European Union: International Remedies For Foreign Investors In Europe's Renewable Energy Sector

International investors who have suffered losses in the renewable energy sectors in Spain, the Czech Republic, Italy, Greece, Romania and Bulgaria, among others, may be entitled to compensation for their losses under the Energy Charter Treaty ("ECT") and/or relevant bilateral investment treaties ("BITs"). The solar, hydro and wind sector exploded following the introduction by many European countries of favourable feed-in tariffs ("FiTs") that paid renewable-power generators above-market rates for their output and provided subsidies to consumers who installed renewable energy solutions in their homes. These incentives were offered in large part to help countries meet their EU targets on renewable energy. With generous and long-lasting FiTs promised by governments, investment poured in. However, demand was grossly underestimated, which led to a substantial increase in consumer energy prices as the FiT costs were passed on, and ever-increasing deficits in the energy budgets of many governments.

As governments rolled back FiTs and failed to honour other governmental guarantees, investors in the renewable sector have seen their investments decimated, or at least substantially reduced. Many have already turned to investor–state arbitration in an attempt to recoup their investments. Indeed, 23 percent of known investor–state arbitrations in 2013 arose as a result of measures regarding renewable energy adopted by Spain and the Czech Republic.1 All claims are currently pending, and more claims are expected to follow.

This Commentary explains the measures that were taken against investors in the affected EU countries and describes the international remedies available to investors seeking to recoup their losses.

Spain

In Spain, it began in 2010. The government chipped away the incentives contained in earlier legislation through a series of measures, including: (i) limitation on eligible operating hours;2 (ii) cancellation of the price premium guarantee after 30 years; (iii) revision of the inflation index;3 (iv) total replacement of the FiTs with a "reasonable rate of return" and (v) imposition of a 7 percent tax on revenues.4 With these measures, the government opened itself up to international claims from foreign investors, and it has since been inundated with a wave of investor–state arbitrations. Presently, there are at least 12 known cases pending against Spain, including one UNCITRAL claim for €600 million, brought by 88 investors in the photovoltaic sector.5

The Czech Republic

The Czech Republic experienced a similar boom in renewable energy after introducing generous FiT policies for solar energy that took the country's installed capacity above 1.9 gigawatts. Initially, the government guaranteed that the FiTs would not be lowered by more than 5 percent per year. However, this added pressure to electricity prices. In order to curb costs, the Czech legislature repealed that legislative guarantee and passed in 2010 a claw-back levy imposing a retrospective "solar tax" of 26 percent on the revenue of all solar energy producers.6 It also repealed the tax breaks given to solar power plant operators and increased the fees in land use by 500 percent.7 The Czech Republic is now facing at least seven investor–state claims brought by investors in the solar power sector.8 Initially, six of the claims were brought as one consolidated claim by a group of 10 investors. However, the government objected, agreeing to consolidation only if the claimants were affiliates or if they had allegedly invested in the same operation.9

Italy

Similarly, the Italian government, since 2011, has implemented a number of measures that have affected the renewable energy sector, including reductions in FiTs and the end of incentives granted to photovoltaic plants located on agricultural land.10 Italy is already facing its first ICSID claim brought in February 2014 by a solar power investor.11 Italy also faces potential investment treaty claims from dozens of investors affected by Italy's approval of a decree in August 2014 that would make retroactive changes to FiTs from the beginning of 2015.12 The changes will affect photovoltaic solar plants with a capacity of more than 200 kilowatts.13

Greece

Greece also rushed to support renewable growth through generous and ultimately unsustainable FiT programs, accumulating substantial deficits in the process. In 2013, a round of FiT cuts, which saw a 25–30 percent retrospective tax on solar revenues, resulted in an immediate reduction in photovoltaic installations across the country.14

Romania

The Romanian Renewable Energy Law, passed in 2008, contained a support scheme which provided renewable energy plants with green certificate subsidies and preferential buying terms. As was the case elsewhere, Romania's government later judged that this legislative framework was too generous and delivered the first statutory hit to renewables in April 2013. The government published a decree which halved the support awarded to existing hydro, wind and solar power generation under the country's green certificate scheme, and postponed until 2017–2018 some green certificates that were due to be allocated to producers.15 It then cut the level of subsidies for all new projects coming online after 1 January 2014.16 In September 2014, a group of Czech investors filed a notice of dispute against Romania under the ECT, concerning changes to the regulatory framework for "green certificates" in the solar photovoltaic sector.17

Bulgaria

In Bulgaria, the incentives came in the form of exceedingly generous FiTs and long-term power purchase agreements—25 years for solar power and 12 years for wind and hydro power. Rapid growth in the sector put significant financial strain on the government, consumers and businesses. The cost of FiTs was passed on to electricity providers and grid operators, who were obliged to purchase power from the renewable plants at an inflated price. Further problems materialised as a result of the old and underdeveloped grid infrastructure, which became systemically overloaded. In response, the government enacted a plethora of legislation. In 2012, it reduced the FiTs by 50 percent for solar power producers and by 22 percent for wind power producers.18 However, the government simultaneously increased energy prices for consumers by 13 percent.19 Since then, some of the most radical changes have included a moratorium on grid interconnection for new plants, the introduction of fees to access the grid and the introduction of fees for the generation of renewable energy. Austrian energy group EVN filed an ICSID claim against Bulgaria in July 2013 related to the country's electricity pricing and renewable energy regimes.20

What Are the International Remedies?

