Dispute resolution in the power & renewable energy sector: Q&A

This Q&A gives a high level overview of the typical types of claims in the sector; who the parties to a dispute tend to be; dispute resolution methods used, costs and funding issues; settlement; judgments and remedies and any specific dispute resolution issues in the power and renewables sector.

In this Thomson Reuters Practical Law Q&A, Clyde & Co Partners Richard Power and Mary Anne Roff provide a high level overview of dispute resolution in the sector, covering types of claims, parties, methods, funding and more.

Claims in the sector

1. Are there "typical" claims within the sector? If so, please provide a brief overview of each of them.

There are typically three types of disputes within the power and renewables sector. They are:

• Construction and engineering disputes during the construction phase or the operation and maintenance phase. Power and renewable construction projects are complex and involve multiple parties and often new technologies, resulting in many potential areas of dispute including claims for additional payment and extensions of time for alleged scope changes; delays caused by factors such as unexpected ground conditions, material shortages and, particularly for offshore wind projects, adverse weather; disputes as to responsibility for design, performance and alleged defects.
• Contractual disputes relating to feedstock, especially natural gas but also coal, fuel for waste-to-energy plants and low carbon fuels such as wood pellets and hay. Disputes are common regarding price reopeners in long-term gas supply contracts, interruptions to supply and quality issues.
• Regulatory disputes. Power is a heavily regulated industry and challenges to decisions by Ofgem, the government and planning authorities, in the form of judicial review or administrative appeals, are common.
   

2. Are there any wider economic, regulatory or political factors that make disputes of any kind more or less common in the sector?

Disputes in the sector can arise due to the following factors:

• Traditionally long-term gas supply contracts were linked to the oil price before the development of a liquid spot gas market broke the linkage with oil. Shifts in the oil price could trigger gas price reopener disputes. Currently, pricing for gas supply contracts is linked to wider economic factors, but any change to those can trigger reopener requests.
• For energy network companies, periodic price-control reviews can lead to an increase in challenges to Ofgem's decisions, for example challenges to the amount of revenue under Ofgem's RIIO price control regime, and for the retail market, issues around end consumer price capping.
• The subsidy mechanisms such as low carbon Contracts for Differences and the Capacity Market, and award of contracts via auction, can lead to disputes, such as Tempus Energy's judicial review of the approval of subsidies for the Capacity Market.
• Ofgem's Supplier of Last Resort rules limit the costs which can be recovered when an energy company steps into secure continued supplies when another supplier becomes insolvent or otherwise ceases operations.

Changing political policy on energy supply can lead to disputes between investors and government agencies, for example the phasing out of coal-fired power generation and the incentivisation of renewables. Spain and Italy's amendment of their solar incentive schemes led to numerous claims against their governments under the Energy Charter Treaty.
 

3. Which issues give rise to the most disputes in the sector?

In the offshore wind sector, one of the key causes of construction disputes is adverse weather, and which party should take responsibility for it. So far as contractual clauses are concerned, most construction contracts contain detailed requirements as to the notices that must be served before claims can be made and what those notices should contain. There are frequently disputes as to whether appropriate notices have been served and whether or not they are a condition precedent to an entitlement to claim.

Price review clauses can also create disputes, whether in power purchase agreements (PPAs) or gas supply contracts. In the administrative arena, challenges can be brought against regulator decisions in the context of the regulated energy supply sector.
 

4. Approximately what proportion of the disputes you encounter become the subject of dispute resolution proceedings?

Approximately half of the disputes in the sector become the subject of dispute resolution proceedings.
 

5. Are there any unusual time limits for starting a claim?

There are no unusual time limits for starting a claim in the power & renewables sector, unless time limits are imposed by relevant contracts.

For information on limitation periods under the Limitation Act 1980, see Practice note, Limitation periods: an overview.

Parties to a dispute

6. Who are typically the opposing parties in disputes in the sector?

Opposing parties are typically the Department for Business, Energy and Industrial Strategy (BEIS) and the energy regulator Ofgem, who can be subject to judicial reviews and administrative challenges. For commercial, corporate, finance or construction disputes, generally large corporates are involved, mostly from the same jurisdiction. However, for construction disputes in particular, parties are often from different jurisdictions as the construction supply chain is global, especially in relation to disputes involving the supply of turbines solar panels and so on.

