Renewables Arbitration – A perspective from England and Wales - Part 2

Clyde & Co’s Young Arbitration Group provides a unique insight into international arbitration issues through the lens of young international arbitration practitioners working across different jurisdictions. In this series with Daily Jus, Clyde & Co explore the role of arbitration in renewable energy disputes. Catherine Wang, Saskia Wolters and Avneet Nota provide further perspective from England & Wales in this article.

Our earlier article on England and Wales in this series explored key commercial and legal considerations for renewable energy contractual frameworks. This article expands on some of those considerations, including a closer look at the different legal risks/disputes that may arise in renewable energy projects and how to mitigate them.

A.    Agreements relating to project development and construction 

Renewable energy projects are typically long-term ventures, with complex contractual frameworks involving numerous parties from different jurisdictions who are involved at different stages of these projects. 

At the construction stage of offshore or large onshore wind projects, for example, it is common to contract with multiple contractors on a disaggregated basis instead of using a single contractor. This method of contracting increases the risk for the project company that contractors cause delays and disruption to each other. Although it is important to include contractual clauses requiring contractors to cooperate and coordinate during the construction of renewable energy projects, these clauses may not limit the project developer’s responsibility for the impact of one contractor’s actions on another contractor, who (for example) has caused delay or damage to the project. Therefore, project developers should carefully manage the interface of construction contracts and understand how liabilities are allocated among the parties. 

Where multiple contractors will be working in parallel or consecutively on the construction of a renewable energy project, it is also important to carefully consider any complex liquidated damages clauses to avoid future challenges of such clauses for their uncertainty or their being penalty clauses. In Braes of Doune Wind Farm (Scotland) Limited v. Alfred McAlpine Business Services Limited [2008] EWHC 426, the Technology and Construction Court upheld an arbitrator’s award in which the liquidated damages clause in a contract for the construction of 36 wind turbine generators, was considered to be a penalty clause and, therefore, was unenforceable under English law. 

Construction contracts for renewable energy projects, including standard-form construction contracts, such as the FIDIC Yellow Book, often include arbitration clauses. Due to the multi-party nature of many renewable energy projects, if disputes arise under these contracts, there is a risk of parallel proceedings which may result in inconsistent decisions. Therefore, arbitration clauses should be aligned across contracts and include joinder and consolidation clauses if appropriate. Without consolidation clauses, consent of all parties may be required to consolidate parallel arbitration proceedings, which may not be forthcoming.

B.    Agreements between developer and manufacturer

If a manufacturer’s scope of work is limited to supplying equipment/facilities in a renewable energy project, a supply and purchase agreement may be entered between the manufacturer and the project developer. 

It is our experience that parties should be particularly careful when negotiating provisions in supply and purchase agreements relating to quality of equipment/facilities, delay of service, payment mechanism, force majeure, warranties, termination of agreement, and any limitation of liability. Those are examples of provisions under which disputes can easily arise. 

Complications may arise when renewable energy products are manufactured and assembled in different countries. For example, the Renesola UK Ltd v Revenue and Customs Commissioners [2020] UKUT 60 (TCC) case concerned a dispute on whether anti-dumping duty and countervailing duty (“the duties”) were payable to the HMRC, where solar modules (imported into the UK) contained solar cells manufactured in China (where the duties are payable), but were assembled in India (where the duties are not payable). The Upper Tribunal stayed an appeal against the First-tier Tribunal's decision to uphold HMRC's imposition of the duties on the solar modules, and referred the issue to the Court of Justice of the European Union for further decisions. 

If parties to supply agreements are from different jurisdictions and/or the equipment will need to be transported across different jurisdictions, providing for arbitration - as opposed to litigation - as the dispute resolution mechanism in their agreements is arguably more advantageous for reasons outlined  in our previous article.

C.    Power Purchase Agreements (“PPAs”)

PPAs are a type of contract which generators of renewable energy can enter into to sell electricity to off-takers. 

