Change in Law: Who Pays When the Rules Move After Financial Close

A change in law clause is the provision everybody agrees is important and nobody reads closely until it matters. It allocates the cost of a rule that changes after signature — and its practical reach is set by a definition, drafted years earlier, that determines whether a given government action counts at all.

The two categories of rule change that have moved US renewable economics most are trade measures and tax eligibility, and both sit awkwardly against a standard change in law definition. A trade remedy imposed under statutory authority that has existed for decades is not obviously a new law. A change to tax credit rules is usually carved out of the clause entirely and handled somewhere else. The clause covers a great deal and then stops precisely where the money is.

This is the sixth post in the series and the first of three on risk allocation clauses. You will get what the clause actually does, why a tariff may or may not trigger it, a live worked example using the Section 232 solar measures taking effect on 4 December 2026, where the cost lands when the clause does not reach, and how to size the capex and equity impact.

ℹ️ Note: This describes how these mechanisms work in practice. It is not legal, tax or investment advice — definitions and outcomes are contract-specific and jurisdiction-specific.

What Does a Change in Law Clause Actually Do?

It reallocates the cost of complying with a rule that did not exist, or did not apply, when the contract was signed. It does not prevent the change, and it rarely makes anyone whole — it decides who absorbs the difference and up to what limit.

Three elements do the work, and they are usually negotiated in this order of attention: the definition of what counts as a change in law, the relief available when one occurs, and the cap on how much of that relief the paying party must fund.

The cap is routine. Morgan Lewis' review of utility-scale procurement contracting notes that "many procurement contracts will cap the costs that the project developer is required to bear as a result of a change in law." That single sentence contains the shape of the whole problem: relief exists, and it is bounded, so beyond a threshold the risk sits where it started.

Relief itself normally takes one of three forms — a price adjustment, an extension of time, or a right to terminate — and which one applies often depends on whether the change affects cost, schedule, or legality.

Why Might a Tariff Not Count as a Change in Law?

Because a tariff is usually imposed under authority that already existed. A change in law definition drafted around the enactment of new legislation may not capture an executive action taken under a statute passed decades earlier, even though the commercial effect is identical to a new law.

This is the fault line, and it is a drafting question rather than a policy one. Definitions vary along a spectrum:

• Narrow: the enactment, amendment or repeal of a law after the signature date.
• Middle: the above, plus a change in the interpretation or application of an existing law by a governmental authority.
• Broad: any act, order, rule, or determination of any governmental authority that increases the cost of performance.

A trade measure imposed by proclamation under long-standing statutory authority may fail the narrow definition, sit arguably inside the middle one, and clearly trigger the broad one. Same event, three different answers, determined entirely by which version was in the contract.

ℹ️ Note: Check whether the definition carves out changes that were announced or pending at signature. A clause that excludes foreseeable changes can exclude a tariff proceeding that was already public when the contract was negotiated — which, in trade cases with long investigation periods, is frequently the situation.

The Live Case: Section 232 Solar Measures

The current US measures are a useful test, because they combine a price floor with an ad valorem rate and stack on top of duties that already exist.

The regime takes effect 4 December 2026 at 12:01 a.m. Eastern Time and imposes minimum import prices alongside an additional tariff. Both Troutman Pepper Locke and Anza report the same figures:

Product	Minimum import price	Ad valorem
Polysilicon	$21/kg	None — MIP only
Ingots and wafers	$100/kg	15%
Solar cells	$0.22/W	15%
Solar modules	$0.38/W	15%

The stacking is the part that changes procurement maths. Troutman states that "combined duties on Chinese-origin solar derivatives could exceed 65% when the Section 232 tariff is stacked on top of existing Section 301 tariffs (currently 50%) and applicable AD/CVD orders." Anza confirms the same mechanics: "existing AD/CVD duties are confirmed to continue applying in full alongside the new MIP and ad valorem," and the 15% "is stacked on top of existing duties, including AD/CVD orders, for every other origin, including China and Vietnam."