7. Are parties usually balanced in terms of bargaining power and financial circumstances?

Generally, parties are usually balanced in terms of bargaining power and financial circumstances except for where the other party is the state, and particularly an entity responsible for awarding licences. In this situation the bargaining power of the non-state entity is limited for political and legislative reasons.

 

Dispute resolution methods: how are disputes typically resolved in the sector?

8. Which courts, arbitral bodies or other organisations commonly deal with disputes?

The High Court (Administrative Court) deals with judicial review challenges. Non-administrative disputes are generally also resolved in the High Court or via arbitration, often on an ad hoc basis for price reopeners. Expert determination is also often used for pricing disputes and construction claims involving technical subject matter. Many construction projects also have a Dispute Adjudication Board and/or provide for disputes to be resolved by adjudication (see Question 11, Are there any requirements in the sector for a particular type of dispute resolution regime?).

For information on dispute resolution procedures, see:

• Practice note, Judicial review procedure: a practical guide.
• Practice note, Expert determination.
• Adjudication toolkit.
• How to start a civil claim toolkit.
• The arbitration toolkit.

9. What factors are most likely to influence the choice of dispute resolution method?

The following factors can influence the choice of dispute resolution method:

• Industry standard has usually been to choose English courts because parties are generally domestic and contracts governed by English law; and the Commercial and Technology and Construction Courts provide good quality judges, familiar with the subject matter.
• Parties to construction contracts generally choose arbitration rather than litigation, because of its confidentiality and because it is perceived as more appropriate in circumstances where the parties and the project are frequently all based in different jurisdictions. As mentioned in Question 8, Dispute Adjudication Boards and adjudication are increasingly used in construction contracts; the former because they allow disputes to be decided by adjudicators who are well acquainted with the project and its issues; and the latter because it is a very quick and cheap method compared with other formal procedures.
• Technical and pricing disputes suit expert determination, which provides a speedy and relatively cheap alternative to litigating a dispute which will ultimately turn on expert evidence. Similarly, pricing disputes often use arbitration because it offers most of the benefits of expert determination but with the advantage of direct enforceability of the award, and potentially the right to appeal for an error of law.

10. What are the most commonly used alternative dispute resolution (ADR) methods (adjudication, mediation, ENE, expert determination, dispute boards)?

See Question 9, What factors are most likely to influence the choice of dispute resolution method?.

For information on the various ADR mechanisms, see Practice note, Overview and comparison of ADR processes.

11. Are there any requirements in the sector for a particular type of dispute resolution regime?

There are no requirements in the sector for a particular type of dispute resolution regime except for administrative challenges which might have a legislatively mandated appeal scheme before judicial review proceedings can be brought. In addition, adjudication is a statutory requirement for certain construction operations in the UK and certain other jurisdictions. Many projects in the energy/power sectors are exempt from statutory adjudication but, in those circumstances, adjudication is often included as a contractual option.

12. Are there sector-specific procedural rules that apply to any of these dispute resolution regimes?

There is a Pre-Action Protocol that must be followed for construction and engineering disputes subject to litigation in the courts of England and Wales.

For more information, see Practice note, Complying with the Pre-Action Protocol for Construction and Engineering Disputes.

 

Litigation, arbitration or ADR

13. Whatever the method of dispute resolution, to what extent do the parties expect to be able to control the procedure and timetable for disputes in the sector? How quick is the process?

The ability to control the procedure and timetable is one of the drivers for the adoption of arbitration or expert determination. There is no real difference for the power and renewables sector over the procedures used in other sectors for High Court proceedings, arbitration and expert determination; the timing will depend on:

• The subject-matter.
• The judge or tribunal ordering directions.
• The parties' attitude towards compliance.
• How document heavy the process is and so on.

Some disputes can be dealt with in a matter of months, some will take years.

14. How common are interim applications (such as applications for interim injunctions) and without notice applications?

Interim applications and without notice applications are no more or less common than for other types of dispute in other sectors. The provision of electricity in the retail sector is heavily regulated in the UK and power providers, by and large, cannot threaten to shut off power to exert pressure on the other party, removing this as a likely factor in requiring emergency relief. Parties are generally large corporates and so freezing injunctions are seldom required.

