Artificial intelligence, especially generative AI, consumes a significant amount of energy. As more people adopt this technology, the connection between tech and energy industries is becoming stronger. While this relationship has its benefits, it also raises challenges and legal issues. Success in building digital infrastructure hinges on two main points. First, we need to think about technical and operational limits. But equally important is the need for stakeholders to set clear legal contracts and financial protections right from the start.
It’s easy to get swept up in the excitement of new technologies. But if we want to navigate complex legal landscapes over the years, figuring out risks and benefits early on is essential. For perspective, training one large language model can use as much electricity as a small town, and data centers currently account for about 1.5% of global electricity demand. The International Energy Agency predicts that this demand will more than double by 2030, largely driven by AI advancements. To meet this surge, we might need to create four times the UK’s total electricity consumption in new global energy capacity. This rising demand will put pressure on local power grids, requiring immediate upgrades or a race to secure sustainable energy sources for operations.
On the flip side, AI can actually improve energy management. It has the potential to optimize power grids, better integrate renewable sources, predict equipment failures, and boost energy efficiency across various sectors. Yet, the energy sector is lagging in adopting AI compared to tech and finance. That will likely change as we see more integration.
However, the legal setup for AI-energy projects is complex and often uncharted. It involves dealing with various regulations, supply chain issues, and geopolitical uncertainties. Negotiations around risk sharing, pricing, and responsibilities can get complicated. With the regulatory landscape for both AI and energy in constant flux, compliance and legal clarity remain challenging.
When drafting contracts, it’s vital to think about how disputes might arise and what mechanisms to have in place for early resolution. Contracts need to anticipate potential problems while allowing for flexibility. Clearly defining responsibilities, establishing performance metrics, and effectively allocating risks are key.
Once contracts are signed, it’s crucial for the involved parties to enforce them consistently. This might seem obvious, but strong governance and clear dispute resolution methods are essential, especially for international projects where arbitration can offer neutrality and enforceability. It’s also wise to consider investment protections and potential restructuring scenarios in response to events like changes in law or financial challenges.
Taking these steps not only safeguards investments but also ensures the long-term success of vital projects. This matters not just for the parties involved but for the broader energy and tech industries, which will feel the impact of this technology’s availability and the pace of its adoption.
Charlie Morgan is a partner at Herbert Smith Freehills focusing on tech, energy, and venture capitalism.
