08 Jul Spain lost four international arbitrations over cutting renewable energy subsidies.
At present, Spain captures the percentage of arbitration procedures for the cuts applied to renewable energies, in fact it accumulates almost thirty lawsuits from foreign investors still not resolved, lawsuits pending to bet settled in the ICSID (World Bank institution), in the Arbitration Court of the Stockholm Chamber of Commerce and the Paris Court. National investors can not go to the international arbitration court, they can only resort to cuts to national courts.
In the Spanish case, the complaints focus on the cuts to solar and solar thermal energy undertaken by the Government at the end of 2010 and during the legislature concluded in 2015. Of the 32 arbitrations proceedings against Spain in different international organizations by the lawsuits presented by foreign investors in Spain, one is in Uncitral (Commission of the United Nations), three in the Institute of Arbitration of the Chamber of Commerce of Stockholm – already resolved -, and 28 in the Ciadi (World Bank).
In other words, since the first lawsuit filed in 2011 against the reform of the sector carried out by the Government until to date, only four arbitrations of the 32 filed against Spain have been resolved: three in Stockholm, two favorable to our country and the last one in against, and one in the ICSID, also favorable to the plaintiffs.
Foreign investors claim to Spain at least EUR 7,566 millions in different international arbitration instances for the damages allegedly caused by the cuts in renewable energy subsidies.
2007, year of the great impulse to the renewable energies.- Everything began with the approval of the Royal Decree 661/2007 on the part of the Government whose application brought about a fast take-off of the renewable energies. It was a system that guaranteed renewable energy investors the payment of a retribution during the entire useful life of the plant, whether wind, solar thermal or photovoltaic. It is what is known as renewable energy incentives, aid from the electricity bill that guaranteed the profitability of this type of energy. With the promise of very high rates of return, domestic and foreign investors with interests in the sector went to the call. Thanks to the economic financing of large banks and financial companies, a photovoltaic boom took place in a few months. It was a resounding success, much greater than the Government had calculated.
Cuts in remunerations from 2010.- But only three years later the Government began to apply the first cuts. The electricity sector deficit leading the government to reduce these advantages to raise more and compensate for the losses. In this way, the Government begins to back down and in 2010 announces a cut in remunerations, which will only be applied up to a maximum of production hours per year. A limit that, in general, was well below the hours of real production and which means significant losses for the sector and for the thousands of investors who no longer see profitability as guaranteed.
Reform of the electricity sector in 2013.- Renewables and their producers suffer the final blow with the approval of numerous reforms that include a tax on the generation of electricity or the announcement of the non-payment of all new renewable energy installations after 2012. That is to say, it brakes suddenly the possible later investments, because no installation will count more with any help. This is a succession of cuts to clean energy that culminated with the reform of the electricity sector in 2013 that drastically cuts (by 40%) the incentives that were still in force. Thousands of investors in renewable energy were severely damaged and hundreds of renewable companies ultimately went bankrupt, generating a flood of demands and making many renewable projects unviable.
2015, approval of the Royal Decree of Auto-Consumption.- With the approval of this Royal Decree, the Government fixed a series of costs that are charged to electricity producers with installations of more than 10 kW of power or those that have storage batteries to keep the surplus.
The foreign investors of renewable, to proceed with their demands, could benefit from the framework of the Energy Charter, a treaty created to guarantee international investments in the sector, which provides three forums to demand:
- The ICSID (International Center for Settlement of Investment Disputes) arbitration court of the World Bank in which most of the lawsuits are pending.
- The Stockholm Chamber of Commerce (SCC).
- Uncitral, the rules of commercial law of the UN.
International Arbitrations of Spain: 2 wins and 4 losses
The successive cuts in renewable incentives led more than 40 international investors to file claims against Spain. The majority in the ICSID, but also in the Stockholm Chamber of Commerce and Uncitral.
Spain won the first two international arbitral awards that were raised by Isolux. The following four awards, raised by the funds Eiser, Novenergía, Masdar and Antin have been resolved in favor of the plaintiffs.
Victories of Spain:
1.- 2013. Isolux Infrastructure Netherlands.- Although Isolux is a Spanish company, it used a firm in the Netherlands to be able to go to an international arbitration. Spanish companies could only appeal the cut before the national courts, but there were firms -such as Isolux and Abengoa- that considered that in international arbitration they had more options to win and used subsidiaries abroad to go against Spain. Isolux, under the Energy Charter, went to the Stockholm Chamber of Commerce, where the rules of confidentiality are greater. It ended with the dismissal of the Swedish arbitral court.