For more information on interim applications, see Practice notes, Interim applications under the CPR: an overview and Supportive powers of the English courts: an overview.

15. Are expert witnesses used in the sector?

Expert witnesses are often used, especially for technical disputes regarding machinery and component defects and breakages, force majeure events and pricing matters. As well as technical experts, construction disputes also frequently require delay and quantum experts. The sector is very technical, and is becoming increasingly so with time, and so many disputes relate to technical matters.

For information on expert evidence for use in hearings and trials in the Technology and Construction Court, see Practice note, Technology and Construction Court: witness evidence. For information on expert evidence generally, see Practice note, Expert evidence: an overview and for information on expert evidence in international arbitration, see Practice note, Evidence in international arbitration.

16. Are appeals possible and common in the sector?

Appeals are dependent on the form of dispute resolution adopted:

• In Court, appeals are possible.
• For expert determination, appeals are not possible.
• For arbitration, appeals are possible only if the right of appeal has not been excluded by the parties.

However, where industry-wide matters are at stake, especially in judicial review proceedings, appeals will be made, especially if the relevant state body has lost.

For more information on appeals, see Practice notes, Appeals: an overview, Challenging the award under section 69 of the English Arbitration Act 1996: appeal on a point of law and Judicial review procedure: a practical guide.

 

Costs and Funding

17. Is it common in the sector for disputes to receive third party funding?

It is not common for disputes to receive third party funding. Parties are generally large corporates who take the view that if the merits of the claim are sufficiently good to qualify for funding, they would rather fund the dispute privately.

18. Who typically pays the costs of any proceedings in the sector?

The parties pay for the costs of proceedings.

 

Settlement

19. Is it common in the sector for disputes that are the subject of proceedings to settle? Why is this?

It is common for disputes that are subject to proceedings to settle. The provision of power supplies is usually crucial for at least one of the parties, and often the parties are big names in the industry, possibly a regulated body. Consequently, it is in both parties' interests to resolve the dispute quickly and cheaply, avoiding bad publicity and ensuring continuity of supply.

For more information on settling a dispute by negotiation, see Practice note, Settlement: an overview.

Judgment and remedies

20. What remedies are generally awarded in the sector?

By and large, the remedy for contractual disputes is damages. Administrative disputes that are not settled result in an order for reconsideration and adoption of the correct procedures, or a quashing of the decision.

For guidance on the law of damages for breach of contract, see Practice note, Damages for breach of contract: an overview.

21. How are judgments generally enforced in the sector?

Parties in the sector generally consent to, and comply with, judgments. Enforcement is not usually necessary.

For information on enforcement, see Practice note, Enforcing a money judgment.

22. To what extent is forum shopping likely to be relevant following the end of the Brexit transition period?

Forum shopping may be unlikely, especially for domestic power production/distribution/transmission issues. There might be an increased use of arbitration for international contracts such as for the international sale and supply of components for renewable power generation or battery storage and so on.

 

Trends in the sector

23. Is there a shift in the sector away from more "traditional" methods of dispute resolution towards more collaborative ADR techniques?

There does not appear to be a shift towards more collaborative ADR techniques: the sector approach seems to remain traditional. However, as decentralised and smaller-scale energy production becomes more common, simpler and more nimble dispute resolution mechanisms are likely to be required.

Construction contracts are perhaps an exception. For example, the widespread use of FIDIC contracts and the introduction into the FIDIC suite of the DAAB (Dispute Avoidance and Adjudication Board) supports a shift towards more collaborative dispute resolution techniques. For more information, see Practice notes, FIDIC Forms of Contract and Dispute boards: what are dispute boards?.

24. What is the incidence of class actions in the sector?

At present, there are not many class actions in the sector, but there is a likelihood that climate-related claims for pollution and to compel faster adoption of policies to achieve net zero will emerge in the coming years.

For information on some of the key issues and trends in climate change litigation globally, see Practice note, Climate change litigation.

25. Are there likely to be any significant developments in the near future that will impact upon disputes in the sector?

See Question 24, What is the incidence of class actions in the sector?.

 

Specific issues in the sector

26. Are there any other specific issues of note when dealing with disputes in the sector?

There are no other points to note other than those covered above.

This Q&A originally appears on Practical Law and is reproduced with the permission of Thomson Reuters.