The hydropower industry is embracing 'smart dams' in response to numerous mounting pressures on global water infrastructure.
Smart dams are digitally enhanced dam systems that leverage a suite of technologies, including sensors, real-time monitoring, automation, artificial intelligence (AI) and cloud computing, to optimise performance, mitigate risks and support sustainability objectives.
Unlike conventional dams, which rely on manual inspection and static procedures, smart dams adjust dynamically to data on rainfall, river flow, seismic activity and other environmental variables.
Their capabilities include real-time structural and environmental monitoring, automated control of spillways and turbines, predictive maintenance and risk forecasting.
Smart dams also lend themselves to 'digital twins', which replicate physical infrastructure in a virtual environment. These 'twins' are built from live sensor data, design records, and historical performance, enabling predictive maintenance, simulation of upgrades, and performance optimisation.
For construction projects, digital twins allow risks to be tested before breaking ground. While these tech-driven dams enhance operational efficiency and safety, they also introduce new contractual, regulatory and risk-allocation issues.
Legal complexities of smart dams
Increasing use of smart dams has exposed new vulnerabilities in governance, data ownership, and cyber resilience.
As these technologies are deployed in hydropower projects, the need for robust legal frameworks is even greater, as hydropower often relies on complex, multi-jurisdictional water and energy regulation, making questions of liability, environmental compliance, and cross-border data governance particularly pressing.
While these tech-driven dams enhance operational efficiency and safety, they also introduce new contractual, regulatory and risk-allocation issues
For sponsors of and lenders to these projects, particularly pumped storage hydro (PSH) schemes – a type of hydroelectric energy storage – that interface tightly with power markets, key legal questions include who owns and may rely on the data, how automated decisions are governed and explained, and how cross-border regulatory obligations are allocated across the supply chain.
Unlike other types of hydropower, PSH does not mainly earn money from selling electricity at a fixed price, but rather provides services to the electricity grid, such as storing excess power and releasing it quickly when demand spikes. This makes its long-term financial success highly dependent on changes in electricity market rules and government policies.
Smart dams need comprehensive contracts
Smart dam projects raise some novel risks that must be carefully addressed in contracts.
Data
Because smart dam projects generate vast amounts of operational and environmental data, contracts must clearly define who owns the data produced by sensors, digital twins, and AI systems, and who has rights to access, use, or share this data during construction and after handover.
Provisions should address data management in the event of a change of operator or asset ownership, and set standards for data accuracy, completeness, and timeliness.
Warranties or indemnities may be required to assure the integrity of data provided by contractors or technology vendors, and dispute resolution mechanisms should be established for disagreements over data quality or interpretation.
Contracts should also guarantee the data will meet agreed quality standards and name an independent expert who can resolve disputes if there are disagreements over accuracy.
Software
Given the reliance on proprietary software, contracts should clarify licensing arrangements, including rights to use, modify, or transfer software, and provide for ongoing updates, patches, and technical support, especially for cybersecurity.
The consequences of software obsolescence or vendor insolvency should be addressed, for example through escrow arrangements.
Contracts should require interoperability between new digital systems and legacy infrastructure, specifying interface requirements, testing protocols, and risk allocation for integration failures.
Contracts should make sure that if the technology supplier goes out of business, the project still has access to the software and tools it needs. They should also require the supplier to provide security updates and fixes for a set number of years and ensure systems can connect easily with other technologies. If the systems do not work together as promised, the contract should provide for financial penalties or service credits.
Cybersecurity
Contracts should allocate responsibility for implementing and maintaining cybersecurity measures during both construction and operation.
Notification requirements and response protocols in the event of a cyber incident should be specified, as should liability for damages resulting from cybersecurity breaches attributable to contractor or vendor negligence.
Contracts should include a dedicated section on cybersecurity that explains who is responsible for what, the minimum protections that must be in place, when system changes can happen, how quickly problems must be reported, and how security weaknesses will be shared and fixed.
It should also set out who is responsible if a data breach affects third parties and link these obligations to the requirements of the project’s insurers.
Change management
Contracts should include mechanisms for managing upgrades or changes to digital systems throughout the project lifecycle, and address how emerging technologies or regulatory requirements will be incorporated without causing undue delay or cost escalation. They should include a clear process for handling digital changes, such as software updates or new data sources.
This process should explain when changes can be made, how their impact will be assessed, and how costs or savings from those changes will be shared fairly between the parties.
Training and knowledge transfer
Contracts should require the contractor or technology provider to deliver training to the owner’s personnel, and provide for documentation, manuals, and ongoing support to ensure effective knowledge transfer.
Upon project completion or early termination, provisions should address the transfer of digital assets, software licences, and data to the owner, as well as secure erasure of sensitive data by departing contractors or vendors.
Moreover, contracts should require that operators are properly trained and certified, that knowledge is fully passed on during the project, and that digital tools such as models and simulations are handed over in working order at completion. They should also make sure that when contractors leave, they erase any sensitive data securely and provide proof this has been done.
Insurance and risk allocation
Smart dam projects introduce new insurable risks, such as cyber threats, data loss, and system malfunction.
Contracts should specify insurance requirements for digital and cyber risks, in addition to traditional construction risks, and carefully allocate liability for losses arising from digital system failures.
For international projects, contracts should address compliance with data localisation laws, cross-border data transfer restrictions, and relevant privacy regulations. And should ensure insurance covers digital risks such as cyberattacks and technology failures, as well as delays or losses caused by system breakdowns. They should also spell out where project data is stored, how it can be transferred across borders, and ensure that any third parties handling the data follow the same rules.
Environmental and social impact
Real-time environmental monitoring increases transparency but exposes operators to greater scrutiny and potential legal action for non-compliance.
Automated systems must remain within regulatory thresholds, and AI systems should be auditable and explainable.
In the UK, the Reservoirs Act 1975 mandates periodic inspections, but smart systems challenge practitioners to ensure new data modalities are legally admissible and verifiable.
Contracts should provide that projects should ensure that automated systems can explain why they make certain decisions, keep clear records that regulators can check, and include backup safety measures, such as manual overrides and step-by-step response plans, to reduce the risk of harm if sensors or computer models fail.
A digital divide
Many existing dams were not designed with digital retrofitting in mind, making integration both technically complex and financially burdensome.
Digitisation involves significant capital outlay, and without innovative financing models – such as public-private partnerships and climate-linked funding – there is a risk of deepening a “digital divide” in water security.
Wealthier regions may succeed in deploying predictive, technology-driven monitoring, while less resourced jurisdictions may remain reliant on periodic manual inspections.
The development of international standards on digital twin implementation, data exchange protocols, and interoperability is expected to reduce contractual complexity and facilitate cross-border collaboration.
This is particularly significant for transboundary river basins.
Governments, multilateral development banks, and private-sector technology providers are likely to adopt innovative partnership models to share costs, risks, and expertise.
In parallel, legal and regulatory systems must adapt rapidly to provide clarity on critical issues, including data sovereignty, digital asset ownership, liability for automated decision-making, and the evidentiary weight of digital records in contractual and regulatory proceedings.
The future of smart dams will depend on the development of adaptive legal, regulatory, and ethical frameworks that support innovation while safeguarding public safety, privacy, and ecological integrity.
