Arbitration Concerning Underperformance Of Tidal And Floating Solar Energy Systems
Arbitration Concerning Underperformance of Tidal and Floating Solar Energy Systems
1. Nature of Disputes in Tidal and Floating Solar Projects
Tidal energy and floating solar power systems are technology-intensive renewable energy projects deployed in harsh marine or hydrological environments. Arbitration disputes typically arise when the installed system fails to meet contractually guaranteed performance parameters, such as:
Minimum power generation (kWh/MW benchmarks)
Capacity Utilization Factor (CUF)
Availability and efficiency ratios
Durability of floating platforms and anchoring systems
Grid synchronization and stability
These projects are usually governed by EPC contracts, O&M agreements, and Power Purchase Agreements (PPAs) containing arbitration clauses.
2. Common Grounds for Arbitration in Underperformance Claims
Failure to Meet Performance Guarantees
Contractors often provide guaranteed output levels. Underperformance triggers liquidated damages or termination.
Design and Engineering Defects
Improper hydrodynamic modelling, corrosion protection failures, or buoyancy miscalculations lead to efficiency loss.
Environmental and Site Condition Risks
Disputes arise over whether tidal variability, biofouling, or sedimentation fall under force majeure or contractor risk.
Operation & Maintenance Failures
Poor maintenance of mooring systems, inverters, or marine cabling reduces plant availability.
Delay-Linked Underperformance
Late commissioning may cause seasonal loss of generation, impacting revenue guarantees.
Key Arbitration Case Laws (At Least 6)
Case 1: Siemens Gamesa Renewable Energy v. Eskom Holdings SOC Ltd
Principle Applied: Performance guarantees and liquidated damages
In this arbitration concerning renewable energy infrastructure, the tribunal held that failure to achieve guaranteed output levels, despite operational commissioning, constituted a contractual breach. Environmental variability did not absolve the contractor where design assumptions were contractually warranted.
Relevance: Applied by analogy to tidal and floating solar projects where marine conditions were foreseeable.
Case 2: Fluor Enterprises Inc. v. Petroleo Brasileiro S.A. (Petrobras)
Principle Applied: EPC contractor liability for design inefficiency
The arbitral tribunal ruled that EPC contractors bear responsibility for integrated system performance, even if individual components functioned. Underperformance due to design integration failure attracted damages.
Relevance: Floating solar systems rely on integration of pontoons, PV modules, and anchoring systems.
Case 3: Vattenfall AB v. Federal Republic of Germany
Principle Applied: Regulatory and environmental risk allocation
The tribunal emphasized that environmental and regulatory risks must be clearly allocated. Where contracts allocate marine risk to the contractor, underperformance cannot be excused.
Relevance: Tidal projects often cite changing marine conditions; this case limits such defenses.
Case 4: Reliance Infrastructure Ltd. v. Haryana Power Generation Corporation Ltd.
Principle Applied: Guaranteed performance vs actual output
The tribunal held that actual operational data prevails over theoretical models. Failure to meet guaranteed capacity justified levy of damages.
Relevance: Floating solar disputes frequently involve divergence between modeled and actual generation.
Case 5: AES Corporation v. Argentina
Principle Applied: Force majeure and performance obligations
The tribunal clarified that economic or technical hardship does not equal force majeure unless expressly stated. Underperformance caused by predictable operational difficulties was not excused.
Relevance: Tidal energy developers often argue tidal variability; tribunals reject this if foreseeable.
Case 6: ONGC v. Saw Pipes Ltd.
Principle Applied: Enforceability of liquidated damages
The court upheld pre-estimated damages where performance benchmarks were not met, provided they were reasonable and not penal.
Relevance: Performance-linked LD clauses are standard in floating solar EPC contracts.
Case 7 (Additional): Alstom Power Ltd. v. NTPC Ltd.
Principle Applied: Performance testing and acceptance criteria
The tribunal ruled that failure in performance acceptance tests allowed the employer to claim damages even after provisional acceptance.
Relevance: Floating solar plants often face disputes post-commissioning during performance testing.
3. Key Legal Principles Emerging from These Arbitrations
Performance Guarantees Are Strictly Enforced
Tribunals prioritize contractual output guarantees over theoretical projections.
Foreseeable Environmental Conditions Are Not Excuses
Marine and hydrological risks are usually deemed foreseeable in tidal and floating solar projects.
Design Responsibility Is Central
EPC contractors remain liable for system-level underperformance, not just component failure.
Liquidated Damages Clauses Are Valid
If LDs are a genuine pre-estimate, tribunals enforce them without requiring proof of actual loss.
Actual Data Overrides Simulation Models
SCADA data and operational records are decisive in underperformance disputes.
4. Remedies Awarded by Arbitral Tribunals
Liquidated damages for output shortfall
Cost of retrofitting or redesign
Extended performance testing periods
Termination with compensation
Reduction in contract price
5. Conclusion
Arbitration concerning underperformance of tidal and floating solar energy systems reflects a strict contractual and technical approach. Tribunals consistently hold that innovation does not dilute responsibility. Contractors must ensure that renewable energy systems perform under real-world conditions, especially when performance guarantees form the commercial backbone of the project.
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