit local taxing authorities from agreeing to property tax abatements for renewable energy projects with a capacity of 10 MW or more. 

In January 2025, K&L Gates wrote about the potential impact of SB 819 on renewable energy investments. That article can be found here. In sum, if passed, SB 819 will impose regulatory burdens on the Texas renewable energy industry and is likely to have a chilling effect on investors’ appetites to finance new projects or expand existing facilities, which could negatively impact the development of renewable projects in the state. If a solar or wind project is materially delayed or unable to be constructed due to the failure to obtain approvals or permits required by SB 819, parties may have arguments that a change in law clause applies or that they have suffered an event of force majeure, provided the applicable contractual language captures the subject event. 

Change in Law

A change in law clause is designed to allocate the burdens of any unexpected change in the legal or regulatory landscape that has a substantial impact on the obligations of a party. Such clauses are designed to offset the losses or damage due to changes in the law applicable at the time of contract execution.  

Where the change is captured by the change in law clause and hinders a party’s performance, that party can claim relief in accordance with the terms of the clause. Foreseeable costs and laws enacted before the effective date of the contract are ordinarily not included in such provisions. In the energy industry, we have seen change in law clauses related to duties and tariffs on key equipment. Changes or adjustments to production and investment tax credits under the Inflation Reduction Act are also areas where parties have liberally utilized change in law provisions to account for this risk. Whether changes in permitting, environmental, and tax requirements are captured by a change in law clause is a contract-specific question that rests on the wording of the individual clauses. 

Force Majeure

The Firm recently explored the contours of force majeure in the context of tariffs. That article can be found here. Generally, “force majeure” provisions are designed to excuse nonperformance or delayed performance of contractual obligations for extraordinary, uncontrollable events that negatively impact a party’s ability to fulfill those obligations. In other words, force majeure provisions allocate the risk of events outside of the control of the parties that impact performance under a contract. There is no implied force majeure under US law, meaning that a party can only invoke force majeure if the contract includes a force majeure provision. The applicability of force majeure depends on the specific language in the contract. Force majeure clauses are “narrowly construed” and will excuse a party’s nonperformance only if the event alleged to have prevented performance is “specifically identified” in the parties’ contract. This narrow construction also applies to a “catchall” in a force majeure clause, cabining the meaning to “things of the same kind or nature as the particular matters mentioned.”¹

Despite relatively strict rules of construction, several courts have found that delays attributable to permitting can constitute force majeure where the contractual language contemplates such an event. For example, in Pennington v. Continental Resources, Inc., the Supreme Court of North Dakota held that a force majeure clause operated to prevent termination of an oil and gas lease and extended the term of the lease when the project faced delays attributable to permitting delays. As the court stated, “Continental was prevented from commencing operations within the primary term of the Leases by a contingency beyond its control, namely the decisions of the U.S. Fish and Wildlife Service and the [Bureau of Land Management] … to withhold approval of Continental’s May 15, 2012 APD [application for a permit to drill] ….”²

Likewise, in Burns Concrete, Inc. v. Teton County, the Idaho Supreme Court held that a developer’s failure to obtain zoning approval for a 75-foot-high facility was not reasonably foreseeable and constituted an event beyond the developer’s control. The court found that the force majeure clause, which included “any other act of force majeure or action beyond Developer’s control,” applied to the county’s denial of a permit, excusing the developer from completing construction within the specified timeframe.³

The Ohio Court of Appeals upheld the application of a force majeure clause when a petroleum company was denied access to property by adjoining property owners and faced unreasonable demands for compensation, preventing drilling operations. The court found that the inability to obtain necessary access and easements was beyond the lessee’s control and tolled the lease’s primary term, allowing the lessee additional time to commence operations.⁴ SB 819 provides neighboring property owners with considerable rights that could delay or alter ongoing projects. This is another factor that should be analyzed against the force majeure clause in a contract.  

In the analogous context of frustration of purpose, a California appellate court found in Johnson v. Atkins that the seller’s inability to obtain the necessary permit for the entry of goods into the country excused further performance due to impracticability. Obtaining the necessary entry permissions for the goods was found by the court to be fundamental to the contract. The failure, without fault, to obtain permission excused further performance.⁵

However, these outcomes regarding the applicability of force majeure clauses to excuse lack of performance attributable to permitting delays are not uniform. There are numerous decisions where courts have held that the contract in question did not provide force majeure for failure to obtain specific permits.⁶ The foreseeability of required permissions, the diligence undertaken in pursuing such permits, and whether the denial or delay in issuing permits was the fault of the party claiming force majeure are all critical factors that need to be examined closely, along with the specific contract language, to determine whether force majeure may offer relief in a specific instance of permitting-related delay.  

Specific Permitting Clauses

While force majeure and change of law clause are often the key provisions that parties use to allocate risk, agreements sometimes contain a bespoke “permitting delay” clause that provides specific schedule relief for a delay in the issuance of a required permit. The agreement may also include a condition precedent that enables either party to terminate the agreement without liability in the event required permits have not been secured in a final, nonappealable form by a particular date. Force majeure and change of law clauses should be considered in the context of these other provisions if they have been included in the contract.

Key Takeaways

If enacted, Texas SB 819 will impose additional permitting and regulatory requirements on most solar and wind projects to be interconnected in Texas. If these new regulatory requirements delay or prevent the construction of these projects, parties may try to argue that a change in law clause applies or that their performance is excused by force majeure. The success of such claims will depend heavily on the text of the clauses in each contract, along with the facts surrounding the inability to obtain the required SB 819 permitting approvals.