AI and Energy: Navigating Legal Challenges in a Growing Industry
The intersection of artificial intelligence (AI) and energy demands attention as the use of generative AI continues to grow. The reliance on AI technology poses new challenges and legal considerations for stakeholders in both industries.
As digital infrastructure evolves, addressing technical and operational constraints is essential. However, establishing clear legal contracts and investment safeguards from the project’s inception is equally crucial for long-term success.
The energy consumption of training large language models is staggering, with data centers already accounting for a significant portion of global electricity demand. The surge in electricity consumption driven by AI projects underscores the need for sustainable energy sources and robust infrastructure upgrades.
Harnessing AI for Energy Management
Despite the energy-intensive nature of AI, it also offers opportunities to enhance energy management. AI can optimize power grids, predict equipment failures, and improve energy efficiency across various sectors, potentially mitigating the impact on global energy demand. However, the energy industry lags behind in AI adoption compared to other sectors.
The legal framework for AI-energy projects is complex, involving diverse regulatory systems and geopolitical uncertainties. Negotiations around risk allocation, pricing mechanisms, and downtime prevention require careful consideration. Anticipating disputes and drafting contracts with flexibility are crucial for long-term project success.
Ensuring Contract Enforceability
Enforcing contracts and implementing robust governance and dispute resolution mechanisms are essential for multi-party AI-energy projects. International arbitration offers advantages in neutrality and enforceability in cross-border contexts. Proactive investment protections and considerations for potential restructuring scenarios can safeguard investments and project continuity.
Looking ahead, protecting investments and ensuring project success are vital for the broader energy and tech sectors. The rapid adoption of AI technology underscores the importance of addressing legal challenges early on for sustained growth and innovation.
Charlie Morgan, a partner at Herbert Smith Freehills, specializes in tech, energy, and venture capitalism disputes.