Preferential treatment exists but is narrow. Both sources describe a capped combined rate of 15% for a set of treaty partners — Japan, South Korea, Taiwan, Switzerland, Liechtenstein and the EU — and a flat 10% for the UK.

The minimum import price is the mechanism worth understanding, because it behaves differently from a percentage duty. A tariff scales with the price you negotiated. A price floor overrides it. A buyer who secured modules at a keen price does not keep that advantage — the floor lifts the landed cost to a fixed level regardless of the contract, so the better the original procurement, the larger the increase.

Where Does the Cost Actually Land?

Wherever the supply chain's weakest change-in-law provision puts it, which is usually not where the parties assumed at signature.

Trace the chain. The module supplier sells into a supply agreement. The supply agreement feeds an EPC contract. The EPC contract sits under a project financed against a fixed capex. Each link has its own price adjustment and change in law language, and the cost stops at the first link that cannot pass it on.

If modules are contractor-supplied under a fixed-price EPC with no change in law relief, the contractor absorbs it — until the increase threatens their solvency, at which point it becomes the owner's problem by a different route.

If there is change in law relief with a cap, the parties share to the cap and the owner takes the remainder. Morgan Lewis' observation applies directly here.

If modules are owner-supplied, the owner takes it in full, and the EPC change in law clause never engages because the contractor's scope did not change.

Morgan Lewis also notes the structures suppliers use going the other way: suppliers "may seek to pass through certain commodity costs to buyers... trade and tariff costs," with parties negotiating "adjustment mechanism[s]" and sometimes "a walkaway right if prices increase beyond a certain point."

A walkaway right is the honest version of this negotiation. It concedes that beyond some threshold nobody is absorbing the cost and the transaction simply stops — which is a cleaner outcome than discovering the same thing through a contractor insolvency.

What Kind of Relief Are You Actually Getting?

Relief comes in three currencies — money, time, or an exit — and a clause that grants the wrong one has not helped. This is the most common practical failure of an otherwise well-drafted provision: the definition triggers, relief is granted, and the harm is untouched.

Match the currency to the harm.

A cost increase needs money. A tariff raises the price of modules. Granting the contractor an extension of time changes nothing about that, and it does something actively unhelpful: the extension consumes schedule float. Under the EPC the contractor is excused, so delay LDs stop accruing — which means the mechanism that was funding the sponsor's exposure switches off exactly when the sponsor is also absorbing a capex increase.

A schedule impact needs time, on both sides. This is where the asymmetry from post 3 returns. If the EPC grants an extension for a change in law but the PPA's own relief provisions are narrower, the contractor's clock stops and the offtake clock keeps running. The sponsor has given up its LD claim and kept its delay damages liability. Confirming that both contracts define and relieve the same events is a one-hour check that is skipped constantly.

A legality problem needs an exit. Where a change makes performance unlawful rather than expensive, price adjustment and extensions are beside the point, and a termination right with a defined compensation formula is the only relief that functions.

The diligence question is therefore not "is there a change in law clause" but "what does it pay, and against which harm." A clause offering only time relief on a cost-driven event is, in economic terms, a clause that transfers the sponsor's LD protection to the contractor and calls it relief.

Why Is Tax Change in Law Handled Separately?

Because it is a different risk with a different counterparty, and it is normally carved out of the general clause and dealt with in the tax equity documents instead.

A general change in law clause allocates cost of performance. A change to tax credit rules does not change the cost of building anything — it changes whether the credit is available, at what rate, and to whom. That is an eligibility question, and the party exposed to it is the tax investor rather than the contractor.

The practical consequence is that a sponsor reading its EPC change in law clause learns nothing about its largest regulatory exposure. Credit eligibility risk lives in the tax equity indemnity package: who represents what about qualification, who bears recapture, and whether a change in rules after closing is indemnified or shared. Those provisions are negotiated by a different team, often after the EPC is signed.

The tax structuring series takes that side properly — transferability under §6418, the five-year recapture cliff and the indemnity chain each have their own post. The point here is narrower: do not read a change in law clause as covering tax risk, because it almost certainly excludes it by design.

What Does a Capex Shock Do to the Financing?

The part that is usually discovered after the clause has been argued, and it is where the money actually goes.

