Navigating the new energy landscape
9
NEW APPROACHES TO DISPUTE RESOLUTION
THE ART OF SMART CONTRACTS
Looking to a future where consumers can generate power from their own sources which can be sold to other consumers or back to the grid, such as via roof-mounted solar panels or EV batteries, many liability issues arise. Such as: will these “prosumers” (as Power dubbed them) be treated as consumers (with associated legal protections)? If power generation monitors are defective, for example, will a challenge be allowed under these new contracts? And who will determine whether payments are correct? Furthermore, disputes might be hard to litigate cost effectively. Though individual amounts may seem small, they are likely to be significant on both sides. For “prosumers”, the sums at stake could represent a large proportion of household income. For aggregators, failure to recover small amounts from multiple domestic producers could collectively have a serious impact on the bottom line. Clearer legislation will be vital if policymakers want to encourage the creation of such “microgrids” – the point was made that applying the same rules to domestic producers as large-scale generators would be unfair. Greater access to justice will be important too, and suggestions included the establishment of an independent dispute resolution service to process claims quickly and cheaply – much like an energy small claims court. Alternatively, consumer class actions may need to be made easier. For energy services companies/aggregators, Clyde & Co is already offering no-win, no- fee services to handle portfolios of claims, teaming up with a litigation funder.
Here too, he acknowledged the importance of being 100% confident about the reliability of the data sources used, front- loading the analysis and thinking the system design through at the start of the process, as changes are very hard to make later on once the code has been created. The potential uses and benefits of aligning commercial interests, legal needs and coding logic in this way are significant. Creating smart clauses that respond automatically to data and take appropriate action; enabling fast and accurate back office reconciliation; and creating audit trails that reduce uncertainty and mitigate risk – these are just some of the ways in which smart contracts are game- changing. There are applications across all sectors (Clyde is currently involved in projects automating parts of the standard construction contract (JCT) and creating “digital passports” for planes). Given the opportunity set presented by increased industry-wide data integration, there is huge scope within the energy sector too. For example, Clyde & Co has developed a unique off-the-shelf smart contract which covers the insurance of a solar energy producer against the risk of a shortfall in expected energy generation due to unfavourable weather. Smart clauses embedded in the contract respond to adverse weather data using pre-agreed index triggers, with pre- determined caps and minimums. Data from a trusted source calculates the number of claimable days, with pay-outs being triggered automatically.
“Smart” contracts, inwhich parties transact within a digital framework, written in computer code and with automated features and real-time links to data sources embedded, are set to underpin more and more contractual arrangements in the energy sector, from insurance policies to supplier agreements. Indeed, most “prosumer” contracts are likely to be “smart” so that they can be managed without the need for human intervention. Lee Bacon, a Clyde & Co Partner who is also a founder of its new “Clyde Code” smart contracts division which has developed its own proprietary smart contracts for clients to use, explained how they combine cutting edge technology such as blockchain and AI with fundamental legal principles. It’s a step on the road towards “connected contracting”, using technology to make the process more efficient and intelligent, while building trust into the system. Electronic signature, web services and other software systems can be integrated into digital contracts alongside automated payments which can be triggered by IoT sensors, market prices or other real-time data sources, and contract lifecycle and transaction data can be securely managed and shared.
Whether the greater transparency envisaged in this brave new world will increase or reduce the risk of disputes was a moot point, with issues such as ownership, reliability and security front of mind. At this early stage, there aremore questions than answers around liability, explained Richard Power. For example, if a company relies on incorrect information shared by a third party, do they have a claim if things go wrong? If so, exactly who will it be against? If a claim is possible, will it just be for the remedial work or loss of profits and/ or other consequential losses too? Can liability for reliance on inaccurate data be expressly excluded in contracts? The list of potential issues to consider is long. Mark Enzer made the point that greater clarity from real time information should help avoid bad decisions being made, but that if they are, “there will be nowhere to hide” because the mystery that exists currently around how decisions were made and on what basis will vanish. The decentralisation
and democratisation of the energy market also creates uncertainties.
Made with FlippingBook - professional solution for displaying marketing and sales documents online