Will more renewables investors renounce claims against Spain?

Four investors have so far confirmed that they have accepted the offer introduced in Spain's Royal Decree-law 17/2019, guaranteeing higher returns for renewable energy investors which renounce previous public international law claims and awards against the state.

While Spain has been keen to publicise this endorsement of its law, hundreds of millions of dollars owed by the state under international arbitration awards from previous claims have not been waived.

Investors that do take up Spain's offer may be mindful of reverberations from the recent judgment of the Court of Justice of the European Union (CJEU) in the Achmea case (Slovak Republic v Achmea BV, Case C-284/16), which has made the enforcement of intra-EU bilateral investment treaties more difficult.

Royal Decree-law 17/2019, which introduced urgent measures to amend remuneration for the electricity system, was approved by the Spanish government on 22 November 2019. From 1 January 2020, the reasonable return from renewable facilities was set at 7.09%. However, investors with claims or international arbitration awards against Spain were guaranteed a higher return of 7.398% until 31 December 2031, if they agreed to waive the pursuit or enforcement of those claims and arbitration awards. The deadline to accept the offer was due to expire on 30 September 2020, but has been extended to 18 December 2020 in light of the COVID pandemic.

On 3 October 2020, it was announced that a UAE company, Masdar Solar & Wind Cooperatif, which had obtained an ICSID award against Spain of €64.5m (€80m with interest), had renounced its claim to take advantage of the higher incentive regime.  The decision was hailed as a triumph by Spain's Minister for Ecological Transition, Teresa Ribera, through her Twitter account.

More recently, on 22 October 2020, there were reports that three other investors had also renounced their claims: Element Holdings BV, Stadtwerke München and RREEF.  Combined with the Masdar award, the claims renounced total about €3bn. 

Those investors that are considering their options may be taking into account the increased difficulties of enforcing any awards made against an EU member state under an intra-EU BIT following the high-profile (and many consider controversial) decision of the CJEU in Achmea.

In that case, the CJEU held that the arbitration clause in the 1991 Netherlands-Slovakia BIT had an adverse effect on the autonomy of EU law, by removing disputes relating to the interpretation or application of EU law  from the mechanism of judicial review enshrined in the EU legal framework.

In those circumstances, the CJEU concluded that the arbitration clause contained in the BIT was incompatible with EU law.  

The Achmea decision has important implications for the enforcement of awards rendered under intra-EU BITs. Under the New York Convention (which governs the enforcement of non-ICSID arbitration awards), one of the grounds for refusing to recognise or enforce an arbitral award is the violation of public policy.

A court in an EU member state asked to enforce an intra-EU BIT arbitration award may well decide that the recognition or enforcement of that award would contravene EU law, and would therefore violate public policy. However, tribunals in ICSID and Energy Charter Treaty cases have, to date, refused to decline jurisdiction based on the reasoning in Achmea.

The Achmea decision is one factor any investor will need to take into account when valuing their claim or award. Difficulties with enforcement can lead to additional time, costs and uncertainty for recovery, all of which can lead to a discount in the present value of an award.

Investors will need to balance these factors against the additional incentives available under the new Spanish scheme. Particularly for low-value claims, the benefits of accepting the new scheme may outweigh the additional costs and uncertainties of pursuing enforcement of an existing award.

This is just the latest chapter in a series of disputes between the Spanish government and international investors arising from cuts in the incentive scheme offered to renewable energy investors.

In June 2020, Spain succeeded in annulling an ICSID award which had ordered Spain to pay €128m to Eiser. The award was annulled on the grounds that one of the tribunal members lacked independence and impartiality due to a longstanding professional relationship with one of the claimants' expert witnesses.

At the time of its annulment, the award was at an advanced stage of execution. The Federal Court of Australia had already ordered that the award could be enforced, and Eiser had requested the seizure of property from Spain in Australia.

In Ukraine, a slew of investment claims were recently threatened under BITs and the ECT when the Ukrainian government threatened to alter the incentives that it had offered renewable energy investors to invest in energy production in its country. The changes included significant reductions in the feed-in tariff for both wind and solar projects. The government offered a compromise which many investors have accepted in lieu of commencing investment treaty arbitrations.  

The Achmea decision, and the ECT carve-out for taxation measures, may well have played a part in those decisions. However, we understand that solar projects were not offered as generous a compromise as wind projects and this may yet lead to at least solar projects being the subject of arbitrations against Ukraine.  

The Masdar announcement forms part of a wider story, which will continue to be monitored carefully by states and investors alike for some time to come.

An earlier version of this article was first published on the Global Arbitration Review website on 16 October 2020.