Features of renewable energy projects
Types of disputes
Arbitrating renewable energy disputes
Comment
The substantial growth forecast for renewable energy capacity, and therefore renewable energy projects, carries with it a significant risk of related disputes arising. This article explores the features of renewable energy projects, the types of disputes that may arise throughout a renewable energy project life cycle and the role of arbitration in resolving such disputes, particularly where projects have a cross-border dimension.
Features of renewable energy projects
Renewable energy projects can take a variety of forms. In addition, renewable energy encompasses a range of forms, such as:
- solar;
- wind (offshore and onshore);
- hydropower;
- waste to energy;
- geothermal; and
- hydrogen.
Renewable energy projects generally share one or more of the following characteristics which can impact their disputes-risk profile:
- long term investments with high upfront capital costs;
- a heightened degree of regulatory and political risk;
- adoption of new or developing technologies and
- grid integration issues.
Navigating the dark side of the energy transition requires an understanding of the particular features of renewable energy projects and how they might lead to disputes. It is impossible to exhaustively catalogue the variety of disputes that might arise during the life cycle of a renewable energy project, particularly where projects are complex, high value and taking place across a multiplicity of jurisdictions. However, it is possible to identify some of the main areas where disputes may arise in connection with renewable energy projects. These include:
- claims arising where new technologies fail to perform to expectations, such as misrepresentation, negligence or breach of contract (see, for example, MT Højgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Ltd and another [2017] UKSC 59);
- construction disputes, such as claims relating to delay, scope changes, breach of contract or defects;
- investor-state claims under multilateral or bilateral investment treaties brought by foreign investors for breach of investment protections, such as the fair and equitable treatment standard. The wave of investor claims against states such as Spain and Italy under the Energy Charter Treaty following changes to those states' renewable energy regulatory frameworks is an example of these types of disputes;
- joint venture and other contractual disputes between stakeholders, where multiple parties are involved in the development and financing of large renewable energy projects;
- claims arising out of delay in the commencement of supply from renewable energy projects, including where grid integration issues delay projects; and
- regulatory enforcement action where renewable energy is dispatched and sold in highly regulated markets.
Identification of the types of disputes that may arise in relation to renewable energy projects highlights the key areas of risk that stakeholders need to focus on in order to successfully navigate the dark side of the energy transition.
Arbitrating renewable energy project disputes
Arbitration is already the dispute resolution mechanism of choice for many participants in the energy industry and it offers important advantages in the context of renewable energy project disputes.
Large-scale renewable energy projects are likely to involve investors, contractors and sub-contractors from multiple jurisdictions. Given the cross-border nature of many renewable energy projects, arbitration offers an impartial forum for the resolution of disputes. The relative ease of enforcing arbitral awards globally under the New York Convention is also a key advantage of arbitration.
Another important advantage is that it provides parties with the opportunity to have a say in the selection of arbitrators. In highly technical disputes, the ability to select arbitrators with specialised technical expertise or specific industry knowledge can be of great value to all parties.
Confidentiality is another attractive feature of the process. Arbitral proceedings and awards are private and generally confidential, unlike litigation. This can be very important where, for example, trade or commercial secrets in emerging technologies risk being exposed as part of a dispute. This privacy – along with the perception that arbitration can be less hostile – can also assist in preserving ongoing commercial relationships, something that is important in renewable energy projects which involve long-term relationships.
Finally, there is generally no right of appeal from an arbitral award and, save for limited recourse to have an award set aside or enforcement denied, the outcome is considered final. This finality can reduce the cost and time involved in resolving disputes.
As the world moves toward a net zero emissions future, investment in renewable energy projects will continue to grow. The energy transition offers great opportunities and environmental benefits but also presents challenges and risks, including the risk of disputes.
In order to successfully navigate those risks, stakeholders in renewable energy projects are well advised to:
- carefully consider the allocation of risk in contracts relating to renewable energy projects, including warranties, exclusions and indemnities;
- if investing in a renewable energy project in another country, consider at an early stage whether the project could be covered by an investment treaty and how the project can be structured to take advantage of available treaty protections;
- apply best practice project management principles to the design and construction phase of a renewable energy project;
- consider how to price the risk of unforeseen technical issues where projects are based on new and emerging technologies;
- consider the benefits of an arbitration clause, particularly for cross-border renewable energy projects; and
- apply best practice dispute management and resolution protocols during the life of the project.
For further information on this topic please contact Tamlyn Mills or Phoebe Miley-Dyer at Norton Rose Fulbright by telephone (+61 2 9330 8000) or email ([email protected] or [email protected]).