Introduction

Against the backdrop of the global drive toward the dual carbon goals and the accelerated transformation of the energy structure, Chinese enterprises, leveraging their strengths in technology, cost efficiency and the entire industrial chain, have been accelerating their overseas expansion in the field of international new energy EPC projects covering photovoltaic, wind power, energy storage and other sectors. They have emerged as a core participant in the global new energy infrastructure market, with the industry scale expanding steadily and project coverage extending continuously.

Compared with traditional international engineering projects, such projects feature higher technical barriers due to their technology-intensive nature and greater policy sensitivity subject to the impact of host countries' energy policies, environmental regulations and geopolitics. Moreover, most of these projects form a deeply interwoven multi-stakeholder interest structure centered on project financing. These characteristics render the dispute resolution of such projects far more complex and distinctive in terms of applicable law, liability allocation and risk disposal.

Based on the above, this paper focuses on the practical pain points in dispute resolution of international new energy EPC projects, systematically sorts out the causes, types and typical scenarios of disputes, and aims to provide actionable dispute resolution approaches and a full-process risk prevention and control framework for Chinese enterprises participating in cross-border new energy projects. It is intended to help enterprises effectively address the challenges of cross-jurisdictional performance and safeguard their legitimate rights and interests.

01. Core Characteristics of International New Energy EPC Projects

1. Cross-border Nature

The cross-border nature of international new energy EPC projects runs through the entire project lifecycle, presenting distinct and complex features: there is a diversity of participants, including Chinese overseas enterprises, host country employers, multi-national design and construction teams, international equipment suppliers and cross-border financing syndicates, with significant differences in the rights, liabilities and interest demands of each party, leading to great difficulties in coordination.

In the performance phase, the projects are required to comply with Chinese technical specifications, host country legal requirements and international industry practices simultaneously, resulting in prominent conflicts and connection issues in the application of cross-jurisdictional laws. The settlement process involves cross-border payment, foreign exchange conversion and tax declaration, which requires addressing foreign exchange control policies of different countries, exchange rate fluctuation risks and compliance requirements for cross-border capital flows, further increasing the uncertainty of project execution.

2. Technology Intensiveness

International new energy EPC projects are distinctly technology-intensive: in terms of core equipment, photovoltaic modules, wind turbine generators, energy storage systems and other equipment need to be custom-developed and manufactured in light of the natural conditions, power grid parameters and actual project needs of the host country, imposing extremely high requirements on equipment compatibility, stability and adaptability.

The grid connection phase is subject to even more stringent standards, which require compliance with the host country's technical norms for power grid access procedures, frequency and voltage regulation, and renewable energy consumption. In addition, there are differences in grid connection testing procedures and certification requirements across countries. Failure to meet technical parameters or obstacles in the certification process can easily lead to project delays and trigger relevant disputes.

3. Policy Sensitivity

International new energy EPC projects exhibit a high degree of policy sensitivity and are heavily dependent on the policy support and dynamic adjustments of host countries: at the energy planning level, changes in host countries' renewable energy development goals and power grid construction layouts may directly affect the feasibility of project implementation and long-term returns.

The cancellation, reduction or adjustment of the distribution mechanism of electricity price subsidies will drastically alter the project profit model and trigger disputes over revenue expectations; environmental impact assessment (EIA) approval faces dynamically updated standards and procedures, and the upgrading of environmental protection requirements or changes in approval procedures may result in project suspension, further exacerbating performance risks and potential disputes.

4. Financing Correlation

Such projects demonstrate a prominent feature of financing correlation, adopting a dominant model centered on project financing: fund-raising relies heavily on the project's future returns and asset mortgage rather than the corporate credit of the project entity, leading to a complex financing structure and concentrated risks.

As the core financier, the financing syndicate is deeply involved in the entire project lifecycle, holding decisive speaking rights in aspects ranging from the design of pre-project financing schemes and the supervision of fund disbursement to the post-project control of repayment accounts and risk disposal. Its claims are directly bound to project performance and dispute resolution, making the implementation of financing-related clauses and the disposal of financing disputes a key factor affecting project progress.

