The push for energy transition has brought significant changes in the execution of major projects. Furthermore, growing enthusiasm has led investors to pursue bigger projects using increasingly advanced technology.
But enthusiasm does not guarantee success. Below we examine new challenges in the renewables space, how these new risks may be mitigated, and how disputes can be resolved in a cost-efficient and project-focused manner. For a more detailed view please read the third blog in our MPA series on the energy transition.
Changes in law and policy
The decades-long operating period for renewables assets means that multiple changes in law and policy might occur during the lifetime of a project. These changes can lead to disputes with governments regarding withdrawal of support. Furthermore, controlling for delay and disruption caused by changes in legislation requires a well drafted ‘change in law’ clause.
Project execution in the cutting-edge renewables sector
The push for new and ambitious projects comes with a wide range of risks:
- Large scale renewables projects carry major risks for delay and disruption. As mentioned in our earlier blog, a potential way of mitigating this would be the use of collaborative contracting and partnering agreements.
- Innovative technologies are key to the renewables sector, but the risk of obsolescence or defects raised by this is a serious concern in a fast-moving space. Full performance guarantees, the involvement of a technology partner, and mechanisms to manage the interface between different project elements can help mitigate these risks.
- Decommissioning is a key element of a successful energy transition. To ensure best value, the energy sector should explore extending the life of assets through repurposing and retrofitting with carbon capture and storage technology. Decommissioning of renewable assets is also an important consideration as these assets reach the end of their working life.
- Hydrogen technology has great potential for the future. But, despite enthusiasm from government, there are substantial barriers to widespread adoption. In particular, there is insufficient wider infrastructure for hydrogen use throughout the economy, and the regulation of hydrogen is underdeveloped in the UK.
Disputes in the renewables sector
Handling disputes that arise out of the risks highlighted above will require agility. The integration of alternative disputes resolution processes in contracts via multi-tiered dispute resolution provisions is incredibly valuable to this end.
The use of disputes boards as a venue for resolving disputes in a collaborative manner allows for flexible and private resolution of disputes. This can preserve relationships and keep projects progressing. Ultimately, final recourse to arbitration rather than litigation should be considered. Arbitration’s international nature, the wide enforceability of awards and the ability to appoint experts to the tribunal are key benefits.
Arbitration is also used for investment treaty disputes involving states. However, this does not guarantee success, and where partnering with governments there is still likely to be significant uncertainty.
Overall, the energy transition is creating opportunities to embark on more ambitious projects. However, executing these projects successfully requires managing the unique challenges of innovation, both in terms of risk mitigation strategy and agile dispute resolution mechanisms.