International Arbitration of Renewable Energy Disputes

By Emma Johnson, Lucy McKenzie and Matthew Saunders

Despite a temporary decline in energy usage and emissions resulting from the confinement policies adopted by many states in response to the Covid-19 pandemic, the world is not on track to meet the Paris Agreement climate change goals. In order to bridge the 'emissions gap' by 2030, the energy industry is critical to achieving the necessary cuts to emissions, however, it must also balance increasing energy demand with the need to achieve sustainability of energy supply for future generations. This requires the industry to transition from dependence on fossil-fuel sources and look to new technologies that underpin a low-carbon economy. Renewables are central to this transition.

The increase in renewable energy capacity globally and the complex and relatively untested nature of renewables projects and the contracts underlying them give rise to a wide range of potential disputes. International arbitration has long been the preferred dispute resolution forum for the energy sector and is well placed to be the leading process for resolving the many and varied disputes that can arise in the lifetime of a renewables project.

In light of the increased prevalence of renewable disputes, this Special Report considers:
•the defining characteristics of renewables projects;
•the scope for disputes to arise in the implementation of these projects at an inter-state, investor-state and commercial level;
•the suitability of arbitration to resolve these disputes, and how its processes can be adapted to resolve them in an efficient and effective way; and
•what the future of arbitration of renewable energy disputes might look like.

Written for both a legal and non-legal audience, this Special Report is relevant to those interested in learning about the scope for disputes in the renewables sector, how they can be avoided, and how arbitration can best be deployed to prevent delay and help push energy transition forward.

• Language: English
• Publisher: Globe Law and Business
• Release date: Aug 12, 2021
• ISBN: 9781787424678

Book preview

International Arbitration of Renewable Energy Disputes

Authors

Emma Johnson, Lucy McKenzie and Matthew Saunders

Managing director

Sian O’Neill

International Arbitration of Renewable Energy Disputes is published by

Globe Law and Business Ltd

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International Arbitration of Renewable Energy Disputes

ISBN 9781787424661

EPUB ISBN 9781787424678

Adobe PDF ISBN 9781787424685

© 2021 Globe Law and Business Ltd except where otherwise indicated.

The right of Emma Johnson, Lucy McKenzie and Matthew Saunders to be identified as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988.

All rights reserved. No part of this publication may be reproduced in any material form (including photocopying, storing in any medium by electronic means or transmitting) without the written permission of the copyright owner, except in accordance with the provisions of the Copyright, Designs and Patents Act 1988 or under terms of a licence issued by the Copyright Licensing Agency Ltd, 5th Floor, Shackleton House, 4 Battle Bridge Lane, London, England, SE1 2HX, United Kingdom (www.cla.co.uk, email: [e-mail]). Applications for the copyright owner’s written permission to reproduce any part of this publication should be addressed to the publisher.

DISCLAIMER

This publication is intended as a general guide only. The information and opinions which it contains are not intended to be a comprehensive study, or to provide legal or financial advice, and should not be treated as a substitute for legal advice concerning particular situations. Legal advice should always be sought before taking any action based on the information provided. The publishers bear no responsibility for any errors or omissions contained herein.

Table of contents

Introduction

I. An introduction to renewables projects

1.What is renewable energy?

2.The key players in renewables projects .

2.1 The project company or consortium

2.2 The contractor(s)

2.3 Operation and maintenance provider

2.4 The offtaker of energy produced

2.5 Other participants

II. Renewables projects: international law protection

1.International investment protection

1.1 Bilateral and multilateral investment treaties

1.2 Substantive protections

1.3 Reference to arbitration

2.The renewables cases against Spain, Italy and the Czech Republic

III. Common areas of dispute and contractual protections

1.Unique characteristics of renewables projects and the scope for disputes

1.1 Multiple players and contracts

1.2 New and emerging technology

1.3 No standardised contracts and the lack of precedent

1.4 Relevance of local law and the importance of stabilisation clauses

2.Common disputes in the main phases of a renewables project

2.1 Disputes in the development phase

2.2 Disputes in the construction phase

2.3 Disputes in the operation phase

IV. International arbitration

1.What is international arbitration?