Investor–state arbitration is an attractive option, which provides a specialised and neutral forum within which to bring disputes against a state. It is often not necessary to exhaust local remedies or to commence any domestic litigation before bringing an investor–state arbitration action. However, an investor's ability to bring a claim will depend generally upon the ownership structure of the affected investment vehicle.

Some investors will have recourse through BITs. Spain is a signatory to 80 BITs, the Czech Republic to 113, Italy has 100, Greece has 44, Romania has 103 and Bulgaria has 63.21 BITs are designed to promote and protect investments by investors of the other state party to the treaty. Most BITs protect a broad range of investments, which encompass all assets. Renewable energy companies typically hold shares in a locally incorporated company that holds rights or licences conferred by law—such investments are likely to be within the protection of investment treaties. Financial institutions that have financed renewable energy investments also can benefit from investment treaty protections as covered investments include loans and claims to money or claims to performance pursuant to a contract having an economic value.

The investor's nationality is typically determined by the place of incorporation and/or the seat of company management in the case of companies and by the domestic law on citizenship in the case of individuals. Many BITs permit investors to make claims for directly or indirectly held investments as well as minority shareholdings. Thus parent companies or individual shareholders are often able to assert rights relating to an investment held through a subsidiary company. Some also provide that juridical persons incorporated in the host state but controlled by nationals of the other contracting state may be treated as foreign nationals. This provides the investor with options when deciding under which treaty to bring the claim.

Investors may also have claims under the ECT. The ECT is a multilateral treaty with 52 signatories.22 It outlines the principles for cross-border cooperation in the energy industry and provides protection for investors in this sector. Spain, Italy, Greece, the Czech Republic, Romania and Bulgaria as well as the EU are signatories to the ECT. This provides the option of joining the EU itself to claims against member states, although execution of an award against EU assets may be more difficult to realise.

There are several investment protections available under the ECT. The fair and equitable treatment standard is the most frequently invoked standard in investment disputes and is likely to be the strongest head of claim in a dispute of the type explained above. The standard is fact-specific and has been breached by: (i) actions or omissions that violate the investor's legitimate expectations relied upon by the investor to make the investment; (ii) conduct that is not transparent or consistent and creates an unstable or unpredictable legal framework or business environment for the investment; (iii) conduct that violates due process or results in a denial of justice; (iv) discriminatory action; (v) interference with a contract; (vi) bad faith or (vii) harassment or coercion. The first two iterations of the fair and equitable treatment standard are most likely to be implicated here. The investor's legitimate expectations can be based on the host state's legal framework, contractual undertakings, and any undertakings and representations made explicitly or implicitly by the host state. Changes in the legal framework may be considered breaches if they represented a reversal of assurances made by the host state to the foreign investor.

Investors who have seen their entire investment wiped out, or almost entirely wiped out, also may have recourse to the protection against illegal expropriation. The ECT requires that the expropriation of foreign-owned property must be (i) for a public purpose, (ii) non-discriminatory, (iii) in accordance with due process and (iv) accompanied by prompt, adequate and effective compensation equivalent to the fair market value of the expropriated investment before the expropriation became known. A government measure would constitute an expropriation if it effectuated a permanent loss of the economic value of an investment.

There are various other protections under the ECT, which, depending on the circumstances of each individual case, may be invoked. For instance, the ECT guarantees that investments be accorded "most constant protection and security", which can be violated by drastically altering the legal framework for the investments. Another protection provided under the ECT is the legal obligation on a host state not to impair the management, maintenance, use, enjoyment or disposal of investments by "unreasonable or discriminatory measures". The ECT also contains a broadly worded umbrella clause that guarantees the observance of obligations assumed by the host state vis-à-vis the investor or his investment.

There are many advantages to investor–state arbitration. Investors typically seek monetary compensation. In some cases, investors would be entitled only to the amount invested plus costs and expenses. Lost profits will usually be awarded if the investment has a record of profitability or there are other indicia of future profits. Arbitral awards are binding upon the parties and create an obligation to comply with them. Most states comply with awards voluntarily. In the event a party fails to comply with an award, one of the major advantages of arbitration (as opposed to litigation) is the international enforceability of arbitral awards compared with foreign court judgments. It may also be possible to secure third-party funding for the costs of the dispute and/or to bring the claim with a group of similarly affected investors.