02. Analysis of the Causes of Disputes in International New Energy EPC Projects

1. Contractual Aspect

The standardization and completeness of contract clauses form the foundation for the smooth progress of projects, and flaws in clauses are one of the core causes of disputes. In some projects, the parties lack rigorous demonstration when modifying the standard clauses of international engineering, resulting in ambiguous expressions of key clauses.

The agreement on risk allocation is unclear and fails to fully cover the special risks of cross-border new energy projects such as technical risks and policy change risks. There are omissions in dispute resolution clauses, such as the failure to specify the competent authority, applicable law rules or service methods, which leads to the lack of clear resolution basis for the parties when disputes arise subsequently and easily triggers differences.

2. External Environmental Aspect

International new energy EPC projects are significantly affected by fluctuations in the external environment, which easily breed disputes. Sudden changes in the host country's laws and policies, such as new energy industry supervision regulations and strengthened foreign exchange controls, may directly break the original performance foundation of the project.

Factors such as geopolitical conflicts and changes in international relations may lead to obstacles in the transportation of project materials and restrictions on personnel entry and exit. In addition, changes in the external economic environment such as fluctuations in the global energy market and sharp swings in foreign exchange rates will also indirectly affect project costs and returns, triggering relevant disputes such as delayed payments and performance adjustments.

3. Performance Aspect

The process control and coordination efficiency in the project performance phase are directly related to the probability of disputes. Such projects involve multiple participants and complex processes, which are prone to chaotic interface management among multiple subjects and poor connection between design, construction, supply and other links.

Some participants neglect evidence preservation, resulting in the absence or non-standardization of key communication records, technical disclosure documents, acceptance certificates and other materials, which makes it difficult to adduce evidence when disputes arise. At the same time, performance defects such as inconsistencies between design schemes and actual on-site conditions and substandard construction quality will directly trigger disputes such as project delays and cost claims.

4. Subject Aspect

The performance capacity and liability allocation of participants are key factors affecting project progress. Under the consortium model, unclear division of work and ambiguous liability boundaries among parties can easily lead to the passing of the buck.

Some subcontractors lack practical experience in cross-border new energy projects and have insufficient performance capacity, resulting in failure to meet the agreed standards in terms of construction quality and progress. In addition, employers may delay payments due to capital chain breaks, adjustments to project expectations and other reasons, or unilaterally change contract requirements, which will directly trigger performance disputes with contractors and suppliers.

03. Core Dispute Types and Typical Scenarios in International New Energy EPC Projects

1. Subject-related Disputes

Subject-related disputes focus on the rights and liability disputes of special participants. As a regulator or partner, the host country government may trigger performance obstacles due to changes in its administrative acts and deviations in policy implementation. Under the consortium model, unclear division of work and ambiguous liability allocation among members can easily lead to the passing of the buck.

Financing consortia may have differences with project parties in terms of interest realization and risk bearing due to demands such as fund disbursement and repayment supervision, which will also trigger relevant disputes involving multiple subject levels and complex interest correlations.

2. Contract Performance Disputes

Throughout the project lifecycle, contract performance disputes run through all key links, presenting diverse forms and complex causes, which can be specifically summarized as follows:

In the design phase, problems such as ambiguous design standards, inconsistencies between design schemes and actual needs, mismatches of key technical parameters and non-standard design change procedures can easily lead to rework, claims and change management disputes.

In the pre-construction preparation phase, failure to meet pre-construction conditions, unclear land ownership relations or incomplete administrative approval procedures often trigger disputes over construction conditions, which in turn affect the project schedule. In the pre-project compliance phase, the failure to obtain EIA approval or meet the local compliance requirements of the project may result in project suspension or rectification, leading to compliance disputes.

In the construction phase, in addition to the common disputes over project delays (usually caused by poor process connection, changes in the external environment and other factors, which in turn trigger disputes over liquidated damages for delay), there are also various types of disputes such as irregular subcontract management, unclear internal liability allocation of the consortium, ambiguous definition of construction scope, disputes over the protection of labor rights and interests, and identification of liabilities for construction safety accidents. At the same time, substandard construction quality and equipment quality defects (including quality problems of supplier supplies) also directly trigger construction quality disputes.