A change in law that raises capital cost during construction does not simply increase the budget. It moves through the financing in a defined sequence, and each step has a gate attached.

It consumes contingency first. Contingency exists for exactly this, and drawing it above a threshold typically needs lender or technical adviser consent. A tariff-driven module price increase arriving in month eight of a twenty-four month build is precisely the event the line was carried for.

Then it hits the cost-to-complete test. Every drawing under a construction facility requires certification that the remaining available funds are sufficient to finish the works. Once contingency is exhausted, that test fails — and the project cannot draw. This is the mechanism that converts a cost problem into a liquidity event, and it does so before any milestone is missed.

Then it becomes the sponsor's. The cost overrun undertaking obliges the sponsor to fund the shortfall, as equity or subordinated debt, restoring the cost-to-complete test so construction can continue. At that point the change in law has been allocated — not by the EPC contract, but by the credit agreement.

Two consequences follow that are worth planning for at signature rather than at the event.

The debt does not increase. A capex increase arriving after financial close is funded by equity, because the facility was sized on the original cost. So an 11% increase in project cost on a 75% geared structure is not an 11% problem for the sponsor — it is roughly a 27.5% increase in the equity cheque, which is the arithmetic the worked example below sets out and the reason a modest-sounding capex shock is a serious equity event.

A change in law during operations behaves differently and is often worse. An increase in operating cost, or a new compliance obligation, reduces CFADS directly. Since the debt is already drawn and the coverage ratio is already set, the effect lands on headroom — and a project sized at 1.30× with a lock-up at 1.15× has only about 11.5% of CFADS between it and suspended distributions. An operating change in law consuming a few percent of CFADS does not threaten solvency; it can comfortably threaten the equity return by blocking distributions for several years.

The general observation, and it applies to every risk allocation clause in this series: the contract decides who bears the cost, and the credit agreement decides what bearing it actually does to you. Reading one without the other gives an incomplete answer, and the second document is usually the one that determines whether a bad outcome is expensive or existential.

How Do You Size the Impact in Excel?

Convert the rule change into a capex delta, then push it through the capital structure. The capex number is the easy part and the least interesting; what matters is that debt does not move, so the increase lands almost entirely on equity.

The inputs

Assumptions, labelled as such:

Project size (DC)                     250 MW
Contracted module price               $0.27 /W
Section 232 module MIP                $0.38 /W
Total capex before change             $250,000,000
Debt sized on DSCR                    $150,000,000
Equity before change                  $100,000,000

The capex delta

Price_Uplift     = MAX(0, MIP − Contracted_Price)
                 = MAX(0, 0.38 − 0.27)                       = $0.11 /W

Capex_Increase   = 250,000,000 W × 0.11                      = $27,500,000
New_Capex        = 250,000,000 + 27,500,000                  = $277,500,000
Increase_%       = 27,500,000 / 250,000,000                   = 11.0%

Note the shape of the price floor: the uplift is the gap to the floor, not a percentage of the contracted price. A buyer who had negotiated $0.24/W would face $0.14/W of uplift — a worse outcome from a better deal. Model it as MAX(0, MIP − price), never as a percentage.

Where it lands

Revenue          unchanged
DSCR             unchanged
Debt_Capacity    unchanged                                    = $150,000,000

New_Equity       = New_Capex − Debt                           = $127,500,000
Equity_Increase  = 127,500,000 / 100,000,000 − 1              = 27.5%

An 11% capex increase is a 27.5% increase in the equity cheque, because debt is sized against cash flows that did not change. Every dollar of unallocated change in law cost is an equity dollar, geared by the capital structure.

The relief test

Change_In_Law_Relief_Cap  = 5% of EPC contract price          = $9,000,000
Recovered                 = MIN(Capex_Increase, Relief_Cap)   = $9,000,000
Unrecovered               = 27,500,000 − 9,000,000            = $18,500,000
Equity_After_Relief       = 100,000,000 + 18,500,000          = $118,500,000

The relief cap is doing about a third of the work. That ratio — recovered against total — is the number to put in front of a negotiation, because it converts an abstract clause into a funding requirement.

