The first international arbitration decision on reforms in the photovoltaic sector rules in favour of Kingdom of Spain

This is the first international arbitration decision to be ruled on of those lodged against the Kingdom of Spain in the renewable energies sector under the scope of the Energy Charter Treaty. On this occasion, and has just also happened with the recent rulings of the Spanish Supreme Court and Constitutional Court on the issue of renewable energies, the court ruled in favour of the Kingdom of Spain.

The decision concludes that the regulatory changes of 2010 in the renewable energies sector do not violate legitimate expectations under international law.

According to the arbitration tribunal, the plaintiffs could not have had legitimate expectations that the regulatory framework establishing the premiums for renewable energies would remain fixed during the entire useful life of the plants. Moreover, the tribunal acknowledged that Spanish legislation clearly left the possibility open for the system of remuneration of photovoltaic energy to be modified.

In fact, the arbitration tribunal itself pointed out that investors could have easily foreseen the possibility, given the situation, of changes in the regulatory framework if they had made an exhaustive analysis of the legal framework beforehand. Such analysis, according to the tribunal, would have been in line with the level of diligence expected of a foreign investor in a sector such as the energy sector, which is highly regulated, and which is essential before making any sort of investment.

The decision confirms that the obligation to grant fair and equal treatment does not mean that the regulatory framework must remain the same for all plants during their entire useful life, since this would mean freezing the regulatory framework and would restrict any change in the regulations.

Nor did the tribunal consider it proven that the measures challenged were against the public interest as argued by the plaintiffs.

In this regard, it underlined that the premiums settled in the photovoltaic sector were higher, in absolute terms, than those paid for other renewable technologies and had grown substantially year-on-year whilst the household bills of Spanish consumers had increased at a much faster rate than the European Union average.

That is why the adoption of measures to seek to control the deficit and price increases, argued by the plaintiffs, are not considered to be arbitrary, irrational or against the public interest, asserted the arbitration tribunal.

The plaintiffs also alleged a supposed breach of the principle of non-retroactivity, which the tribunal also dismissed, indicating that Spanish Law does not recognise that facilities had an acquired right to certain remuneration and that the regulations were not applied retroactively to a previous period but rather as from when they came into force.

The arbitration tribunal considers that no principle of international law exists (or at least not proven to exist by the plaintiffs) under which a State is prohibited from undertaking regulatory measures with immediate effect in relation to situations under way (unless specific commitments exist such as those deriving contractually, which is not the case here).

In summary, the decision confirms that the regulations challenged on remuneration from renewable energies in 2010 do not breach the commitments adopted by the Kingdom of Spain within the framework of the Energy Charter Treaty. Consequently, it dismissed the claim and ruled that the plaintiffs must pay the Kingdom of Spain, which was defended by the State Legal Services and by the law firm Herbert Smith Freehills, the administrative costs and almost 1.2 million euros in procedural costs.