Renewables Arbitration – A Perspective from the UAE

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. In this article, David Leckie, Leonard Soudagar and Afraz Hussain explore the UAE’s approach to resolving renewable energy disputes.

The United Arab Emirates (UAE) has emerged as a leader in renewable energy, driven by ambitious initiatives underpinned by the UAE Energy Strategy 2050. This aims to triple the contribution of renewable energy and invest AED 150 to AED 200 billion b 2030 to meet the country’s increasing demand for energy due to the rapidly growing economy. These initiatives are reshaping the region’s energy landscape and fuelling significant investments in solar, wind, and hydrogen energy projects, among others. 

As the renewables sector grows, so do the legal challenges. Arbitration has become the preferred method for resolving disputes in this sector due to its confidentiality, procedural flexibility and enforceability. 

This article explores the UAE’s approach to resolving renewable energy disputes through arbitration, discusses key types of disputes in the sector, identifies major risks, and highlights challenges for investors. 

Why is Arbitration the Preferred Dispute Resolution Forum in the UAE?

The UAE is a pro-arbitration jurisdiction and its commitment to arbitration is reinforced by its own arbitration institutions, the Dubai International Arbitration Centre (DIAC) and the Abu Dhabi International Arbitration Centre (ArbitrateAD), which are both designed to resolve disputes in sectors such as energy, with panels of experienced international arbitrators.

Arbitration offers several distinct benefits, particularly for renewables projects involving international stakeholders, technical complexity, and intellectual property concerns. 

1. Language and accessibility: Most contracts in this sector are in English, often involving multinational parties who may not be fluent in Arabic. Arbitration allows proceedings to be conducted in English, which is particularly important for foreign investors, contractors, and developers. This language flexibility offered by arbitration institutions like DIAC and ArbitrateADenhances accessibility and ensures that all parties can engage fully in the process without the added complexity of translation, which could otherwise lead to additional costs, misinterpretations and delays.
2. Confidentiality and reputation management: In the renewable energy sector, especially in high-profile projects, arbitration offers a private forum where sensitive commercial and technical details remain confidential. This privacy is critical for parties wishing to avoid reputational risks, as it prevents proprietary technology, financial arrangements, and internal project issues from becoming public.
3. Expertise: Renewable energy projects in the UAE involve complex technology, international contractual arrangements, and intricate financial models. Arbitration allows parties to select specialised arbitrators, with expertise in renewables, construction, and intellectual property. 
4. Flexibility: Arbitration procedures are very flexible, allowing parties to agree arbitral procedures to suit the needs of high-value renewable projects. The 2022 DIAC Rules, for example, introduced provisions for virtual hearings, consolidation, expedited proceedings, interim measures and third-party funding. This, aligned the rules with international standards, making arbitration the preferred forum for complex, multi-party cases. This flexibility is critical in managing multi-jurisdictional disputes
5. Efficiency and time sensitivity: Renewable projects are often time-sensitive, with potential delays translating into significant financial losses. Arbitration can be faster than litigation, with limited rights of appeal. 

Renewable Disputes in the UAE

Disputes typically addressed through arbitration in the UAE’s renewables sector include:

1. Supply and construction agreements: Large-scale solar and wind projects in the UAE involve extensive and complex construction agreements. Disputes can arise from delays, construction timelines, cost overruns and performance failures. 
2. Joint Ventures and Power Purchase Agreements (PPAs): Given the scale and capital invested in renewables projects, joint ventures and long-term PPAs are common (usually spanning 20-25 years). These agreements are essential for securing revenue streams but can generate disputes over tariffs, take or pay provisions, regulatory compliance, and contract termination including step-in rights for lenders. Arbitration allows these disputes to be addressed confidentially and with industry-specific expertise. 
3. Planning and environmental compliance: The UAE has strict environmental and planning laws and standards, with projects requiring multiple levels of approval. Disputes can arise if projects fail to meet these requirements. 

Legal Risks and Arbitration’s Role in Risk Mitigation

The UAE’s renewable energy market faces several legal risks that investors and contractors must navigate::

1. Policy and regulatory changes: Regulatory stability is critical for long-term energy investments. However, shifts in tariffs, subsidies, or licensing can disrupt project economics. Many renewables contracts therefore include “Stabilization Clauses” and arbitration provisions, allowing stakeholders to seek equitable adjustments if policy changes impact profitability.

• Pricing and market volatility: Renewables projects depend on stable pricing models, which are vulnerable to fluctuations in energy market rates. Arbitration provides a structured forum to resolve disputes if pricing becomes contentious, allowing for the appointment of arbitrators with the necessary expertise and expert adjudication to determine fair adjustments.
• Intellectual Property and patent disputes: Arbitration is a key forum for IP disputes, where confidentiality is essential, particularly for international companies bringing proprietary technology into the UAE. IP clauses in renewable contracts often mandate arbitration to resolve disputes over patent infringement, licensing disagreements, or technology transfer issues. Arbitration also provides a neutral setting that international parties often prefer.
• Compliance with international sanctions: UAE-based renewables projects may be exposed to the risks associated with sanctions or trade restrictions. Force majeure is often defined to include sanctions which prevent or hinder project execution and this can lead to disputes to be determined by arbitration. 

Conclusion

With the UAE positioned as a regional leader in renewable energy, arbitration is the forum of choice for managing complex disputes in this sector. Institutions like DIAC and ArbitrateAD, have fortified the UAE’s arbitration framework, supporting efficient resolution for complex, multi-party disputes in renewables. By including robust contractual provisions that address regulatory risks, pricing instability, and IP concerns, with arbitration as the dispute resolution forum, stakeholders in the UAE’s renewables market can more adequately safeguard their investments and contribute to the region’s clean energy goals.

The series continues next week a perspective from the USA. 

This article was originally published on Daily Jus on Thursday 7th November, with thanks to Jus Mundi & Jus Connect, and is available here: https://dailyjus.com/world/2024/11/renewables-arbitration-series-a-perspective-from-uae