Energy Voice | 20 August 2019
Solar Wars Part X: The force is strong with investors
by Richard Power
Previous Solar Wars articles explained how arbitral tribunals considering intra-EU claims under the Energy Charter Treaty (ECT) have consistently rejected the application of judgment of the Court of Justice of the European Union in Slovak Republic v Achmea (Case C-284/16), which held that an arbitration clause in bilateral investment treaty (BIT) between two EU states contravened EU law.
Those articles also considered measures being taken by the European Commission (EC) to eradicate intra-EU BITs and BIT arbitrations, and to reform the ECT.
Recent developments have confirmed that tribunals continue to reject Achmea-style challenges to jurisdiction, and as a result over the last three months Spain has suffered a losing streak in ECT arbitrations of alarming proportions.
Spain takes a hammering
Between 31 May and 2 August 2019 five different ECT arbitral tribunals handed down awards ordering Spain to pay EU investors compensation for the reform of its solar incentive scheme (as to which, see previous Solar Wars articles):
Rejecting Spain’s Achmea jurisdictional objection, the tribunal held its remit was to determine whether the dispute fell under the provisions of the ECT (which it did), not whether it falls under or is a breach of EU law. The tribunal held that an examination of the history of the ECT’s creation generates a presumption that no contradiction exists between the ECT and EU law: consequently, the tribunal could not retroactively construe Spain’s offer to arbitrate (made by signing the ECT) as invalid.
On the merits, 9Ren claimed it invested in solar projects in reliance on Spain’s 2007 and 2008 incentive schemes, which included a guarantee of a premium feed-in tariff and related benefits, and a “grandfather clause” providing that that those benefits would be irrevocable for renewables facilities registered by a certain deadline; and hence it had legitimate expectations that it would continue to receive those benefits. The tribunal held that the grandfathering clause contained in the 2007 incentives did generate such legitimate expectations, and hence Spain’s decision to end those incentives was a breach of the ECT’s fair and equitable treatment standard. However, the 2008 benefits were enacted by a legal instrument which expressly contemplated review and modification, and legitimate expectations could not have arisen in respect of those incentives.
The majority of the tribunal went on to hold that, while “no investor is entitled to assume that the regulatory regime in place at the time that its investment is made will continue to remain in force”, states could make representations as to the future treatment of investments in such a manner as to create expectations that could not be defeated without violating the duty of fair and equitable treatment. In this case, Cube had invested in solar PV and hydroelectric projects with a legitimate expectation that the incentives under the “special regime” for renewable energy would not be significantly amended, or abolished retroactively; and Spain’s reform of its incentive scheme violated the ECT’s fair and equitable treatment standard.
In a dissenting opinion, one arbitrator held that the claimants had only invested in the hydro sector in 2011 and 2012, when “the conditions of the electricity regime had changed significantly”, and so they could not have had legitimate expectations with regard to the hydro projects.
On the merits, the tribunal held that Spain’s regulatory reforms were “disproportionate”, “sudden” and “changed the basic features of the regulatory regime that was in place, exceeding the changes that claimant could have reasonably anticipated at that time.” Consequently they breached the ECT’s fair and equitable treatment standard.
As if to demonstrate that it never rains but it pours, on 7 August 2019 it was reported that Belgian company Sapec had lodged a new ECT claim against Spain, thought to be in respect of Sapec’s investment in Spanish photovoltaic parks.
Investors with the upper hand?
These recent awards indicate that investors now have the upper hand in their ECT claims against EU states. However, as explained in previous Solar Wars articles, obtaining an award is one thing; obtaining payment of an award is another, and the successful investors will face further battles to execute their awards, most likely in jurisdictions outside the EU. And as is explained in the next Solar Wars instalment, the EC is fighting back…