Renewables Arbitration - a perspective from Poland

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. Michał Motylewski, Patrycja Starczewska and Julia Kolenda provide a perspective from Poland in this article.

Introduction

The importance of Renewable Energy Sources (“RES”) in Poland has been growing steadily for many years.

Renewable energy generation accounts for an increasing share of Poland's energy production, having reached over 27% in 2023: the highest rate in the country's history. Both EU and Polish legislation favor the development of green energy projects through decarbonization policy, with a legally binding EU goal to achieve climate neutrality by 2050 (Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 (‘European Climate Law’) and increasingly stringent intermediary goals to be achieved by 2030 and 2040 (Renewable Energy Directive, latest recast through Directive (EU) 2023/2413 referred to as RED3). This is further supported by systems of incentives and subsidy mechanisms to encourage domestic and foreign investors to fund and develop renewable projects.

The resulting investment pipeline is so significant, that installed PV capacity has already surpassed the anticipated energy transition set out in the government’s policy paper titled “Energy Policy of Poland until 2040”. Onshore wind development expects a new boost following a recent proposal to reduce zoning limitations and unlock additional development areas across the whole country (you can read about it more in our insight from September 2024). Offshore wind farms are expected to play a significant role in achieving RES targets, with completion of key projects estimated for late 2026 and 2027. 

The continuously increasing scale of investments in the renewables space and continued, large-scale activity in that market inevitably increases the need for measures allowing for the effective resolution of disputes that may emerge over the life of a project, affecting both M&A transactions and project development. This note examines why arbitration may be the preferable mode of dispute resolution, should a conflict materialize.

Polish Renewables and Arbitration

To successfully implement a renewable energy project in Poland, an investor must obtain numerous decisions and permits from local authorities and regulators. Examples include environmental decisions, decisions on development conditions, and building permits. Due to their administrative nature, these cannot be challenged using arbitration as a platform for dispute resolution. 

Nevertheless, a vast majority of relationships associated with economic rights and commercial transactions of entrepreneurs investing in RES projects in Poland include arbitrable cases. This applies mainly to all contractual relations between entities involved in acquisition or joint development transactions, as well as during the implementation and execution phases of a project.

When entering into share or asset purchase agreements, joint venture arrangements and eventually supply, construction, O&M contracts or power purchase agreements, parties can decide whether to submit future disputes arising from these contracts to arbitration. Typically, as in any other development project, parties would submit a dispute to arbitration by including an arbitration clause in the main contract rather than concluding a separate arbitration agreement. Investors should pay special attention to the scope and wording of the clause when negotiating a RES contract, paying attention to practical considerations such as the selection of a suitably located and cost-effective arbitration center; the requirement that arbitrators have experience in the renewable energy sector; or the choice of language of the process.

Why Arbitration?

Over the last decade, arbitration has emerged as an increasingly popular mechanism for resolving disputes within the Polish legal landscape, especially in matters involving foreign investors. There are several reasons as to why arbitration is beneficial for dispute resolution in the RES sector in Poland, for example:

1. Efficiency and speed: Arbitration generally offers a quicker and less formal process compared to proceedings before local Polish courts. Investors who value a streamlined and time-efficient examination of cases and execution of judgments should consider this method of resolving disputes in Poland;
2. Confidentiality: Arbitration provides privacy, as information related to the case is not published, which may be crucial for some investors;
3. Expert involvement: In disputes concerning renewable energy projects, expert knowledge is important. Parties can influence the selection of arbitrators and experts involved in the case, allowing for the involvement of appropriate specialists in evidence collection and case examination;
4. Technological advancements: The use of Artificial Intelligence (“AI”) tools is becoming increasingly popular in arbitration courts. By way of a local example, the ENOIK Arbitration Court in Poland is set to use advanced AI algorithms to resolve payment disputes between entrepreneurs which can make for a more cost-effective process overall;
5. E-arbitration: The openness and readiness of arbitration to remote hearings has become particularly noticeable since the COVID-19 pandemic. While proceedings in local Polish courts slowed down, those resolved through e-arbitration remained largely undisturbed; and
6. Legislative support: The Polish legislator's positive approach to arbitration has influenced its increased popularity. Arbitration rules outlined in the statutes governing dispute resolution (Polish Code of Civil Procedure) aim to provide a flexible and efficient framework for resolving private disputes outside of the local Polish courts.

Green Certificates' Disputes

Due to the confidentiality of arbitration cases, public information regarding RES disputes recognized by arbitration courts is limited. However, a notable dispute involving a state-affiliated company and contracts for the purchase of "green certificates" related to wind energy (“CPAs”) occurred in the Polish legal landscape a few years ago.

Green certificates are a regulated measure supporting the production of electricity from renewable energy sources. This legacy measure was available to investors that brought projects to operation prior to 1 July 2016. Currently the subsidy scheme is based on contracts for difference with a state agency awarded in a competitive bidding process, also known as auction support. Green certificates are issued to RES generators while energy companies supplying electricity to end customers and some energy intensive industrials, are obliged to use CPAs as proof that they have procured an adequate percentage of electricity from RES. Green certificates are acquired and redeemed each year based on a statutory quota on electricity consumption.

Green certificates gave rise to a prominent wave of contractual disputes concerning RES projects in Poland, after one of the four largest energy suppliers operating in the country repudiated more than a hundred long-term CPAs – concluded to support financing of the underlying RES assets – referring to public procurement rules applying to certain energy utilities as a basis for this action. Consequently, numerous lawsuits were brought against renewable energy producers and financing banks attempting to invalidate the CPAs. Those actions, involving similar substantive and procedural issues, provide an interesting empirical sample of RES disputes processed through different modes of dispute resolution available in Poland.

Of the twenty-two known cases, three were submitted to arbitration based on the arbitration clauses included in the CPAs. After less than a year, the Court of Arbitration at the Polish Chamber of Commerce issued final rulings in all three of those, dismissing the claims to establish the invalidity of the CPAs. In contrast, the CPA cases heard by the local Polish courts took approximately 2 to 4 years to reach a final resolution by the appellate court, with a majority of the second-instance verdicts appealed to the Supreme Court. 

Conclusion

The green certificates' disputes illustrate how renewable arbitration in Poland can work to protect vital interests of investors and financing entities, enabling parties to efficiently obtain rulings protecting the revenue of RES projects. Two main conclusions can be drawn:

1. In numerical terms, resolving renewable disputes through commercial arbitration is still significantly less popular in Poland than bringing actions to the local Polish courts; and
2. Arbitration proceedings can be, and have been, resolved much faster than those in common courts.
3. Considering the numerous positive aspects of arbitration, we can predict that the increased global demand for renewable power, leading to a rise in renewable projects, will result in growing potential for disputes in this sector and increased interest in arbitration as a platform to resolve them.

The series continues next week with a perspective from Paris. 

This article was originally published on Daily Jus on Thursday 17th October, with thanks to Jus Mundi & Jus Connect, and is available here: https://dailyjus.com/world/2024/10/renewables-arbitration-series-a-perspective-from-poland