It is also worth noting that the European Commission ("EC") has sought to intervene in an increasing number of investor–state claims brought by EU nationals against member states. The EC has voiced opposition to intra-EU BITs, i.e., BITs between EU member states. The EU also has disputed the applicability of the ECT to intra-EU disputes. In one case, the EC even issued an injunction barring a member state—Romania—from paying the award in the Micula v. Romania ICSID case23 on the ground that it constitutes state aid and is thus illegal under EU law.24 That injunction is likely to remain in place until the EC rules on the ultimate compatibility of that aid with the European single market.25 While the play-out of the EC's intervention remains to be seen and can certainly complicate an arbitration, it is by no means a bar to bringing a claim. In 2014, 16 percent of all investment arbitrations brought globally were intra-EU in nature.26

This remains a rapidly evolving and contentious area, although there is little doubt that many investors have been severely affected by the proliferation of changes to the renewables sector across Europe. Many have already turned to investor–state arbitration as the most reliable mechanism for recouping their losses.

Footnotes

1.See UNCTAD, Recent Developments in Investor–State Dispute Settlement (Apr. 2014), at 1.

2.See Marc Roca, "Spain Targets First Cash From Renewables With Energy Tax", Bloomberg Business, 12 Jul. 2012, www.bloomberg.com.

3.See Nico Tyabji, "How to Lose Investors and Alienate People in Renewable Energy", Bloomberg New Energy Finance, 10 Apr. 2013, www.businessgreen.com.

4.See Kyriaki Karadelis, "Spain Again: Seventh Renewables Claim at ICSID", GAR, 5 Aug. 2014, www.globalarbitrationreview.com.

5.See Douglas Thomson, "What You Missed at ICSID", GAR, 12 Jan. 2015, www.globalarbitrationreview.com.

6.See Vyoma Jha, "Trends in Investor Claims Over Feed-in Tariffs for Renewable Energy", Investment Treaty News, 19 July 2012, http://www.iisd.org/itn/; Luke Eric Peterson, "Solar Investors File Arbitration against Czech Republic; Intra-EU BITs and Energy Charter Treaty at Center of Dispute", IAReporter, 15 May 2013, www.iareporter.com.

7.Id.

8.See Kyriaki Karadelis, "Italy Risks Claims over Solar Subsidies", GAR, 8 Dec. 2014, www.globalarbitrationreview.com.

9.See Kyriaki Karadelis, "Sun Rises on Czech Energy Claims", GAR, 19 Feb. 2014, www.globalarbitrationreview.com.

10.See Volker Uphoff, "Italy: Conto Energia V brings cuts to incentives for the PV sector", Sun & Wind Energy – the Magazine for Renewable Energies, 23 Jul. 2012, www.sunwindenergy.com/news/italy-conto-energia-v-brings-cuts-incentives-pv-sector.

11.Kyriaki Karadelis, "Italy Risks Claims over Solar Subsidies", GAR, 8 Dec. 2014, www.globalarbitrationreview.com.

12.Id.

13.Id.

14.See Policy paper on retrospective changes to RES Legislations and National Moratoria, 20-20 Keep on Track, May 2013, at 10-11, www.keepontrack.eu.

15.See Nico Tyabji, "How to Lose Investors and Alienate People in Renewable Energy", Bloomberg New Energy Finance, 10 Apr. 2013, www.businessgreen.com.

16.See Ilias Tsagas, "Romania Halves Certificates for Solar PV Starting January 2014", PV Magazine, 31 Jan. 2013, www.pv-magazine.com.

17.See Kyriaki Karadelis, "Italy Risks Claims over Solar Subsidies", GAR, 8 Dec. 2014, www.globalarbitrationreview.com.

18.See Kyriaki Karadelis, "EVN files ICSID claim against Bulgaria", GAR, 4 Jul. 2013, www.globalarbitrationreview.com.

19.Id.

20.Id.

21.See ICSID Database of Bilateral Investment Treaties, available at https://icsid.worldbank.org.

22.Status of Ratification of the Energy Charter Treaty as of June 2013 http://www.encharter.org/fileadmin/user_upload/document/ECT_ratification_status.pdf.

23.Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No. ARB/05/20, Final Award dated 11 Dec. 2013.

24.See Luke Eric Peterson, "European Commission Enjoins Romania from Paying ICSID Award, Thus Throwing a Wrench into Enforcement of Intra-EU BIT Ruling", IAReporter, 7 Aug. 2014, www.iareporter.com.

25.Id.

26.See UNCTAD, Recent Developments in Investor–State Dispute Settlement (Apr. 2014), at 3.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.