COP29: Emerging technology and the energy transition – Risk and opportunities

The role of technology in the energy transition

Technological transformation is a cornerstone of the energy transition, playing a role in various aspects of the global energy system including production, supply and consumption of renewable energy. The International Energy Agency (IEA) estimates that in 2024, global investment in renewable forms of energy is expected to be twice as much as in fossil fuels, with about USD 2 trillion going to renewable energy technologies and infrastructure. 

Renewable energy projects are also influenced by digital transformation, namely the increasing reliance on sophisticated digital technologies to manage and operate energy supply chains. Technologies related to data use, storage, data-driven decision-making and the promotion of energy efficiency are becoming key to the effective development and deployment of renewable energy forms, particularly through the integration of artificial intelligence (AI) and Internet of Things (IoT) connectivity.

The role of technology development and transfer in implementing the energy transition was a major focus of COP28 last year, with commitments from State parties to triple the use of renewable energy sources and overhaul financial support for green technologies in pursuit of this technological revolution. This commitment is expected to be strengthened at COP29 later this year.

In this article, we discuss some of the emerging technologies we are seeing as stakeholders transition to cleaner and greener sources of energy. We also consider key legal risks for private actors alongside these opportunities as they increasingly integrate emerging technologies into their energy transition and decarbonisation ambitions.

The opportunities in emerging technologies

There are many well-known forms of technology which are already playing a critical role in the energy transition. In energy production, solar photovoltaic and wind power are playing a major role in decarbonising electricity production around the world. In the transportation sector, electrical vehicle (EV) demand continues to grow year on year, notably in the US, Europe and China, with the IEA projecting that EVs could avoid the need for up to 6 million barrels of oil a day globally by 2030. In the heating sector, heat pumps reduce dependence on natural gas and although their global uptake has been gradual, they continue to play a part in decarbonising the heating sector.

However, beyond these more familiar and established forms of technology, we are also seeing the emergence of newer technologies which demonstrate potential that is yet to be fully actualised. Carbon capture, utilisation and storage (CCUS) projects have the potential to contribute to the decarbonisation of hard-to-abate industries (such as steel and refining, to name a few) by capturing emissions as they are produced, as well as enabling production of low-carbon hydrogen. Hydrogen production technologies such as electrolysers produce low-emission hydrogen and hydrogen fuel cells which can be a carbon-free source of energy. Direct air capture and other carbon removal technologies promise to enable the extraction of carbon from the atmosphere, potentially to be repurposed as synthetic aviation fuels, in the production of plastic or for other commercial ends, or else to allow the sale of carbon offsets. States and private actors are increasingly relying on CCUS, hydrogen technologies and carbon offsets as part of their decarbonisation and net zero plans.

Digital transformation and AI are also set to play an increasingly important role in the global energy transition as part of the deployment of these emerging operational technologies. HyAI, for instance, is an AI project developed specifically for hydrogen production and storage. This project seeks to integrate weather data, electricity prices and energy data from a hydrogen plant which are then analysed using AI to predict future power costs and demand in order to optimise production levels and storage. AI is likewise being used to optimise the use of other technologies, such as for charging schedules in EVs and to manage the performance of wind turbines, as well as for monitoring and predictive modelling in smart grids, smart meters and energy management systems in buildings.

Where do the risks lie?

Alongside the vast opportunities associated with the use of existing and emerging technology as part of the energy transition, there are also important legal risks which commercial parties would do well to anticipate.  

Contractual disputes

In recent years, there has been an explosion of deals between energy majors and new market entrants, such as renewable and CleanTech companies. Energy sector participants are increasingly acquiring new technologies (and technology companies), entering research and development arrangements and undertaking collaboration, tech-sharing and licensing deals to secure access to novel technologies (or licensing technology developed in-house) as part of their decarbonisation efforts.

The pace and scale of such collaborations presents significant potential for disputes to arise. Many such deals involve multiple parties sharing risks around novel technologies. For instance, the development of hydrogen production facilities has often involved multi-party joint ventures, which are likely to involve significantly more complex contractual arrangements than the traditional two or three-party relationships typically seen in the conventional energy sector. Given the novelty of hydrogen deals, these joint ventures are expected to rely on untested contractual arrangements. The negotiation of indemnities, representations, and warranties (particularly those relating to the green credentials of stakeholders, critical technology or construction processes), events of default, performance-based targets, and termination rights are likely to take centre-stage in how future energy transition-related contracts are drafted to account for emerging technologies.

Partnerships between established energy sector players and entities from other sectors and industries, including tech companies, will further require carefully considered contractual arrangements to avoid any mismatch in expectations about how such collaborations will unfold. In particular, the approach to project management, the clear allocation of risk, ownership and continued use of outputs will be key. Where these deals and partnerships hinge on the success of new technologies, there is further the potential for disputes around warranties and representations, indemnities, service levels, scope creep and limitations of liability associated with the ultimate performance of these technologies.

As part of these collaborations, there is also likely to be an increase in focus on securing and managing intellectual property rights (IPR) around technology sharing. As the energy sector turns towards new technologies related to hydrogen production and storage, new means of electricity transmission and storage, carbon measurement, verification and capture facilities, technology licences and IPR will become a key proprietary asset for many energy companies. Bespoke technology-sharing agreements and associated IPR licencing agreements are expected to become more common features of contracts relating to major projects. More specifically, risks may arise around the licencing of technologies, including as to the scope of licences, royalties payable where one party owns the IPR but licences it to another to develop in exchange for future royalties, and the breach of licence terms.

