The energy transition is enjoying unprecedented momentum as states and private actors continue their actions against climate change, move towards net zero commitments and seek to manage increased energy security pressures. An important part of these efforts is investing in renewable energy projects, including those that use never-before-seen technologies. As the frequency, complexity and variety of these projects increase, so will the resulting disputes.
Many factors influence parties’ decisions as to the dispute resolution method (or, indeed, methods) prescribed in their agreements, the main factors being: (a) the parties and their relationship; (b) the nature and complexity of the project; (c) the stage of the project lifecycle and the need for prompt resolution; (d) the value of the project; (e) its location; (f) confidentiality or transparency considerations; and (g) the type of dispute the parties anticipate arising. In this article, we provide an overview of the main dispute resolution methods we see in the renewable project space, and how these factors figure into parties’ decisions to adopt them.
Dispute resolution methods and comparison
- Dispute boards are panels set up to support the execution of a contract, and can be permanent or ad hoc bodies. They can quickly help to avoid or overcome disagreements and disputes. They are often used as part of a multi-level process to encourage cooperation between parties, minimize costs and preserve existing relationships throughout the life cycle of a construction project. These advantages make them suitable for disputes relating to renewable energy projects, primarily at the contractor and sub-contractor level, where there is a mutual desire to ensure cooperation to achieve contractual objectives.
- Expert determination is a process where one or more experts are appointed by the parties to decide the question submitted to them. Unless otherwise agreed, the expert’s determination is binding on the parties. Expert decisions are generally processed more quickly than litigation or arbitration, providing the parties with the opportunity to achieve substantial cost savings compared to litigation or arbitration of a dispute that relies significantly on expert evidence. This mechanism is frequently seen in projects and the construction space where disputes involve complex and technical issues. These contracts often reserve certain types of disputes (for example on technical issues, performance levels or discrete quantification issues where liability has already been established) for an expert decision in the first instance. The use of expert evidence has in fact become so common that the ICC offers services for the proposal or appointment of experts and for the administration of expert proceedings. When a renewable energy project employs a “first-of-its-kind” technology, it may be appropriate for an expert decision if the parties believe that resolving their differences will require a good understanding of that technology.
- Dispute remains an available way to resolve conflicts related to renewable energies. Disputes are more common when the project and the parties are in the same jurisdiction, and remain relatively popular, with many courts around the world equipped to handle such disputes, offering either a specialized construction court or a division in which judges well-versed in construction litigation are employed (for a recent example, see our blog post on the SICC TIC list). Litigation is public in nature and the accessibility of court documents is a key driver for stakeholders in renewable energy projects that involve an element of state funding (which, given the emphasis of the government on this space, are important) to require that disputes related to these be heard in court.
- Commercial Arbitration is a private form of dispute resolution and remains one of the most popular dispute resolution methods in energy projects, including renewable energy projects. In 2020, energy disputes generated the second highest number of arbitration cases before the ICC (behind construction/engineering disputes) with 167 cases. The traditional draws of arbitration, such as its confidential nature, the broad enforceability of awards, and the parties’ ability to appoint experts to the tribunal, make it equally attractive for renewable energy projects, and we expect see the number of cases continue to rise. On larger-scale projects, where disputes involve huge cash outlays and often take years to resolve, arbitration is often preceded by mediation under a tiered dispute resolution clause. , in the hope that the mediation will at least bring to light the main areas of dispute.
- Investment Treaty Arbitration is a forum where a party, usually an investor, will seek relief for breach of rights and protections under an investment agreement, relief in this forum being available in addition to any contractual rights a party may pursue . Given that state actors are often involved in renewable energy projects, there have been a significant number of investment treaty arbitrations in recent years, usually resulting from the retrospective removal of state incentives for certain renewable energy projects. Indeed, 2016 saw the highest number of arbitration cases filed under the Energy Charter Treaty involving renewable energy disputes, many of which were claims against Spain, Italy and Italy. Czech Republic regarding their adjustment of incentives such as subsidies and feed-in tariffs, in the renewable energy sector. We expect it to be no different in the future as states continue to implement regulations to both encourage and regulate development in the field of renewable energy.
While renewable energy projects will undoubtedly bring a host of new disputes, the suite of dispute resolution methods available in the renewable energy sector is similar to that of its more traditional counterpart. The key is for parties to consider early on which mechanics work best for their arrangements, rather than letting this be an afterthought like many other boilerplate arrangements.