Not Quite Left Out to Dry: Remedies Under International Investment Treaties Available to Renewable Energy Investors Harmed by Retroactive Legislative Changes

by King & Spalding


In recent years, project developers, investment funds, and energy companies have invested heavily in renewable energy as a result of incentive programs offered in the legislation of countries such as Germany, Spain, and Italy, among others. Many governments enacted these incentive programs to encourage investors to develop and fund renewable energy projects because producing energy from renewable sources is more expensive than from conventional sources.  In addition, states are striving to achieve green energy targets as well as decrease dependency on hydrocarbons. The success of those regimes can be attributed to the states’ explicit guarantees of attractive and stable incentives over a fixed period of time, typically twenty years or more. The long-term stability of these measures was extremely important to investors because the expense of developing and operating a renewable energy facility often takes a decade or more to recover.

Currently, however, the once-booming renewable energy market in parts of Europe is at a virtual standstill. Some countries, including most notably Spain and Italy,1 have made significant, retroactive changes to their investment regimes, in some cases abolishing the very incentives that were needed to bring about the investments, in direct contravention of the stability provisions explicitly stated in the laws. For investors in the sector, the ongoing reform came as a complete surprise, jeopardizing their ability to repay initial cost outlays, much less earn an eventual profit. These unanticipated modifications have created financial hardship and uncertainty in the market; and they have left many investors wishing they had never invested in these countries.

To make matters worse, legal claims in local courts are  unlikely to provide any meaningful relief. While this leaves purely domestic investors with limited options, foreign investors should be aware of the legal remedies available to them under international investment treaties. To date, seven international arbitration proceedings have been filed against the Czech Republic, twenty-five have been filed against Spain, and dozens have been threatened against Italy. This article focuses on the specific situations facing investors in Spain and Italy.


In 2007, Spain enacted Royal Decree 661/2007, a comprehensive incentive regime that promoted investment in the renewable energy market and guaranteed investors stable and predictable feed-in tariffs for the life of their facilities.2 Encouraged by Spain’s support of renewable energy, investment in the Spanish market boomed, particularly within the photovoltaic sector. RD 661 was so successful that Spain met its short-term capacity target for photovoltaic energy in little over a year. Encouraged by the success of its incentive program, Spain followed RD 661 with another regime, promulgated in Royal Decree 1578/2008. Like RD 661, RD 1578 also guaranteed investors stable and predictable feed-in tariffs, this time for a twenty-five year period.

Having made serious strides toward reaching its international and domestic policy goals, in late 2010 Spain began making retroactive changes to its investment regimes. Initially, it enacted several measures limiting the extent to which investors could benefit from the statutorily guaranteed incentive tariffs, including what was initially thought to be a temporary moratorium on the payments as well as limits on the amount of electricity eligible for the tariffs. With the enactment of Royal Decree 9/2013 in 2013, however, Spain abolished RD 661 and RD 1578 outright. Over a year later, it promulgated Royal Decree 413/2014, an unstable regulatory regime that provides investors severely reduced tariffs compared to what Spain had originally guaranteed and that is subject to review every six years.


Starting in 2005, Italy enacted successive incentive regimes applicable to photovoltaic facilities, known as the Conto Energia Decrees. The Contos provided investors stable feed-in tariffs for energy produced from photovoltaic facilities for a period of twenty years. The Italian public energy company further guaranteed the stability of this regime by entering into contracts with each investor, guaranteeing their facilities twenty years of tariff pricing as provided in the applicable Conto. Due to the regimes’ reasonable and stable tariff rates, investors made significant investments in the Italian market, helping the state make significant strides toward achieving its renewable energy targets and policy goals.

Despite its  statutory and contractual guarantees  to investors, starting in 2008 Italy began making retroactive modifications to its investment regimes. These regulatory alterations reduced investors’ remuneration in various ways, including by exacting new administrative fees and other arbitrary measures under the guise of taxes. In 2014, Italy announced an even more draconian measure: with the enactment of Law Decree No. 91/2014, the state significantly cut the tariff rates offered to certain photovoltaic facilities, severely decreasing the revenues investors had reasonably expected when they acquired or developed those facilities.

Remedies under International Investment Treaties

In both Spain and Italy, investors have thus far been unable to obtain effective relief in domestic courts; and there is significant speculation that the courts in both jurisdictions will uphold the legislative reforms that are harming investors.3 Despite this situation, foreign investors can pursue claims under international investment treaties such as the Energy Charter Treaty (“ECT”), to which Spain and Italy are signatories.4 Like many investment treaties, the ECT obliges its member states to provide “fair and equitable treatment” to foreign investments, to refrain from expropriating rights relating to those investments, to maintain a consistent legal framework, and to observe their legal commitments and obligations to foreign investors. Should a state violate these provisions, the ECT permits investors to pursue an international arbitration proceeding to recover damages for the state’s illegal acts.

Under the ECT, investors are given the option to bring claims before an international tribunal at the International Centre for the Settlement of Investment Disputes (ICSID), the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), or in an ad hoc proceeding under the Rules of the United Nations Commission on International Trade Law (UNCITRAL). There are advantages and disadvantages to each, depending on the particular circumstances of a given investor. Furthermore, although domestic investors are generally precluded from bringing claims under the ECT, the ECT and ICSID Convention allow a domestic company to bring a claim if it is controlled by a national of another contracting party to those treaties. Moreover, for investors with claims for damages that are significant, but perhaps not large enough to warrant bringing an individual claim, it is possible for a group of investors to pursue an arbitration together.

Remedies under international investment treaties generally allow investors to recover financial damages for harm caused by a state’s illegal actions. Frequently, tribunals evaluate damages as the difference in the fair market value of the investments before and after the illegal measures. This requires consideration of a hypothetical “but for” scenario in which the state honored its commitments and the “actual” situation following the state’s illegal measures. The difference between these valuations is the damage, which is usually discounted to account for the present financial value of future cash flows.


Investors in the renewable energy sector are now confronted with a difficult situation in several European countries. Although domestic remedies hold little promise, foreign investors have viable options under international investment treaties.

To date, several dozen investors have filed twenty-five international arbitration proceedings against Spain and eleven against Italy, the Czech Republic, and Romania for retroactive changes the states have made to their renewable energy incentive regimes. That number seems to increase each week, and many more claims are expected.


1 Other states that have retroactively modified their renewable energy investment regimes include the Czech Republic, Portugal, and Romania.

2 For example, during the first twenty-five years of operation, photovoltaic facilities would receive the full feed-in tariff established in the law. Thereafter, they would receive 80% of the tariff for the duration of the plant’s operating life.

3 Investors should carefully consider their options and seek the advice of international counsel before filing a claim with a domestic court. Many investment treaties, including the Energy Charter Treaty, contain a so-called “fork-in-the-road” provision, which precludes submitting the same claim to multiple dispute resolution fora. Thus, an investor who files a complaint before a domestic court could be prohibited from raising the same claim before an international arbitral tribunal.

4 The Czech Republic, Portugal, and Romania are also signatories to the ECT, along with dozens of other countries. 




Christopher Smith
+33 1 7300 3912


Amy Roebuck Frey
+33 1 7300 3914


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© King & Spalding | Attorney Advertising

Written by:

King & Spalding

King & Spalding on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.