Dispute Resolution in the Clean Energy Sector in Africa
Published:The COP28 discussions are a good opportunity to reflect on the exponential growth of the African clean energy sector that is already underway, and is due to snowball in the near future. The implications of an unprecedented speed of change and innovation are many and varied – but not least amongst these are the impact that it will have on dispute resolution.
The International Energy Agency (IEA) notes that at the moment, Africa only accounts for 2% of the world’s spending on clean energy, despite having around 20% of the world’s population.[1] However, this is set to change. In its Africa Energy Outlook 2022, the IEA models a Sustainable Energy Scenario for Africa, which sees primary energy supply rising by over a third by 2030. Renewables, including solar, wind, hydropower and geothermal account for over 80% of new power generation capacity to 2030 in this scenario.[2]
Arbitration is already a popular means of resolving disputes in the clean energy sector – it provides parties with a neutral forum, allows them to choose their decision makers, and results in an award that is comparatively widely enforceable.[3] But is it fit for purpose in this new context? We think that the answer is “yes”, although there are some unique features of the renewables industry that mean that arbitration clauses and proceedings need to be tailored to ensure that parties can make best use of its flexibility and cost effectiveness.
- Technical Complexity
Firstly, the growth of renewables will inevitably pose new technical challenges. Although basic wind and solar technologies are now well-tested, there is a constant pressure to innovate in order to reduce costs and increase efficiency. There are also emerging technologies in other renewables and ancillary industries: from floating wind and solar, to battery storage, green hydrogen or smart grids, to name but a few.
The corollary of an innovative and dynamic industry is a corresponding potential for disputes. Contractual provisions regarding the allocation of risk of technical failures and errors take on a particular importance.[4] Pressures created by first-of-a-kind technologies, upskilling the workforce, adaptation of supply chains, and creative solutions in deployment and management of new projects can all lead to unexpected tensions between contracting parties.
What this means is that all contracting parties must be prepared to deal with potential conflicts with patience, efficiency and a sense of perspective. In addition, if arbitration becomes necessary, the participants must be equipped to deal, not only with new contractual solutions, but also with the underlying technologies themselves:
- Arbitrators: One of the strengths of arbitration is that the parties have a large degree of freedom to choose their decision makers – parties need to ensure that they make full use of this possibility, to ensure that the Tribunal has the right mix of technical, regional, human and legal skills.
- Experts: Arbitration allows either the parties, or the Tribunal itself, to appoint an expert to opine on technical issues. A knowledgeable expert who is also able to present their position with clarity and conviction can be invaluable in educating the Tribunal (not to mention the parties’ own lawyers as well).
- Counsel: The legal profession is becoming increasingly specialised. To be equipped to present their client’s case and challenge and cross-examine their opponents, lawyers need to develop an in-depth and first-hand understanding of the new technologies involved.
- Multiplicity of Stakeholders
Secondly, it is a feature of most renewables projects that they operate in a complex regulatory, financial and human environment. For example, a project finance structure will involve contracts with lenders and with the contractors and subcontractors building the plant, as well as with a state offtaker and other government bodies. There will also be impacts on local communities: positively in terms of localised energy production and job creation, but also potentially negatively if issues surrounding land-use, labour rights, and so on are not appropriately handled.
Finance is central to the energy transition, and given the hesitations (real or perceived) of private investors in many countries in Africa, renewables projects are either fully or partially reliant on the involvement of concessional capital from development banks and donors.[5] Concessional lenders will typically require compliance with environmental and social standards and will demand a greater involvement in projects. As well as giving rise to a potential for disputes with the financing parties, this also means that lenders play more of a role in the decision-making process surrounding any dispute. Equally significant is the role of the State as offtaker, and state financial support mechanisms for renewables projects, the withdrawal of which has led to numerous energy charter treaty disputes in Europe and elsewhere.
Quite aside from the potential for disputes between stakeholders, the multiplicity of stakeholders also means that the decision to launch a dispute, and the way it is conducted, is complexified by the need to take competing interests and views into account.
Multiparty and multi-contract disputes can pose significant challenges in an arbitration context, but early attention to these issues can put the parties in the best position to ensure that all of the multiple disputes are resolved efficiently. Parties need to consider how any dispute proceedings will be structured upfront when drafting the disputes clause, and include provisions for consolidation and joinder of arbitrations under multiple contracts if appropriate. Further consideration then needs to be given to this issue if and when a dispute arises, to ensure that proceedings are streamlined to the extent possible, and avoid a multiplication of proceedings in different courts and tribunals.
- Variety in the scale of projects and disputes
Thirdly, the need to deploy a distributed network of power plants and infrastructure quickly will also put pressure on the traditional disputes model. Renewables projects are often smaller in scale than traditional energy projects (such as oil & gas, coal, and nuclear) and correspondingly quicker to build. In this context, a traditional 18-month to two-year litigation or arbitration is particularly burdensome – the dispute mechanism needs to be efficient, cost effective, and tailored to the particular circumstances of the case.
Certain disputes are suitable for resolution by negotiation or mediation. Alternatively, where the parties are entrenched in their positions and less likely to agree, is there a quicker means of getting a third-party decision? Anecdotal evidence suggests that adjudication and dispute boards are currently less widely used in the energy sector that in other fields of construction, and this seems to be a missed opportunity. Expert determination can also be useful to resolve disputes of a technical, valuation or financial nature.
However, arbitration remains the gold standard for larger and more complex disputes – and its inherently flexible nature means that it can be adapted to meet the particular circumstances of each dispute.[6] There are many bespoke solutions that can make proceedings more efficient, ranging from expedited arbitration to early determination, streamlined procedural timetables, virtual exchange of memorials and/or virtual hearings. The key – and indeed the answer to each of the issues outlined above – is to remain agile, and to ensure that consideration is given to creative procedural solutions at each stage of the process, from contract negotiation right through to enforcement of any award.
[1] See International Energy Agency, “Financing Clean Energy in Africa: World Energy Outlook Special Report”, September 2023.
[2] International Energy Agency, “Africa Energy Outlook 2022”, revised version published May 2023.
[3] In the Queen Mary University London “Future of International Energy Arbitration Survey Report”, 20 January 2023, 72% of respondents gave arbitration a score of at least 4 / 5 in terms of suitability for resolving energy disputes.
[4] For an example in a litigation context, see Mt Hojgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd and Another [2017] UKSC 59BLR 477, involving an erroneous figure in the equation set out in the contractual requirements for the foundations of an offshore wind turbine.
[5] See Wendy J. Miles and Nicola Swan, “Chapter 18: Climate Change Financing and Dispute Resolution”, in Sherlin Tung, Fabricio Fortese, et al. (eds), Finances in International Arbitration: Liber Amicorum Patricia Shaughnessy, Kluwer Law International 2019, pp. 323 – 346.
[6] For some examples, see the ICC Arbitration and ADR Commission Report on Resolving Climate Change Related Disputes through Arbitration and ADR, 26 November 2019.