Renewables Arbitration- a perspective from Paris

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 explores the role of arbitration in renewable energy disputes. Sophie Bayrou and Samia Ajouby provide a perspective from Paris in this article.

Introduction

In these times of global ecological urgency and energy crisis, the call for a swift transition to renewable energy is growing louder on the international stage. France’s commitment to green transition, combined with its well-established status as a jurisdiction for international arbitration, uniquely positions it to foster the development of renewables arbitration.

I. The Renewable Energy Landscape in France

France is strongly placed in this field, with primary production of renewable energies up by more than 70% since 2005. As of today, France is Europe's second-largest producer of biomass and hydroelectricity, with a share of renewable energies equal to 22.2% of its gross final energy consumption in 2023. These developments derive from France’s various commitments to combat climate change. 

At a global level, France signed the United Nations Framework Convention on Climate Change (1992) in 1992, the Kyoto Protocol to the United Nations Framework Convention on Climate Change (1997) in 1998, and the Paris Agreement (2015) in 2016. At the European level, France is a part of the Green Pact for Europe that was established in 2019, and the climate package called “Fit for 55”, which reflects the EU's target of reducing its carbon emissions by 55% by 2030. Nationally, France has adopted several laws to facilitate the green energy transition such as the Law no. 2015-992 dated 17 August 2015 on the energy transition for green growth (“Loi relative à la transition énergétique pour la croissance verte”), which introduced the multi-annual energy programming; the Energy-Climate Law (“Loi énergie-climat”) on 8 November 2019, to act on the goal of carbon neutrality by 2050 in response to the goals set by the Paris Agreement ; and the “Law to accelerate the production of renewable energies”, so-called “APER” or “ENR” Law (“Loi n°2023-175 du 10 mars 2023 relative à l’accélération de la production d’énergies renouvelables”) on 10 March 2023, which has strongly impacted the legal framework applicable to renewable energies, as it aims to set up simplified procedures to encourage the various private and public stakeholders to develop renewable energy production sources.

While these current and future legislative changes are to be welcomed, the volume of renewable energy disputes is expected to increase, due to the various contractual changes and increase of projects requiring complex contractual arrangements to comply with the new legislative requirements. While renewable energy projects in France involve issues of administrative law that may not be arbitrable (for instance, the APER Law introduced various requirements in terms of permits and authorizations delivered by French administrative authorities which fall within the exclusive jurisdiction of French administrative courts), arbitration, as an efficient and tailored dispute resolution method, can offer innovative solutions to unprecedented disputes.

II. Renewable Energy Arbitrations in France

Despite France's predominant position in the field of renewable energies, it has been a party to very few investment arbitration disputes in this area. The only published dispute against France involves a request for arbitration by Encavis AG and three of its subsidiaries, concerning photovoltaic electricity issues, before ICSID. These proceedings have been discontinued, by an ICSID Order, Encavis AG and others v. France, Order of the Acting Secretary General Taking Note of the Discontinuance of the Proceeding, 24 April 2024.

However, following the aforementioned legislative reforms, France is not immune from future legal proceedings. As such, the APER Law has introduced material changes applicable to renewable projects. For example, agrivoltaics (Article 54 Loi APER), which combines agricultural production and solar power on the same plot of land, and long-term contracts for the direct sale of electricity (Article 86) have now been expressly recognized. This law also created new obligations for economic actors, insofar as it requires public entities, and private companies with more than 250 employees, to draw up a plan for developing their land with a view to producing renewable energy.

Furthermore, as regards investment arbitration, investors now have new sources for claims, which can give rise to proceedings based on standards of protection provided for by the 112 BITS signed by France. Some potential examples are claims based on a breach of legitimate expectations, fair and equitable treatment, or unlawful changes of the legal framework provided by the host state.

France’s withdrawal from the Energy Charter Treaty (1994) (ECT) in 2023 is also likely to become a source of dispute. This withdrawal was justified by the fact that the ECT could be seen as enabling investors to challenge the policies of states wishing to complete their ecological transition. TThis withdrawal is also explained by the judgment of the ECJ in Achmea v. Slovakia (I), Judgment of the Grand Chamber of the European Court of Justice, 6 March 2018, in which the ECJ ruled that the dispute resolution mechanism provided for in Article 26 of the ECT was incompatible with European Union law. This decision prompted many countries to withdraw from the ECT. However, the provisions of the ECT offer a range of guarantees and protection for foreign investors, which may be used as grounds for future investment claims. Article 47.3 of the ECT provides for a sunset clause, that allows ECT to continue to apply to investments made prior to withdrawal for another 20 years. However, scholars have raised the possibility that a coordinated withdrawal from several States may neutralize the effects of this clause. If this position is adopted, foreign investors may raise claims on the basis of a violation of the standards of protection. 

In terms of commercial arbitrations, resort to arbitration is already common in the field of renewable energies. An International Chamber of Commerce (ICC) report published on 24 June 2024 shows that disputes arising from construction/engineering and energy sectors in 2023, represented 45% of all new cases registered, respectively 219 (25.2%) and 179 new cases (20.6%). 

III. Arbitration as an Effective Tool to Deal with Renewable Energy Disputes 

The intrinsic nature of renewable energy disputes makes arbitration the ideal solution to deal with them. They generally involve an international element, due to the multiplicity of actors and stakeholders (for instance in offshore wind projects), which often translate into a variety of different nationalities. 

Renewable energy projects are primarily financed by third parties and often involve highly complex (and multiple) contracts. The project finance elements and technical expertise implied, and the disputes arising from them will inevitably call on the services of highly trained arbitral tribunals and experts, not only for the substantial issues at stake, but also for quantum questions. 

Arbitration is therefore the natural route to take, since the procedure is neutral, flexible and efficient, and offers the ability to select arbitrators and experts with relevant expertise.  

The recent reforms in France will also make contractual renegotiations in private contracts necessary. To prevent and avoid an uncontrollable volume of disputes, it would be advisable for the various parties involved, when concluding or reworking contracts, to carefully draft various clauses that can be used as a support for claims, such as force majeure clauses or material adverse clauses, to deal with environmental concerns.

Conclusion

Renewable energies are the hot topic of the moment. As a corollary, the increase of disputes is to be expected, and arbitration appears to be a safe route to deal with disputes in this sector. 

However, arbitral tribunals may face increased pressure when balancing the interests of the contracting parties, particularly when one of the parties to the dispute is a State, who has the right to change its laws to meet its environmental commitments, while at the same time protecting the rights of foreign investors. 

The series continues next week with a perspective from Germany. 

This was originally published on Daily Jus on Thursday 24th October, with thanks to Jus Mundi & Jus Connect, and is available here: https://dailyjus.com/world/2024/10/renewables-arbitration-series-a-perspective-from-paris.