Previous Solar Wars articles considered arbitral awards in respect of investors’ claims under the Energy Charter Treaty (ECT) arising out of the curtailment of renewable incentive schemes in Europe. A recent award handed Spain a fourth defeat and in doing so, extended the protection offered by the ECT’s fair and equitable treatment provisions to investments in concentrated solar power (CSP) projects made after Spain had already started reforming its solar incentive scheme.
Antin Infrastructure Services Luxembourg Sàrl and Antin Energia Termosolar BV v Kingdom of Spain ICSID Case No. ARB/13/31
In 2011, the two claimants (owned and controlled by a French company) bought shares in Spanish companies owning two operational CSP plants in Granada, which used natural gas to boost power-generation capacity.
In 2012, Spain reformed its regulatory regime to remove incentives for CSP installations that relied on fossil fuels to increase productivity, and introduced a tax on the production of electricity. In 2013, Spain eliminated the premium option under its favourable Feed-in Tariff (FiT) scheme, substituting a state-determined ‘reasonable rate of return’. That payment mechanism was further amended in 2014.
Antin brought claims against Spain under the ECT, alleging breach of the fair and equitable treatment obligation, on the basis that these regulatory changes completely ‘wiped out’ the previous CSP incentive scheme which Antin had legitimately expected to continue.
Jurisdiction: Achmea given short shrift
The Antin tribunal dismissed Spain’s objections to jurisdiction, adopting similar arguments to those in previous ECT claims (see previous Solar Wars articles). Moreover, the tribunal refused Spain’s attempts to reopen argument on jurisdiction by reference to EC Decision C(2017) 7384 (in which the European Commission criticised ECT claims brought against Spain as being contrary to EU law) and the CJEU’s decision in Slovak Republic v Achmea (Case C-284/16, which held that an arbitration clause in bilateral investment treaty between two EU states contravened EU law). The tribunal concluded that nothing in the ECT suggests that “a development in [European Union law] could be employed to undermine the prior consents to submit to arbitration under the ECT given by each of the EU Member States and the EU itself”.
Legitimate expectations survived reform of the incentive scheme
When Antin made its investments in 2011, Spain’s guaranteed FiT scheme had already been partially reformed (see Solar Wars Part I). One might have expected that in those circumstances, investors could not have formed legitimate expectations about the stability of the incentive regime. Indeed, in Isolux Netherlands, BV v. Kingdom of Spain (SCC Case V2013/153) the tribunal found that a claimant which had invested in a Spanish photo-voltaic (PV) plant in 2012, shortly before the 2012 reforms mentioned above, could not have possessed legitimate expectations that the regulatory environment initiated in 2007 would not be subject to substantial change.
However, the tribunal in Antin found that at the time of Antin’s investments, the most significant changes to Spain’s solar incentive regime only affected PV installations, not CSP-based projects. It also noted that Antin undertook thorough due diligence before investing, which had concluded that “there was strong Government support for the CSP sector”. Antin also claimed that the Spanish government had given assurances at meetings that the CSP sector was subject to a “stable regulatory regime”. Antin had therefore reasonably concluded that there were significant differences between the PV and CSP sectors and the CSP regime was unlikely to be significantly changed.
Establishing legitimate expectations
The tribunal noted that ensuring stability of conditions for investors “is a leitmotiv in…the ECT”. The tribunal referred to the award in Charanne B.V. and Construction Investments S.á.r.l v Kingdom of Spain (Arbitration No. 062/2012) (see Solar Wars Part I), pointing out that changes to a state’s regulatory framework must be “consistent with assurances on stability of the regulatory framework provided by the State and required by the ECT”.
Adopting reasoning similar to previous cases such as Eiser, Isolux and Novenergia (see previous Solar Wars articles), the tribunal held that investors’ legitimate expectations must be assessed objectively at the time the investment was made. Such expectations must originate from some “affirmative action of the State” – either specific commitments or representations, which could derive from “features of a regulation aimed at encouraging investments in a specific sector”.
The tribunal found that Spain had repeatedly emphasised the stability of its renewable incentive regime in reports, press releases, the preamble of its royal decrees, government plans and advertising material. Therefore, Antin had legitimate expectations that the legal framework for CSP plants would remain stable and predictable.
The tribunal rejected Spain’s argument that Antin could only have a legitimate expectation of a ‘reasonable return’ on their investment (which the modified framework guaranteed). The tribunal held that for Spain’s reformed regime to comply with ECT’s requirements for ‘stable and predictable’ conditions for investment, the payment due to CSP installations must be based on ‘identifiable criteria’. However, Spain did not identify the parameters by which it identified the ‘standard installation’ on which the ‘reasonable return’ was based; nor did it explain how the revision of the ‘reasonable rate’ would be calculated.
The tribunal therefore held that Spain’s “violation of the ECT resulted due to the ultimate elimination and replacement of the entire Original Regime, and not from the elimination or modification of certain features of the Original Regime”. While Antin could not recover ‘historic’ losses (allegedly arising from measures preceding the June 2014 elimination of the Original Regime), it could recover damages totaling €112m, based upon projected future cash flows over a 25-year lifespan on the plant.
Enforcement issues
Despite this fourth award against Spain, Antin will face similar problems to the other successful claimants in enforcing the award. The EC has told Spain that it cannot pay out any awards in respect of its renewable incentive scheme because to do so would constitute illegal state aid. Furthermore any attempt to enforce the award in EU Member State courts will probably be met by arguments that the Achmea judgment renders intra-EU investor-state arbitration illegal under EU law. This story is far from over.