ℹ️ Note: Run the same calculation against the cells MIP if the EPC procures cells rather than modules, and remember the 15% ad valorem applies on top of the floor. The two mechanisms are additive, not alternatives.

To run the full version — the MIP and ad valorem layered against your actual bill of materials by origin, the relief cap applied at the right contractual level, and the equity and DSCR consequences carried through the model — prompt Dezzmond with your procurement terms and capex build.

What Do Lenders Actually Check?

Lenders read change in law as a funding question: if the rule moves, who writes the cheque, and is that party good for it?

• Which definition is in each contract? Narrow, middle or broad — and whether they match across the EPC, the supply agreements and the PPA.
• Are pending or announced changes carved out? Trade proceedings are public long before they bite.
• What is the relief cap, in dollars rather than percent? Compared against a plausible tariff scenario, not an average one.
• Is there an equity commitment behind the unrecovered portion? An uncapped sponsor obligation is worth more than a capped contractor one.
• Where is module supply sourced, and does it have MIP exposure? Origin determines whether the preferential 15% cap applies.
• Are there walkaway rights upstream? A supplier exit converts a price problem into a schedule problem, which then runs into the date ladder from post 3.
• Is tax change in law carved out, and where does it sit instead? It should be in the tax equity documents, and somebody should have read both.

Frequently Asked Questions

Does a tariff automatically trigger a change in law clause?

No. It depends on the definition. A clause drafted around the enactment of new legislation may not capture an executive measure taken under pre-existing statutory authority, while a broad clause covering any governmental act that increases the cost of performance generally will.

What is a minimum import price and why does it differ from a tariff?

A tariff is a percentage applied to the transaction price, so a lower negotiated price produces a lower duty. A minimum import price is a floor: the landed cost is lifted to a set level regardless of what was agreed, so a keenly priced contract sees the largest increase.

Do the Section 232 measures replace existing solar duties?

No. Both Troutman Pepper Locke and Anza confirm the 15% ad valorem stacks on top of existing AD/CVD orders and Section 301 tariffs, with combined duties on Chinese-origin derivatives potentially exceeding 65%.

Who bears tariff risk if modules are owner-supplied?

The owner, in full. The EPC change in law clause generally does not engage because the contractor's scope and cost did not change — the increase falls outside the contract that has the relief mechanism in it.

Who funds a capex increase after financial close?

The sponsor. Contingency absorbs it first, then the cost-to-complete test fails and blocks further drawings, then the cost overrun undertaking obliges the sponsor to fund the shortfall. The debt does not increase, so an 11% cost rise is roughly a 27.5% increase in the equity cheque at 75% gearing.

Is loss of a tax credit covered by a change in law clause?

Usually not. Tax change in law is typically carved out of the general clause and addressed in the tax equity documents through representations, indemnities and recapture allocation.

Closing: The Clause Covers Cost, Not Consequence

Change in law provisions are built to answer a narrow question well: if compliance becomes more expensive, who funds the difference and up to what limit. Within that scope they work, and the cap is the honest part — nobody is pretending the risk fully transferred.

The difficulty is that the rule changes with the largest effect on a renewable project do not present as compliance costs. A minimum import price is a procurement problem that arrives through a supply agreement. A change in credit eligibility is a tax problem that arrives through an indemnity. Neither is what the drafter had in mind, and the clause's reach is decided by a definition written before either was contemplated.

That makes this the same pattern the series keeps finding. The contracts are each doing what they say. The exposure sits between them — in this case between the supply agreement, the EPC, and a tax package negotiated months apart by different people, with a capex number that turns an 11% cost increase into a 27.5% equity increase on the way through.

Next: force majeure, and what actually qualifies after the COVID and supply chain years reset everyone's expectations of the clause.

Sources: Troutman Pepper Locke — Polysilicon Under Pressure: New Section 232 Tariffs · Anza — Section 232 Solar Tariffs Add New Price Floor on Modules · Morgan Lewis — Utility-Scale Energy Storage Procurements in 2026: Contracting and Risk Allocation