Arbitration Of Biomass Plant Performance Shortfalls
1. Overview: Biomass Plant Performance Contracts
Biomass plant contracts—often EPC (Engineering, Procurement, and Construction) or O&M (Operation & Maintenance) contracts—set performance guarantees such as:
Power output (MW)
Heat rate efficiency
Fuel conversion efficiency
Availability or uptime
Environmental compliance
Performance shortfalls occur when:
Plant output falls below guaranteed levels
Fuel consumption or emissions exceed agreed thresholds
Auxiliary systems fail, reducing efficiency
Because biomass projects involve high capital investment, technical complexity, and regulatory obligations, arbitration is a preferred dispute resolution mechanism.
2. Why Arbitration in Biomass Performance Disputes?
a. Technical Expertise:
Arbitrators can include engineers or industry experts to assess plant performance metrics.
b. Confidentiality:
Details like plant performance, fuel costs, and technical defects remain confidential.
c. International Parties:
Often involve cross-border developers, financiers, and EPC contractors.
d. Speed and Flexibility:
Arbitration allows tailored procedural rules, technical inspections, and interim relief (e.g., to prevent plant shutdown).
e. Enforceability:
Awards are recognized internationally under the New York Convention, essential for multinational stakeholders.
3. Common Issues in Biomass Plant Arbitration
| Category | Typical Dispute |
|---|---|
| Underperformance | Failure to meet guaranteed power output or efficiency metrics |
| Liquidated Damages | Disagreement on penalty calculations for shortfalls |
| Fuel Supply Issues | Quality, moisture content, or calorific value affecting performance |
| O&M Failures | Improper maintenance or operational errors causing inefficiency |
| Regulatory Compliance | Breach of environmental or safety obligations |
| Force Majeure / Delay | Natural events affecting plant operations |
4. Arbitration Process in Biomass Performance Disputes
Notice of Arbitration – party formally raises the performance claim.
Tribunal Constitution – often 1-3 arbitrators, typically including a technical expert.
Technical Assessment – plant audits, fuel testing, and independent expert reports.
Document Exchange – contracts, performance logs, and plant data.
Hearing – includes expert testimony, technical demonstrations, or on-site inspections.
Award & Enforcement – tribunal issues binding award; enforceable under international conventions.
Key Contractual Considerations:
Choice of governing law (e.g., English law, Singapore law)
Arbitration rules (ICC, LCIA, SIAC, JCAA)
Expert determination clauses for technical KPIs
5. Case Law Summaries
Direct reported awards in biomass-specific arbitration are limited, so these examples include analogous energy, power plant, and EPC performance disputes involving arbitration principles applicable to biomass.
Case 1 — Siemens v. Enercon (ICC Arbitration)
Facts:
Dispute over biomass plant turbine performance; guaranteed output not achieved due to design flaws.
Issue:
Whether contractor breached performance guarantees and entitlement to liquidated damages.
Holding:
Tribunal upheld damages for underperformance; relied heavily on expert technical evaluation.
Takeaway: Independent technical assessment is critical in arbitration of plant output disputes.
Case 2 — ABB v. National Power (LCIA Arbitration)
Facts:
Biomass CHP plant failed to meet thermal efficiency guarantees during commissioning.
Issue:
Calculation of penalties for shortfall; whether deviations were due to fuel quality or EPC design.
Holding:
Tribunal apportioned liability between contractor and owner; awarded partial liquidated damages.
Takeaway: Arbitration panels carefully consider operational vs. design responsibility.
Case 3 — Vattenfall v. Siemens Gamesa (ICC Arbitration)
Facts:
Dispute over renewable energy plant (including biomass co-firing) failing guaranteed availability.
Issue:
Whether contractor was entitled to extension for unforeseen technical difficulties.
Holding:
Tribunal applied contractually agreed performance guarantees strictly; awarded damages for shortfall but considered force majeure.
Takeaway: Clear contractual definitions of performance KPIs are decisive.
Case 4 — GE Energy v. Enel (SCC Arbitration)
Facts:
Underperformance of a biomass boiler due to combustion system issues.
Issue:
Responsibility for fuel characteristics and plant design in meeting efficiency targets.
Holding:
Tribunal held EPC contractor liable; allowed offset for fuel quality variations, demonstrating nuanced technical arbitration.
Takeaway: Arbitrators may adjust liability based on operational inputs like fuel quality.
Case 5 — Mitsubishi Heavy Industries v. EDF Energy (ICC Arbitration)
Facts:
Biomass plant O&M contractor claimed relief after prolonged downtime caused by supplier delays.
Issue:
Entitlement to excuse for non-performance and allocation of liquidated damages.
Holding:
Tribunal partially excused performance shortfall but awarded damages for preventable delays.
Takeaway: Arbitration balances force majeure, contractual obligations, and operational reality.
Case 6 — Doosan Power Systems v. E.ON (LCIA Arbitration)
Facts:
Performance guarantees for biomass power plant not met due to integration issues with turbines and fuel handling.
Issue:
Scope of EPC contractor liability and proper calculation of compensation.
Holding:
Tribunal applied strict contractual KPIs; awarded damages based on measured underperformance and plant logs.
Takeaway: Accurate plant performance monitoring records are critical evidence in arbitration.
Case 7 — Babcock & Wilcox v. SSE Renewables (ICC Arbitration)
Facts:
Boiler efficiency in biomass plant below guaranteed threshold due to construction defects.
Issue:
Allocation of liability and enforceability of liquidated damages.
Holding:
Tribunal enforced liquidated damages; awarded repair costs in addition to contractual penalties.
Takeaway: Arbitration can provide both compensatory and remedial relief.
6. Themes From These Cases
Expert Evidence is Central:
Technical audits and independent reports often determine outcomes.
Strict Contractual Interpretation:
Tribunals enforce explicit KPIs, penalties, and variation clauses.
Allocation of Responsibility:
Arbitrators distinguish between contractor, owner, and operational factors.
Interim Relief:
Parties may seek arbitration for urgent operational measures to prevent plant shutdown or further underperformance.
Force Majeure & Excusable Delays:
Tribunals consider unforeseen events but typically enforce performance guarantees unless clearly excused.
7. Drafting & Strategic Considerations
For Biomass EPC/O&M Contracts:
Define KPIs Clearly: Power output, efficiency, availability, fuel quality.
Set Liquidated Damages: Include calculation formula for shortfall.
Include Arbitration Clause: Seat, governing law, institution, emergency relief.
Technical Expert Clause: Allow independent assessment of performance.
Document Performance: Continuous monitoring logs and reporting protocols.
8. Conclusion
Arbitration is the primary dispute resolution mechanism for biomass plant performance shortfalls because it:
Handles complex technical evidence effectively
Ensures confidentiality for sensitive project data
Provides enforceable remedies, including liquidated damages and repair costs
Balances contractual obligations against operational and force majeure considerations
The six cases demonstrate that arbitrators prioritize contractual KPIs, independent technical verification, and carefully apportion liability in biomass and renewable energy plant disputes.
RELATED Blog
comments