The renewable energy sector is experiencing rapid growth (Photo: AdobeStock)

The growing importance of renewable energy cannot be overstated in our quest to reduce carbon emissions and combat climate change. The transition to renewable energy sources such as wind, solar, and hydroelectric power is essential for a sustainable future.

The renewable energy sector is experiencing rapid growth. In 2023, the global annual renewable capacity increased by about 50% compared to 2022, with solar photovoltaic (PV) accounting for three-quarters of these new additions.

Looking ahead, the International Energy Agency (IEA) forecasted that over the period from 2022 to 2027, renewables will grow by almost 2,400 GW, representing an 85% acceleration compared to the previous five years. This surge is expected to account for over 90% of global electricity capacity expansion during this timeframe.

This rapid expansion brings forth a myriad of challenges, especially within the construction sector.

Challenges in renewable energy construction

Offshore wind projects face specific legal and technical hurdles, including complex contractual frameworks, technical and engineering challenges, changing environmental regulations, supply chain disruptions, and decommissioning and abandonment issues.

Complex contractual arrangements

Renewable energy projects typically involve multiple stakeholders, contractors, suppliers, and regulatory bodies.

The contractual arrangements are usually complex and can lead to disputes over responsibilities, delays, and costs. Clear and detailed contracts are therefore essential to mitigate these risks.

Technical and engineering issues

The construction of offshore wind turbines involves unique technical challenges, including the installation of turbines in deep water, dealing with harsh marine environments, and ensuring the structural integrity of the turbines. Technical failures or engineering issues can lead to changes to the contractor鈥檚 scope of work, often leading to disagreements as to the existence and/or the extent of the change, or disputes related to delays and cost overruns.

However, there are exceptions where express and unequivocal acceptance of the project owner after the work鈥檚 completion can give right to payment for additional costs. When project modifications disrupt the contract鈥檚 economic balance, this may also be considered a mutual agreement to waive the fixed price, provided it was the project owner鈥檚 intent to make the changes, and not the contractor鈥檚 unilateral action.

Environmental and regulatory compliance

Offshore wind projects must comply with stringent environmental regulations to minimize their impact on marine life and ecosystems.

The 2011/92/EU Directive requires public authorities to evaluate the environmental impacts of projects likely to have significant effects due to their nature, size, or location. This directive is particularly relevant for offshore wind projects, necessitating comprehensive environmental assessments.

To support a successful energy transition, the European Commission has also issued recommendations to mitigate the impact of offshore renewable energy on EU waters and enhance public participation. These include setting clear conservation objectives for Natura 2000 sites before mapping suitable areas for renewable energy projects. The Marine Strategy Framework Directive and the Habitats Directive, two key legislative texts, have led to the creation of the Natura 2000 network, aimed at protecting biodiversity across nearly 27,000 sites in Europe.

Failure to comply with these regulations can give rise to different types of disputes, such as disputes arising out of delays in obtaining necessary permits and approvals from regulatory bodies, especially where alleged non-compliance with environmental regulations results in project halts, or legal actions.

Regulatory changes during the project lifecycle may also cause disputes, particularly where new environmental laws are enacted after a project has started, and stakeholders disagree on how to implement these changes and who should bear the additional costs.

Supply chain disruptions

The construction of offshore wind turbines relies on a complex supply chain for specialized components. Delays or disruptions in the supply chain can have a cascading effect on the project timeline and budget.

This is particularly true following the COVID-19 pandemic and the Ukraine conflict. Post-COVID-19 economic recovery has led to significant inflation, affecting the wind sector. Raw material prices, including steel for towers and blades, and composites, copper, and rare metals for electrical generators, have skyrocketed, impacting production costs and projects feasibility.

Inflation and supply chain disruptions have further disorganized global supply chains, delaying component deliveries and increasing production costs.

Decommissioning and abandonment

As offshore wind farms reach the end of their operational life, decommissioning and abandonment become critical issues, often giving rise to disputes over responsibilities and costs. These challenges are exacerbated when contractual arrangements are unclear for this phase of the project.

The current legal framework is governed by a complex network of international, regional, and national laws. The United Nations Convention on the Law of the Sea (UNCLOS) of 1982 and the International Maritime Organization (IMO) Guidelines and Standards for the Removal of Offshore Installations from 1989 form the basis of decommissioning requirements under international maritime law.

The renewable energy construction industry seems to be at a crossroads, and complex challenges naturally lead to an increase in the number of disputes and arbitration proceedings.

While the overall trend towards renewable energy remains strong 鈥� driven by technological advancements, private sector initiatives, and localized government efforts - the recent exit of the US from the Paris Climate Agreements requires attention. The US may reduce their commitment to international climate goals, leading to less collaboration on renewable energy projects. Their withdrawal from the Paris Climate Agreements might also create policy uncertainty, which could deter investment in renewable energy projects.