International investors have served initial demands on the Spanish government seeking reparation under international law for Spain’s retroactive changes to the solar photovoltaic (PV) tariff regimes.
The investors, represented by Allen & Overy, hold investments in over €4 billion of Spanish PV projects. They include both strategic investors and energy, infrastructure and cleantech funds. These investors manage over $30 billion on behalf of more than 70 workers pension funds and other institutional and individual investors who collectively manage over $3 trillion in capital for global investment.
The investors are seeking reparation for retroactive changes introduced in recent months by the Spanish Government that materially affect the value of existing investments. Under the original law, PV projects were entitled to sell their entire output for the life of the installations – generally considered 40 years at the full tariff (including a certain tariff for the first 25 years and a lower tariff from year 26 onwards). In November and December 2010 the Spanish Government (i) capped the hours of production eligible for the tariffs at 20-30% below existing production for 2011-2013, (ii) imposed lifetime caps on production that affect a large number of projects and (iii) limited the tariff initially to 25 years (though with February amendments it was extended to 30 years).
The investor demands are under the Energy Charter Treaty, a multi-lateral investment treaty designed to protect cross-border energy investments such as solar PV. Fifty-one countries, including all members of the EU and the European Community itself, are signatories to the Treaty. The Treaty was designed to protect foreign investors who have made investments in the energy sector of the signatory countries. The demands made by the investors are the first step in a process which will allow investors to seek reparation from Spain before international arbitration tribunals if Spain does not repeal the offending provisions or provide compensation.
Stephen Jagusch, partner at Allen & Overy, said “the Energy Charter Treaty was created to foster long-term cross border energy investments and to protect foreign investors from improper government interference. The ECT gives investors legal rights above and apart from local law.”
This is only the second time that the Energy Charter Treaty has been used against an EU15 member. Of the over 25 claims brought under the ECT since it came into force, only one has been brought against an EU15 country. The other claims have been predominantly brought against Eastern European or former Soviet Union countries.
The investor demands also follow criticism of Spain’s actions from the European Commission. On 22 February 2011, European Commissioners Gunther Oettinger and Connie Hedegaard sent a letter to the Spanish government condemning Spain’s actions.
Allen & Overy has one of the leading Energy Charter Treaty arbitration practices and, led by Stephen Jagusch, brought the first case ever under the Treaty.
About the Energy Charter Treaty
The Energy Charter Treaty provides a multilateral framework for energy cooperation and investment unique under international law. The Treaty is designed to promote energy security and to protect foreign investments in the energy sector against key non-commercial risks, including discriminatory treatment, expropriation and unfair and inequitable regulatory change. The Energy Charter Treaty was signed in December 1994 and entered into legal force in April 1998. To date, the fifty-one countries, the European Community and Euratom have become bound by the Treaty.
The Treaty provides a comprehensive system for settling disputes on matters covered by the Treaty. In particular, it allows foreign investors to take host governments directly to international arbitration for violations of the Treaty. It creates separate supra-national legal rights. The fact that changes to investments may be legal under local law is not a defense under the Treaty. The supra-national legal rights coupled with the right to international arbitration is important in encouraging signatory countries to observe their Treaty obligations and in promoting a stable environment for investment in line with the aims of the Treaty.
