To promote the production of clean energy, many countries have introduced incentives to encourage investment in the renewable energy sector. These incentives have often included feed-in tariffs ("FiTs"), which generally involve long-term contracts providing for certain guaranteed payments to producers of renewable electricity (e.g., solar and wind power plants). Incentives such as FiTs have attracted substantial foreign investment in the renewable energy sector since the early 2000s.
Particularly after the global financial crisis, however, some governments have failed to comply with their FiT regimes or have sought to change their regulatory frameworks to reduce or eliminate FiTs in the renewable energy sector. In some cases, there have been sizeable differences between the FiTs owed by governments to renewable electricity producers and the prices utilities could charge for electricity. Some of the measures taken by governments have resulted in significant disputes, and foreign investors have brought claims against a number of States in which they have relied on protections under bilateral and multilateral investment treaties. More than sixty such cases have been brought against European States, most notably Spain, Italy, the Czech Republic, and Romania.
Over the past year, Ukraine has faced similar issues with its FiT regime. In light of the Ukrainian State-owned offtaker's inability to pay the established FiTs to renewable energy producers, the Ukrainian government substantially reduced the FiTs applicable to both existing and new facilities. Ukraine is continuing to take steps to resolve these issues, but there is a significant risk for investors that Ukraine will not be able to fully and fairly resolve the problems with its FiT regime. We discuss in this alert these recent changes to Ukraine's FiT regime in the renewable energy sector, the disputes that other States have faced in similar contexts, and the potential claims that could be brought against Ukraine.
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