Chapter 10 Mitigating the Risk of Costly Disputes in Renewable Energy Project Development
| Jurisdiction | United States |
Chapter 10 Mitigating the Risk of Costly Disputes in Renewable Energy Project Development
EMILY HUGGINS JONES is a Partner in the Cincinnati office of Locke Lord. She advises maritime companies on the full spectrum of marine legal issues. She also provides comprehensive maritime counsel to offshore wind developers and service companies, and vessel owning and operating companies in the renewable energy and telecommunication sectors. Emily routinely provides counsel regarding compliance with the Jones Act and related U.S. cabotage laws as well as counseling on life cycle documentation for vessels operating in U.S. waters, including shipbuilding contracts, vessel financing, Coast Guard and Customs and Border Patrol agreements and vessel chartering contracts. She also regularly advises on shipping and logistics contracting and regulatory compliance. Emily also provides counseling in connection with renewable energy project development, mergers and acquisitions, as well as financing transactions, and counsels clients on a full range of maritime and environmental compliance matters involving the Clean Water Act, Clean Air Act, RCRA, TSCA, EPCRA, Departments of Transportation, Energy and Interior regulations as well as state and local regulatory requirements.
While renewable energy project development has steadily increased over the last several decades in the United States, the growth of the industry has rapidly accelerated with the support of the current federal administration. Indeed, on his first day in office, President Biden issued several Executive Orders aimed at addressing climate change, setting goals to reduce greenhouse gas emissions by 50 percent by 2030, and reaching a net-zero emission economy by 2050.1
The recent passage of the Inflation Reduction Act, on August 16th is the latest in a series of federal actions designed to drastically reduce the carbon footprint of the US economy, and in so doing will catalyze the renewable energy development market.2 The Biden Administration claims that the IRA will precipitate the investment of $369 billion in energy security and climate change programs and is targeted to reduce carbon emissions by roughly 40 percent by 2030. The American Clean Power Association projects that the IRA will lead to 550 gigawatts of clean energy generation over the next ten years.3 Among the key provisions of the IRA that are anticipated to spur renewable energy development are: (1) the extension of the investment tax credit (ITC) and the production tax credit (PTC) for projects beginning construction before January 1, 2025; (2) supplementation of the ITC and PTC with an expanded clean energy electricity production credit, for emission-free electricity generation and a clean electricity investment credit, that applies to emission-free electricity generation and storage, nuclear generation, hydrogen produced with renewable energy and stand-alone energy storage; (3) manufacturing tax credit for certain equipment, including photovoltaic cells, solar modules, wind energy components and battery cells, produced in US and sold between December 31, 2022 and December 31, 2032; (4) one-time transfer of federal tax credits by claiming party to an unrelated party, without taxation of the income of the transferring party; (5) extension of existing carbon capture tax credit through 2033 and broadens qualifying requirements; and (6) set asides for funding for programs to reduce emissions in connection with manufacture of components made with renewable energy processes.4
Against this backdrop of federal incentives, expectations for the exponential growth of renewable energy in the US are well-founded. In addition to onshore wind and solar development, newer fields, including offshore wind, floating solar, wave, and hydro power production are in advanced stages of planning and development. It is an exciting time for anyone involved in the renewable energy industry, but the justifiable enthusiasm should be tempered by the implementation of a front-end strategy for risk mitigation in project development activities. Given the novelty of technology, the evolving nature of relevant federal and state legislation, and the nascence of commercial scale development in many renewable
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energy sectors, the stage is set for the emergence of disputes at nearly every stage of development. Despite the challenges presented by the uncertainties inherent in emerging markets, the experience gleaned from the development of renewable energy projects in the now more "traditional" sectors is instructive for development of renewable energy projects across the spectrum. This paper will explore commonly-encountered disputes that arise during project development, and endeavor to provide some practical guidance for mitigating - and ideally, avoiding - those pitfalls at the outset of the project development process.
Often-litigated issues arising from development and financing projects
Perhaps the best place to begin an analysis of risk mitigation is at the end. By examining what can go wrong during the life cycle of the development of a renewable energy project, we hope to and identifying the pitfalls that often lead to litigation, the risk of those disputes arising in future development projects may be tempered.
Renewable energy projects, and indeed energy projects of any ilk, seem to be lightning rods for opposition. This is especially true of projects proposed to install new or innovative technologies. As a lawyer advising on the marine aspects of renewable energy projects, I have encountered disputes of nearly every variety, but those disputes nearly all ultimately concern the allocation -or lack thereof - of risks attendant to the project in project.
Liability and Risk Allocation
The nuts and bolts of contract drafting will be more fully addressed subsequently, but suffice it to say that a large proportion of the disputes that arise among the parties to project development contracts concern the allocation of risk and liability for any given project. The importance of a well-drafted, thorough contract at each major stage of the project development documentation process cannot be overstated. Among the many considerations for upfront allocation, I would submit that the following non-exhaustive list be among those factors under discussion: (1) technological failures; (2) non-conformity of products to their intended design or use; (2) supply chain failures or interruptions; (3) regulatory challenges and permitting delays; (4) challenges to the project development timeline; (5) improper performance by contractors or subcontractors; (6) financial inadequacy of suppliers or third party contractors; (7) adverse weather conditions; (8) Force Majeure conditions; (9) challenges with non-party entities (e.g. offtake or transmission issues); and (10) environmental events. Although it is impossible to anticipate every potential pitfall, much of the litigation that surrounds development projects arises from a failure to address, and allocate, risks such as these.
A recent example of risk allocation gone awry arose in US Wind Inc. v. U.S. Wind Met Mast Tower, where...
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