In the completion acceptance and settlement payment phase, inconsistent acceptance standards or non-compliant acceptance procedures can easily lead to acceptance disputes. In the settlement and payment phase, disputes mainly focus on engineering quantity accounting, identification of payment nodes, price adjustment mechanisms and other aspects. In cross-border settlements, the impact of exchange rate fluctuations on the balance of costs and benefits often leads to price adjustment disputes.

3. Policy-related Disputes

Policy-related disputes stem from the dynamic changes in the institutional environment of the host country. The cancellation, reduction or adjustment of the distribution rules of electricity price subsidies will directly impact the project profit model and trigger disputes over the determination of changed circumstances and revenue compensation.

Policy adjustments such as the conversion of the record-filing system to the approval system for energy projects may lead to increased project compliance costs and project suspension, thereby triggering disputes over the allocation of performance liabilities. Such disputes are often difficult to handle due to their involvement in public policies.

4. Administrative License Disputes

Administrative license disputes focus on approval-related issues. The absence of EIA approval or failure to obtain grid connection approval will directly prevent the normal progress of the project and trigger disputes over the failure to achieve the contract purpose.

Delays in approval procedures or changes in approval requirements may result in project schedule extension and cost increase, and the differences between the parties in terms of liability attribution and loss sharing are difficult to reconcile. In addition, the determination of the compliance of administrative licenses needs to be combined with the host country's legal provisions, leading to high difficulty in cross-jurisdictional handling.

5. Force Majeure & Changed Circumstances Disputes

Force majeure disputes are mostly caused by sudden objective events. Whether natural disasters, geopolitical conflicts and other events meet the criteria for the determination of force majeure needs to be judged in light of contract agreements and the host country's laws. The focal points of disputes include the definition of loss scope, the calculation of the number of days for project schedule extension, and the compliance of the performance of notification obligations by all parties. Due to the relevance and complexity of the impact of force majeure, it is often difficult to reach an agreement on the loss sharing plan.

The issue of changed circumstances, which is closely related to force majeure but has different legal consequences, also triggers many disputes in practice. When a project's host country experiences drastic adjustments to economic policies, fundamental changes in laws and regulations, or extreme non-natural socio-economic fluctuations (such as sudden severe inflation, sharp exchange rate fluctuations, etc.), the relevant parties often invoke the principle of changed circumstances, claiming that the fundamental conditions on which the contract is based have undergone a fundamental shake-up, and request to modify or terminate the contract.

The core of such disputes often focuses on whether the changes in objective circumstances go beyond the scope of normal commercial risks, whether they reach a serious level that makes the contract purpose unachievable, and the rationality and fairness of claiming the modification of contract clauses (such as price adjustment and project schedule extension). Due to the blurred boundary between changed circumstances and commercial risks and the stringent criteria for their determination, fierce legal debates over risk bearing and the loss of the contract basis often arise in practice.

6. Financing-related Disputes

Financing-related disputes are deeply bound to project capital operation. The determination of the validity of the pledge of payment rights must comply with cross-border secured transaction legal rules, which is prone to disputes due to differences in applicable law. As the dominant financier, the financing syndicate's claim to priority in contract rights and interests may conflict with the interests of project parties and other creditors.

Changes in fund disbursement conditions and disputes over repayment supervision measures will also directly affect the project capital chain and normal performance.

7. Contract Assignment Disputes

Contract assignment disputes focus on the compliance and validity of the transfer of rights and obligations. The transfer of rights and obligations under the core project contract requires the written consent of the employer, and the assignment act that fails to go through the consent procedure may be deemed invalid.

In the assignment of subcontracts, the performance capacity and qualification compliance of the assignee often arouse the employer's doubts, thereby triggering disputes over the validity of the assignment, and such disputes may affect the performance stability of the original contract.

8. Equity Transfer Disputes

Equity transfer disputes are mostly triggered by changes in the equity of the project company. If the equity transfer leads to changes in the actual controller of the project and the core operation team, the employer may claim that it constitutes a material modification of the contract and exercise countervailing rights.

Differences in the cognition of the parties on whether the equity transfer affects the contract performance standards and profit distribution mechanism can easily trigger relevant disputes such as contract termination and performance adjustment, involving the cross correlation between equity and contract rights and interests.

Source: Beijing DHH Law Firm

Authors: Liu Junli (刘俊丽)，Partner of the Beijing DHH Law Firm