The European Union’s withdrawal from the Energy Charter Treaty (ECT) earlier this year was widely perceived as necessary to prevent support for additional fossil fuel energy projects. However, almost all of the current ECT arbitration claims are in renewable energy.
All energy projects, whether renewable or fossil require substantial upfront investments to start operating and investors need legal certainty throughout the duration of the project (usually 25 years) in case governments make regulatory changes that change the parameters of previously committed projects.
In the mid-2000s, more than 66,000 Spanish families and 50 international companies and investors injected more than 70 billion dollars into the wind and solar sector, premised on a feed-in-tariff structure for the electricity sold to the Spanish grid. Spain reached the EU target of 20% renewable energy way before other member states, but following the financial and debt crisis in Spain and a change in government, the Iberian country retroactively withdrew these incentives, thus hindering the profitability of the investments made in the sector.
Claimants took their cases to the World Bank’s arbitration tribunal, The International Centre for Settlement in Investment Disputes (ICSID), where most of them won awards against Spain. To date, Spain owes EUR 1.5 billion in awards and a further EUR 300 in legal and interest costs, yet the government refuses to honour the debt. A recent International Rule of Law Compliance Index shows that Spain has more international arbitration debt than any other country and is the only country other than Venezuela and Russia that refuses to pay.
Spain now faces multiple enforcement procedures such as the seizure of the Cervantes Institute and Catalan Enterprise Institute in London, the freezing of the EUR 1 billion Prestige Oil Disaster Insurance Claim, the seizure of Enaire’s (Eurocontrol) bank accounts for flight revenues, as well as a foreign bond default. Without the Rule of Law, investor confidence in Spain is extremely low – a report shows damage of at least EUR 7 billion to the economy. And what signal does this send to foreign investors? These debts are all in renewables.
Spain’s belligerence is in very large part due to the outgoing Minister of Ecological Transition, Teresa Ribera, who is about to be confirmed as the Commission Executive Vice President for a Clean Transition and Competition. Ribera has lobbied the Commission to retroactively declare these awards as ‘state aid’ despite never having actually registered the scheme. The Commission have not made a decision, but as she prepares to lead DG Competition, there is clearly a major conflict of interest here: the plaintiff cannot become the judge. She should immediately recuse herself from any decision involving her own country.
For some time, the Commission has been on a head-on collision coursewith International law; it is clear that the legal services in the Commission believe that any inter-member state arbitration should be dealt with through the European Courts. Through landmark cases such as Achmea and Micula it has shown a complete disregard for bilateral and international treaties. This retrospective law fare creates a black hole of legal uncertainty for investors and in light of the Draghi report on European Competitiveness, further damages the attractiveness for Europe as a renewable investment destination. If Europe wants to turn the page on the ECT, it needs to resolve these issues that are still outstanding.
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