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EU division over energy pact again puts spotlight on Spain and compensation claims

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The European Union has been urged to resist attempts to “weaponize” EU law and press Spain to honour its international commitments.

An ongoing dispute between Spain and about 50 renewable energy investors has put the issue firmly under the international spotlight.

The appeal comes amid growing anger at the EU’s stance on international arbitration awards.  The Commission, said to be bowing to lobbying efforts by Spanish State Attorneys, has been hamstrung by its own legal services experts who are, it is alleged, “contorting” state aid rules.

The latest development took place on Tuesday, when Spain officially demanded that the EU quit the 1994 Energy Charter Treaty (ECT).  Spain is the only member state ever to have done this.  

Deputy Prime Minister Teresa Ribera said: "At a time when accelerating a clean energy transition has become more urgent than ever, it is time that the EU and its member states initiate a coordinated withdrawal from the ECT.”  Whilst citing the EU proposals to phase out cover for coal, oil and gas, she made it clear that the effort "will fail to ensure the alignment of the ECT with the Paris Agreement and the objectives of the European Green Deal."

But what is really behind this?

The major row dates back to the late 1990s when several member states, including Spain, introduced generous incentive programmes to attract investors to renewable energy. This triggered an investment boom with Spain reaching the then target of 20% of energy from renewables by 2009. However, Spain rolled back its incentive schemes in 2013 under the Rajoy government, as did Italy and the Czech Republic. That sparked a considerable number of arbitration suits against these states, which Spain, in particular, fiercely continues to resist.

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The legal basis of the claims falls under the 1994 Energy Charter Treaty (ECT), of which both Spain and the EU were signatories, along with 54 nations around the world.  The Treaty provides for dispute settlement via the International Centre for the Settlement of Investment Disputes (ICSID), a division of the World Bank Group in Washington DC. Between 2013 and 2020, 50 companies filed claims against Spain under the ECT and so far Spain has lost 25 of them, winning only five. The Spanish government’s “bill” to date is about €1.3bn and in total is likely to be around €2bn.

The legal services of the Commission, headed by a Spaniard, believes that the arbitration awards against Spain are contrary to EU law and Spain also insists the arbitration award enforcement action violates EU state aid laws.

A commission spokesman strongly defended its position and told this website:  “We expect all arbitration tribunals established under the ECT to declare that they lack competence to hear intra-EU cases. The Commission will continue supporting member states in resisting the enforcement of awards rendered under the ECT. The Court of Justice recalled its previous case-law that the investment protection rules of the current version of the ECT, and in particular the rules on investor-state arbitration, do not apply between investors from one member state and another member state.”

But not all in the Commission agree. At a time when the EU is heavily promoting green energy, this could be said to be sending the “wrong signal” to anyone, be it a large company or private individual, who may want to invest in renewables.

A legal source close to the claimants told this website: “The EU’s stance is, surely, a huge dis-incentive to such investment, and damages the European Commission’s own Green Deal and net zero goals. It doesn’t make sense.”

The dispute has already negatively affected investment in renewables in Spain, which currently lags way behind other member states.

Investors argue that without the regulatory framework they would never have invested. Spain, on the other hand, alleges that investors could not legitimately expect that the rules applicable to their investments would remain unchanged for the entire duration and that they should have been aware that the regulatory regime might be modified.

Jeffrey Sullivan, QC at Gibson and Dunn, who represent many of the award holders, is among those who strongly disagrees, stating: “Renewable energy projects require substantial up-front investment which can only be recovered over the long term.

“Investors, therefore, need substantial legal certainty in order to make investments. If investors believe EU member states won’t honour their international obligations, they won’t invest.

“Or they will demand higher returns which means the consumer will need to pay much higher electricity prices.”

Sullivan added: “Spain has repeatedly been found to have violated international law and ordered to pay substantial damages. Spain’s refusal, thus far, to honour its international legal obligations has already harmed investor confidence and it continues to do. It is a black mark on Spain’s reputation for foreign investment.”

He continued: “Spain’s refusal to abide by its international law obligations towards renewable investors is particularly striking given the EU’s push for carbon neutrality.”

A spokesman for one of the investors, a wind and photovoltaic company, said, “The Spanish strategy is to hide behind the European Commission so as not to pay the awards for the cut to renewables.”

“The Commission now has the opportunity to truly support the EU Green Deal and be a friend of not just renewables but the rule of law and the World Bank by standing up to the legal service and not contorting the state aid rules to prevent payments being made to renewable energy investors.”

This issue lands squarely on the desk of Margrethe Vestager, EU Competition Commissioner, but some ask if she will stand up to the vociferous lobbying by Spain and its attempts to use EU law against its legitimate creditors?  In resolving this issue, she has the opportunity to truly support the Green Deal, generate massive new investment in the renewables that we so urgently need, and show that the European Commission is not isolated from the international community of law.  Will she grasp the nettle?

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EU Reporter publishes articles from a variety of outside sources which express a wide range of viewpoints. The positions taken in these articles are not necessarily those of EU Reporter.

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