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Spain’s refusal to settle arbitration in renewables threatens to undermine the EU’s Green deal

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Spain has put itself on a potentially damaging collision course with the World Bank for refusing to settle compensation claims made after it effectively pulled the plug on a major renewable energy investment scheme.

The Spanish government has been deluged with such claims over its controversial decision to halt financial support for electricity generated by renewable energy installations. It is alleged the policy change hit thousands of investors in renewable energy, ranging from large energy companies to private individuals, leaving them out of pocket to the tune of millions of euros.

Many of these are now seeking recompense for their losses and claims have been lodged under the Energy Charter Treaty, an international treaty that Spain is a signatory to. One private investor told this website, “The regulatory changes concerning support for renewable energy in Spain have had a devastating effect and sparked numerous disputes.” Campaigners are now stepping up pressure on Spain to persuade it to “meet its international commitments” by paying bills, estimated to be between €1.5bn and €2bn, for the cuts to renewable incentives.

The dispute dates back to 2007 when Spain introduced a favourable, inflation-linked “tariff” for electricity generated by renewable energy installations. The initiative was deemed to be highly successful at the time and billions of euros of investment were ploughed into installations, ranging from newly built energy plants to solar panels fitted to peoples’ homes. The result was almost immediate: in 2008 alone, Spain accounted for half the world’s new solar energy installations by wattage and the country met the EU’s target of 20per cent production from renewable energy sources by 2020 in 2009.

But, following the 2008 financial crisis, Spain changed the scheme and introduced a new “tariff” which was significantly less generous to investors. Importantly, the new rate also applied retroactively to installations made between 2007-2012. Companies sued the Spanish government for introducing the new tariff but domestic courts ruled that the subsidy cuts were legal under Spanish law. Investors then brought international treaty arbitration claims against Spain over the feed-in tariff cuts under the Energy Charter Treaty (ECT), which is designed to protect foreign investors in energy assets. The Energy Charter was set up as long ago as 1994 and contains a clause which says international arbitration should be the preferred way to resolve such disputes.

Around 50 companies, mostly big energy firms in Europe and beyond, filed claims against Spain under the ECT between 2013-2020. So far, Spain has lost 25 of these 50 claims and won just five. Companies that have brought legal action for the tariff cuts so far include Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V. (”Antin”), constituted in Luxembourg and the Netherlands, respectively. These invested in renewables installations in Spain which benefitted from the 2007 support scheme.

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An arbitral award in 2018 found that Spain had infringed the Energy Charter Treaty when it modified the 2007 renewables support scheme and introduced a new support scheme in 2013 with lower amounts of support. The arbitral tribunal ordered Spain to compensate Antin for losses suffered as a consequence of the modifications of the 2007 scheme. The compensation amounts to €101 million. Another similar case saw Spain ordered to pay €41 million to German solar investor SolEs Badajoz GmbH for retroactively cutting long-term premiums for its renewable energy projects. The company claimed it had a 25-year guarantee under the 2007 tariff system that was later abolished. SolEs Badajoz is just one of several companies to win a dispute against Spain which faces an estimated €1.5-2bn bill over changes in the renewable energy support enacted by the previous administration.

Cases have been brought under the International Centre for Settlement of Investment Disputes (ICSID), which is a “gold standard” system administered by the World Bank. Spain is believed to have more unpaid ICSID arbitration awards than any other country in the world and joins the ranks of Argentina, Venezuela, Russia as non-payers of final court awarded debts. Elsewhere, the European Commission opened an “in-depth investigation” in order to assess whether such arbitration awards are in line with EU rules on state aid.

A commission source said: “At this stage, the Commission's preliminary view is that the arbitration award would constitute state aid.” However, those who invested in renewable energy under the Spanish scheme have warned the EU that, in tentatively backing Madrid in its stance, Brussels risks harming its own much-vaunted net zero goals. One investor told this site: “If the Commission tries to get in the way of these awards it will be harmful to renewable energy investment and reduce legal certainty within the EU.”

The Spanish government, in its defence, previously argued that the then falling cost of solar panels meant that the renewable industry was able to cope with reduced levels of support.

A decade after Spain started paring back its original feed-in tariff arrangements this long running legal dispute shows no sign of abating. But many argue it is vital to resolve the wrangle and for Spain to pay arbitration awards in order to restore investor confidence in the country and, perhaps even more importantly, protect the EU’s much-publicised Green Deal.

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