2.A final and binding decision

3.A decision that can be enforced outside of the parties’ home jurisdictions

4.Arbitration is perceived as a more neutral forum for disputes involving parties from multiple jurisdictions

5.Appointing arbitrators with relevant expertise

6.Flexibility of process

7.Privacy and confidentiality

8.The choice of forum is clear

9.Types of relief available in arbitration proceedings

V. Getting the basics right: drafting an effective arbitration agreement

1.The scope of the clause

2.Multi-tiered arbitration clauses

3.The seat (or legal place) of the arbitration

4.The procedural rules that will apply

4.1 Ad hoc arbitration

4.2 Institutional arbitration

5.The tribunal

6.The choice of governing law

7.The law of the arbitration agreement

8.Provision for joinder and consolidation

9.Provision for confidentiality

10.The need for a quick resolution

10.1 Emergency arbitration

10.2 Expedited proceedings

10.3 Summary disposal of unmeritorious claims

VI. Top tips in resolving renewables disputes through arbitration

1.Use of experts

1.1 Identification of remedies and quantification of losses

1.2 The importance of early engagement

1.3 Tribunal-appointed experts

2.Joinder and consolidation

3.Document production

4.Case management techniques

5.ADR techniques

5.1 Mediation

5.2 Facilitation, conciliation and expert determination of key issues

6.Site visits

VII. Looking over the horizon: the future of renewables arbitrations

1.Energy transition: more claims

2.Modernised investment treaties

3.The impact of COVID-19

4.Changes to arbitration

Notes

About the authors

About Globe Law and Business

Introduction

Climate change is an urgent concern. In December 2015, 196 parties signed the landmark Paris Agreement, committing to take action to limit the global temperature increase this century to well below 2°C and preferably at 1.5°C above pre-industrial levels. Energy policy is now well and truly ‘mainstream’ in all the major economies, with a recommitment to the Paris Agreement goals by the Biden administration an evident priority after the Trump years, which saw the US adopt a position inconsistent with that of just about all the world’s leading democratic governments. Despite this global commitment, the latest United Nations Environment Programme (UNEP) Emissions Gap Report shows that the world is way off target – and is, in fact, heading for a catastrophic temperature rise of 3.2°C above pre-industrial levels by the year 2100, even if all current Paris Agreement commitments are achieved.¹

There is little disagreement that the decarbonisation of the energy industry is critical to achieving the deep and urgent cuts² to emissions that are needed. At the same time, the energy industry must ensure it can meet increasing global demand, which is continuing to rise.³ It must also take care that reliability of supply does not suffer – that when the sun does not shine or the wind does not blow, the lights nevertheless stay on. Transition fuels such as natural gas have a major role to play but renewables are recognised as the key to the energy transition challenges the world faces.⁴ Electricity generation from renewable energy sources is considered to be one of the three central ‘pillars’ of any successful strategy to decarbonise the power sector,⁵ and the Intergovernmental Panel on Climate Change has concluded with a high degree of confidence that all pathways to limit global warming to 1.5°C above pre-industrial levels involve renewable energy sources supplying 70% to 85% of electricity worldwide in 2050.⁶

The cost of renewable energy is declining at a significant rate as technologies mature and mass production is enabled – it is now the cheapest source of new power generation in most parts of the world.

Accordingly, the energy industry is facing increasing pressure to transition to renewables, not least from shareholders, especially sovereign wealth funds and pension funds. Many companies that have historically focused exclusively on traditional fuel sources are diversifying into the renewables sector. At the same time, the technology-driven nature of the sector offers particular opportunities for new entrants with smart ideas. The sector is expanding and rapid growth is projected to continue:⁷ in 2020, 260 gigawatts (GW) of new renewable capacity was installed worldwide⁸ and renewable capacity additions are projected to expand by 10% in 2021.⁹ Global investment in renewables capacity was US$303.5 billion in 2020 (which is an increase of 2% on 2019 figures).¹⁰ The cost of renewable energy is declining at a significant rate as technologies mature and mass production is enabled – it is now the cheapest source of new power generation in most parts of the world.¹¹

Increased investment in renewable energy projects is, therefore, likely to continue for the foreseeable future. The significant infrastructure required, new and developing technologies that are used and the role played by the state in encouraging investment by the use of subsidies, whether through tariff structures or otherwise, all give rise to an enhanced risk of disputes that, if not appropriately managed, could have significant adverse consequences. Depending on how a renewables project is structured, those disputes could impact, among others: (1) companies involved in the development and operation of the project and its underlying technology; (2) investors financing the project; and (3) the sovereign states in which the project is located. Stakeholders could find themselves embroiled in complex legal proceedings involving a multiplicity of laws, regulations and – crucially – business and governmental cultures.

Arbitration has long been the preferred forum for disputes arising out of international energy and construction projects and is a natural choice for disputes arising out of renewable energy projects. Understanding the unique issues that arise in such projects and the protections available both under contract and international investment agreements (IIAs), particularly against state action, plays an important role in mitigating the risk of disputes arising and maximising the prospects of success when disputes do arise. Those involved in renewables – whose background is in the oil and gas world – may be familiar with arbitration, but many – whose background is in technology – will not be. Effective use of international arbitration requires a measure of planning and forethought – the purpose of this report is to assist with