2.- 2016. Charanne B. V. and Construction Investments (companies linked to Isolux).- The Stockholm Chamber of Commerce dismisses the claim presented by these two companies to compensate for the reduction of incentives and the 7% tax on renewable generation that the Government set. The award gives the reason to Spain.
Arbitration lost by Spain:
1.- May 2017. Eiser (open cancellation procedure).- Spain loses its first international arbitration before the ICSID for the cuts to the renewable applied since 2010. The award gives the reason in its claims to the British firm Eiser Infrastructure Limited and its Luxembourg subsidiary Energia Solar Luxembourg, with three solar plants in Spain (one in Extremadura and two in Castilla-La Mancha) and a committed investment of EUR 935 million. They condemn Spain to the payment of 128 million euros plus interest, compared with more than 300 million claimed by the plaintiffs. In this case at the ICSID the arbitrators assured in their award that the Government’s energy reform was ‘devastating’ and in this case the fund, also located in Luxembourg, was able to demonstrate that the regulatory change of 2013 caused a destruction of the investment.
2.- February 2018. Novenergia (suspended).- Spain loses its second international arbitration for the reduction of incentives for renewable energies, in this case before the Arbitration Institute of the Stockholm Chamber of Commerce (Sweden). The award issued by that arbitral tribunal requires Spain to pay 53.3 million euros -plus interest and court costs- to the company Novenergia, based in Luxembourg, which had claimed 60.4 million euros. It was a 2007 investment of seven photovoltaic facilities in Castilla-La Mancha, Extremadura, Murcia and Catalonia, which attacked the 2013 reform. But unlike Eiser, Novenergia had to admit that the regulatory change did not mean a destruction of its investment (as in many of the pending lawsuits). The plaintiff had no choice but to acknowledge in front of the arbitrators that despite everything he was still making money. However, the three arbitrators ended up giving the reason to consider that the reform was ‘radical, drastic and unexpected’, and that although there was no investment destruction, its attributes had been reduced significantly.
3.- May 2018. Masdar Solar.- Spain loses the third arbitration award for the cutting of renewables. This time it is due to the complaint lodged against Spain in the ICSID of the World Bank by the Masdar Solar fund, owned by the company Mubadala, 100% owned by the Emirate of Abu Dhabi. According to the ICSID, Spain will have to pay compensation of EUR 64.5 million (plus interest) for having violated the Energy Charter Treaty in the regulatory changes applied by the Government in 2013 and 2014. Masdar Solar claimed Spain more of EUR 250 million for the cut in incentives for the renewables committed in the Gemasolar plant, located in Fuentes de Andalucía (Seville-Spain). Spain is free to pay the costs of the process, which will be divided equally. The ICSID award also points out that the 2013 electric reform was a decisive turning point in Spain’s energy regulation and violated the legitimate expectations of investors to obtain a stable return on their investment. However, the court excludes from the claim the cost of the 7% tax on the generation of electricity -understanding that it is not a cut but a tax competition of the country- and reduces the useful life of the plant to 25 compared to 40 claimed by Abu Dhabi.
4.- June 2018. Fondo Antin.- Spain lost last June a new international arbitration for the reduction of renewable energies. The ICSID ruled in favor of the Antin fund and ordered the Spanish State to pay compensation of EUR 112 million, although the fund claimed 218. In 2011, Antin bought to ACS two solar thermal power plants in Granada, Andasol 1 and 2, and sold them to another fund, Cubico, last year. In its ruling, the court considered that the regulatory change was so abrupt that it violated Article 10 of the Energy Charter, international treaty that guarantees international investments in this matter. Another novelty of this award is that, unlike the previous ones, it condemns the Spanish State to pay 60% of the plaintiff’s costs, which in previous cases determined that they would be paid equally.
Renewables are looking to the future with hope
The sources of Energy have indicated that the case of Spain is not unique and that other European countries, such as Germany, Poland or the Czech Republic, have also received arbitration awards contrary to their energy regulation.
However, the renewable promoters and industry linked to the sector in Spain are looking to the future with hope after the agreement reached so that the share of renewables in the EU to 2030 is 32%, whose compliance will require significant investments. Spain and Italy have been key in changing countries’ positions, defending more ambitious objectives. In the sector, organizations such as APPA or the Spanish Photovoltaic Union (UNEF) also trust that the renewable share for 2030 can be extended to 35% in the revision made in 2023.