Given the significant investment required for the energy and technology transformation, legal risks are also arising from complicated financing structures linked to ESG objectives in the energy finance sector. Investors (and shareholders) are increasingly taking account of sustainability-linked performance targets in their project financing decisions. Commercial contracts, particularly financing agreements, are increasingly including express requirements for companies to report on and reduce the environmental impacts associated with projects, including through emissions-linked KPIs. In these circumstances, parties may be forced to try to rely on force majeure provisions, hardship clauses (where available) or the doctrine of frustration to seek to excuse any shortcomings in performance. Parties may even seek to invoke available grounds for termination to prematurely exit projects which no longer remain commercially viable for them under changed conditions.

As decarbonisation initiatives gather momentum, there is a vast volume of projects being undertaken at speed to harness new technologies such as CCUS and hydrogen. Planning, construction and environmental disputes are already arising from such low carbon, renewable energy and resilience and adaptation projects. Legal risks of this nature are expected to continue, and while many such disputes may look like conventional construction disputes, there is expected to be an increasing focus on whether projects are fit for purpose, the adequacy of designs to cope with extreme weather events and whether climate change-related impacts have been sufficiently accounted for.

Commercial parties reliant on emerging technologies also face the increasing risk of supply chain disruptions due to market, political, regulatory, and geographical volatility. For instance, EVs, which are a key component of the energy transition for many players, are made using cobalt, nickel, and lithium, the supply of which is largely concentrated in jurisdictions which may be exposed to political, regulatory and policy instability, as well as labour and human rights concerns. These factors could exacerbate pressures on existing supply chains and their underlying contracts, with parties seeking to rely on force majeure clauses, material adverse change clauses or negotiated exits from affected projects and contracts where performance becomes challenging or impossible.

Digital transformation-related risks

The reliance on emerging technology as part of the energy transition may also give rise to growing data protection, cyber and privacy-related risks. Technologies such as smart grids, smart meters and any IoT and AI-enabled devices could collect explicit personal data and / or implicit data, which combined with other data relating to consumers, can give insight into individuals' patterns and preferences.

As a result, companies may be required to comply with disparate data protection and privacy laws across multiple jurisdictions and adopt practices such as collecting only the data required for operation of the technologies and, depending on the potential risk, conducting data protection impact assessments to identify and minimise data protection risks, as well as considering the necessary notification and consent requirements.

Cybersecurity breaches and attacks are also areas of increasing concern given the technological and digital foundations of the energy transition. Some emerging technologies may be susceptible to such attacks given their access to large volumes of valuable and sensitive data. Vulnerabilities may arise from within energy providers or third parties such as IT providers, the supply chain, outsourcing or subcontracting partners.

Proactive risk management is crucial. This could include (among other things) carefully designed IT architecture that protects and minimises the risk of successful attacks and ringfences core datasets or business critical systems, training personnel, conducting due diligence on third parties, and in the latter case also having in place standard contractual provisions which expressly address each parties' security obligations, compliance standards with defined legal and regulatory obligations and the allocation of risk between relevant parties. Energy providers may also consider including provisions that give them control of worst-case scenarios, such as step-in rights.

In light of the potentially far-reaching effects of power outages to consumers or industry participants, early detection and mitigation of cybersecurity incidents or indeed any other technology infrastructure-related incidents (e.g., bugs, breaches and outages in hardware or software) is important. This may be achieved by way of clear business continuity and disaster management plans enshrined in internal policy and third-party contracts that delineate operator duties and responsibilities for software upkeep, data integrity and system security. Energy players may also look towards regular review, maintenance, and stress-testing of digital infrastructure and further investments in research and development on technology to ensure continuing resilience.

The risks of a rapidly evolving regulatory landscape

The energy transition is of course taking place against the background of a rapidly evolving regulatory and political landscape. Commercial parties looking to the future will need be alive to the likelihood of further regulatory change to come, particularly in sectors which remain in the relatively early stages of development. For instance, the regulatory architecture for CCUS projects and the certification of hydrogen technologies is yet to be fully developed.

It will therefore be crucial for parties to consider what this may mean for points of friction with their partners, suppliers and customers and the ways in which they can incorporate protections for themselves in their contracts to account for the uncertainty that this creates. Contracting parties may consider ways to clearly allocate financial responsibility for the higher costs of compliance associated with regulatory changes, including through mechanisms such as force majeure clauses, material adverse change clauses, and in extreme circumstances, termination rights to allow parties to adjust their relationships accordingly.

Rapid changes to the regulatory landscape may also result in companies bringing claims against States, whether as regulatory actions before domestic courts (e.g. through judicial review, or challenges to the granting/cancellation of project permits), under long-term contracts entered into with the State for a project, or before investment treaty tribunals (similar to the suite of cases brought by investors against various European States for withdrawal of subsidies for the renewable energy sector).

Looking to the future

The development and use of new technologies will undoubtedly continue to play a central role in bringing the energy transition to fruition. The scale of the transformation this involves, however, is creating a fertile environment for commercial disputes, as claims about new technologies are put to the test, performance capabilities are examined and contractual frameworks setting out relative rights and responsibilities are pushed to their limits.  As further deals are undertaken and new partnerships continue to be developed, commercial parties would be well advised to look to the future of such collaborations and anticipate the types of challenges which may arise.