Long-term PPAs secure the revenue to the project, often for the duration of the financing period. As previously discussed, when entering into long-term PPAs, parties must carefully consider the terms of the change in law provisions, as changes to the legal and regulatory framework may have financial implications including an impact on the power market price, operating costs of the plant and the level of income from government subsidies. Where significant legal or regulatory changes occur and cause performance of the PPA to become unworkable, the parties may need to renegotiate the price or other terms of the PPA by reference to a change of law clause. In this situation, a well-drafted change of law clause may prevent the PPA from being frustrated.

Many types of contractual disputes may arise between the parties to a PPA as a result of breaches of the PPA terms, including, for example, as a result of the generator’s failure to meet deadlines for commissioning of the project. Arbitration clauses which provide for expedited proceedings may assist parties to PPAs to resolve disputes efficiently.

D.    Other potential disputes in renewable energy projects

In addition to the potential disputes explained above, renewable energy companies may face disputes in relation to the following areas: 

Planning permission disputes

Obtaining planning permission for a renewable energy project is a relatively time-consuming process in the UK. Judicial review is allowed to challenge the planning permission decision, within 6 weeks from the date of the relevant decision. Through judicial review, renewable energy companies can challenge planning application rejected by local planning authorities or the national government. Local councils can also challenge planning permission granted by the national government. The associated legal costs could be significant, depending on (among other things) how complicated the matter is. 

For example, it is reported that on 21 August 2024, two UK local councils decided to withdraw their judicial review challenge before the courts on a planning permission granted to a 500MW solar farm in the UK. This resulted in the other two councils deciding to discontinue the judicial review challenge as well, since the associated legal costs in comparison to the financial return “was no longer a justifiable use of public funds”.

In particular, the councils sought to judicially review the planning permission granted by the national government, as the councils claimed that their responsibility to oversee construction and future operation, to ensure compliance with local interests, would create a disproportionate financial burden to be offset by the project. Such judicial review challenges from local councils may become more frequent if and when more large-scale solar farm projects (above 50MW) receive planning permission from the national government. 

Intellectual property (“IP”) disputes 

The renewable energy sector has to contend with a raft of IP issues and potential disputes ranging from patents and design rights to copyright and possibly even confidential information and trade secrets. IP rights tend to be territorial meaning that rights might be protected in the country in which goods are manufactured but not countries through which the products travel or are ultimately installed. In a sector where it is common for products to be manufactured overseasts, it is essential to ensure that adequate IP protection is in place. The alternative is that not only might the products be more susceptible to being copied, or the rights otherwise infringed, but the company might find itself on the receiving end of an infringement claim. 

For example, if a UK manufacturer designed a wind turbine generator to be transported to an onshore wind farm in California, it would be necessary to consider the IP position in the UK, California and potentially even the States through which the goods might pass in transit. 

To mitigate the risk of IP disputes arising, it is necessary to have an appropriate IP framework in place from at least as early as the initial design stage and certainly before goods are manufactured or transported. 

E.    Conclusion 

The UK has committed to ‘go green’. Recently, the new UK Government has committed to fully decarbonise electricity by 2030 and set an ambitious target to increase solar power in the UK by a five-fold increase to 70GW by 2035.

To achieve these goals, we expect to see an increasing number of renewable energy projects being approved and constructed in the UK, involving companies from different jurisdictions. Many of the projects would be large-scale and complicated projects, which means legal risks/disputes could easily arise. This article has provided an overview of some of those legal risks and disputes and how these risks and disputes may be mitigated or avoided at an early stage.

The series continues next week with a perspective from Singapore. 

This article was originally published on Daily Jus on Thursday 3rd October, with thanks to Jus Mundi & Jus Connect, and is available here: https://dailyjus.com/world/2024/10/renewables-arbitration-series-a-perspective-from-england-wales-part-2