Arbitration cases in the renewable energy sector following Spanish legislative changes: at a crossroads


Financier Worldwide Magazine

October 2018 Issue

Over time, Spain has adopted several measures aimed at promoting sources of renewable energy, in accordance with EU directives and in step with its own domestic interests.

Through Royal Decree 661/2007, a stable system of grants was established in Spain, guaranteeing attractive profitability for the production of electric power under the special regime. This can be considered the basic regulation around which the entire feed-in tariff (FIT) system of support for and promotion of renewable energies in Spain has revolved.

The Spanish FIT system of support to the renewable sector has been adapted over time as the electricity sector in Spain and the existing tariff deficit have evolved. However, since 2007 there have been two major regulatory reforms.

In 2010, the regulations were modified, limiting the hours of paid operation of photovoltaic installations and, also, the years during which said facilities were going to receive additional remuneration.

With profitability expectations surrounding their investments falling, Spanish promoters and investors in the photovoltaic sector made an unsuccessful claim against the Spanish state. Their understanding was that the government, to the detriment of their interests, was retroactively modifying the conditions on which the investments had been made.

However, foreign investors were able to claim against the Spanish government through international arbitration, based on the European Energy Charter Treaty (ECT), which obliges states receiving investment to offer a standard of fair and equitable treatment to all investors.

Regarding the first claim, filed by Isolux before the Arbitration Institute of the Stockholm Chamber of Commerce, the latter ruled in favour of the Spanish government on the understanding that the plaintiffs could not expect the regulatory framework to remain unchanged throughout the life of the companies’ facilities. Investors should have foreseen that regulatory changes could happen, especially in such a regulated sector as energy.

During 2013 and 2014, a number of substantial legislative changes took place in the renewable sector. Through Royal Decree Law 9/2013 and Royal Decree 413/2014, the entire regime of fixed and premium rates was eliminated and replaced by a system that establishes a reasonable return, calculated on the basis of an efficient standard installation and on the basis of standard costs.

It was due to this latest reform of the Royal Decree 2013/2014 that, to date, four International Centre for Settlement of Investment Disputes (ICSID) arbitration awards have been made in favour of the claimants.

In general terms, the conclusion can be reached that regulatory regimes can evolve and every investor must contemplate the real possibility of having to implement reasonable changes and modifications to the legal framework. However, the obligation to grant fair and equitable treatment means that they cannot be altered radically so as to deprive investors of the value of their investment in an unpredictable way.

To this end, we must bear in mind that, although the reform that took place in 2010 was minor, insofar as it affected certain remuneration aspects, the reforms of 2013 and 2014 have brought a radical and integral change to the legal and economic regime of the renewable energy sector in Spain. We therefore understand that arbitral awards can be favourable in some cases and not in others.

Turning now to the procedural-arbitral issue, to date, Spain has been sued in approximately 25 arbitrations for around €7.5bn. It has already been condemned in four arbitration awards following procedures urged by the Eiser, Masdar and Antin investment funds (these awards were issued by an ICSID Tribunal as the claim was filed for violation of the ICSID Convention) and Novenergia (this award was issued by the Tribunal of the Chamber of Commerce of Stockholm since the claim was filed for violation of the European Energy Charter).

The execution of these awards, however, is neither simple, nor does it offer a predictable result for investors or the Spanish state.

The defence of Spain, both in the arbitrations and in the subsequent executory proceeding, has been based, to date, on a double front, which is not exempt from controversy.

On the one hand, Spain argues that the submission of disputes to an arbitration court other than the court to which, in accordance with the community rules for attribution of judicial competence, it would be appropriate to know of the dispute, implies that the award should be considered void and, in addition, should not be executed for contravening public policy, namely Article V.2 of the New York Convention of 1958, and cause of nullity provided for in the UNCITRAL model law, as well as in the generality of domestic laws on arbitration.

In particular, Spain contends that bilateral investment treaties containing the aforementioned arbitration clause are openly contrary to European law and, in particular, to the extent that an arbitral tribunal is allowed to deal with matters that could affect European law, without the European Court of Justice, as exclusive interpreter of European law, having any control over the procedure.

This claim is not without foundation. The Court of Justice of the European Communities (CJEU) has determined that issues that are already regulated or affected by European law cannot be submitted to arbitration, as in the recent Achmea case. In this way, the court would be deprived of its exclusive interpretative power of the treaties.

On the basis of this reasoning, the CJEU replied affirmatively to the question raised by the German Supreme Court. In this particular case, the dispute was about legislative changes in health insurance, but the analogy could be perfectly applied.

This precedent is being used by Spain in the Novenergia case before the Swedish courts as grounds for annulment of the arbitration judgement and as grounds for suspending the execution of the arbitration award in Spain.

To assess the strength of this argument, it must be taken into account that, in the Achmea case, the arbitration had been resolved in accordance with the bilateral agreement signed by Slovakia and the Netherlands in 1991. Perhaps the positioning of the TJEU would have been different if the dispute had been processed for violation of the European Energy Charter and signed by the European Union as an independent entity.

Similarly, the precedent of the Achmea case may not be applicable in the Masdar case, in which the claimant alleges a direct violation of the provisions of the ICSID Convention, which expressly obliges the signatory states to execute the awards handed down for infringement of the agreement as if they were domestic awards. However, the annulment committee of the ICSID Convention recently agreed, under the ICSID Convention, to suspend the execution of the award rendered in the Eiser case before the courts of New York until the annulment action presented by Spain was resolved. In short, there is a sea of doubt awaiting resolution.

Secondly, Spain claims that the enforcement of any award that agrees to compensate foreign investors in Spain would imply aid specifically prohibited by community legislation.

Again, this argument is not without foundation. In its 10 November 2017 decision, the European Commission ruled that the remuneration regime established in 2013 and 2014 by Spain entailed a breach of the Treaty on the Functioning of the European Union in the extent to which it entailed the granting of unauthorised aid to economic production, so that the execution of any award that compensated investors for the modification of said regulation would suppose an aid contrary to European law.

It is unlikely that a European court will decide on the execution of an arbitral award issued under these conditions. The courts would very likely consider that the execution is contrary to public policy and, therefore, to Article V.2. of the New York Convention of 1958.

Given this crossroads, perhaps the most plausible solution to achieving the effective execution of favourable awards to investors is to file the application for enforcement before non-European courts in whose jurisdiction Spain has seizable assets. In fact, some investors are already opting for this solution.


Javier Olmos and Alfonso Maristany are partners at Rousaud Costas Duran S.L.P. Mr Olmos can be contacted on +34 91 758 39 06 or by email: Mr Maristany can be contacted on +34 91 758 39 06 or by email:

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