Ideals were high, money was seemingly abundant and new investment opportunities were eagerly sought. It turned out to be a golden time for clean energy too as it threw off its hippy image and embraced free market economics to make dreams, reality. First the Kyoto protocols were signed in Japan and then the EU adopted the Energy Charter Treaty and encouraged and arguably incentivised its member States to go green by investing in clean, renewable energy. Ambitious countries like Italy and Spain with a sun surplus saw an opportunity. The cost of generating clean energy from the sun had come down and efficiency had increased owing in no small part to the price of silica coming down - a key ingredient in photovoltaic energy production. Spain seemingly opened its doors to investment and through various means sought to lead the way in European clean energy. Spain’s electricity market was liberalised and it embraced clean energy in the Electricity Sector Act 54/1997, specifically recognising the right of investors in renewable energy to a “reasonable/fair return”. A new investment opportunity with green ideals was born.

The Kingdom of Spain emphatically embraced clean energy passing royal decree after royal decree in support of its “Plan to Promote Renewable Energies for the period 2005 – 2010” with the express aim of increasing renewable energy production from 37 MW to 400 MW by 2010. It was a plan built on the basis of positive reinforcement. Premium feed in tariffs (FITs) and a broad range of profit boosting incentives were promised to encourage investors to invest in clean energy. Especially photovoltaic energy.

Unlike many ecologically minded government plans, the Plan to Promote Renewable Energies was a tremendous success. A bit too successful as it turns out. By the end of 2008 more than 2340 MW of photovoltaic facilities had been installed. By 2012 it was over 4000MW – 10x what the plan had set out to achieve. From an ecological perspective this is arguably a tremendous result. However, from an economic one, less so. The fusing of clean energy and free market ideals into a new and exciting investment opportunity was born in an age of abundance. By 2008 that age had passed and the age of austerity was upon us. What once was a phenomenal investment opportunity rapidly became an onerous liability. More was promised in FITs than the multiple faces of Spain’s governments wanted to deliver. A green investment opportunity was rapidly spun into a tariff deficit.

By 2008, the Spanish energy market couldn’t have been regarded more differently than it had in 1997. In 1997, it was embarking on a process of transformation to reap the rewards promised to it by embracing liberal economic principles. By 2008, those same liberal economic principles were being blamed for a variety of the countries sins. Investors into renewable energy that were invited and courted were progressively targeted by a series of royal decrees designed at first to limit then ultimately dismantle the regulatory regime that had encouraged investment. These investors had been promised more. It was not unreasonable to expect those promises to be fulfilled was it?

Every Tribunal appointed to consider a claim arising out of these circumstances and similar in Spain and elsewhere will have to consider whether the actions of the host state breached the fair and equitable treatment provisions as set out at article 10(1) of the ECT. This will give rise to a focused consideration of what the legitimate expectations of each investor might have been. It will also give rise to who those investors are. In essence, a claim under the ECT against any member State will want to know who invested what and when? In that simple line of enquiry lay the balance of what an investor’s legitimate expectations should have been.

Using Spain as an example, a Tribunal will want to know:

  • Who are these investors? Do they qualify as investors under the ECT? Are they nationals of or incorporated in some other member State other than the host State? Unlike some investment protection treaties, the ECT imposes no additional hurdles for qualification as an investor. Any objection to jurisdiction based solely on the lack of substantial business activities in another member state for incorporated entities for instance, would not succeed. However, the nationality of the company that owns or controls an investor may be relevant pursuant to the denial of benefits provision found in Article 17 of the ECT. Although the prevailing view is that Article 17(1) of the ECT may only be invoked by a member state to deny benefits if it does so before a dispute arises to effectively block treaty claims, it is a point that each tribunal will have to consider carefully.

  • What was the investment? Like all investment claims the investment must be a qualifying investment under the treaty on which it relies for protection. The ECT defines investment in Article 1(6). An Economic Activity in the Energy Sector is defined in the ECT to include the production, transmission and distribution of energy. It is difficult to see how a Tribunal could conclude that ownership and operation of photovoltaic plants are anything other than qualifying investments.

  • When was the investment made? This is clearly going to be the fundamental focus for most Tribunals if they conclude that investors qualify for ECT protection. An investment made into photovoltaic energy production at a time when Spain was actively promoting it as a fantastic investment opportunity is not the same as an investment made when the State was actively seeking to recede from its promises. Put simply, a guest showing up late to a party bursting at the seams would not be expected to have the same expectations as those guests who had arrived timely.

Lawyers, Funders and Arbitrators will be keen to follow this line of questioning that asks who invested what and when in consideration of each ECT claim. Owing to the nature of these claims, there will be some investors who have meritorious claims, some who need to temper their expectations and some who simply do not have a claim. Owing to the nature of the disputes there are tremendous opportunities here for funders to invest in meritorious claims for reasonable returns to facilitate access to justice where appropriate to do so. But there is also an unquestionable responsibility to help filter out unmeritorious claims. Who invested what and when is the key

Notes to Editors:

For more information on Vannin Capital, please contact: Meika Aysal, Marketing at Vannin Capital, T: +44 207 099 5180, E:

Latest Articles