International arbitration by the cuts to renewable energy in Spain has generated multiple legal and economic controversies over the years. The ruling issued by the International Court of Settlement of Disputes of the World Bank (ICSID) The dispute between Spain and the ABN Amro (Eiser) fund was one of the first and set important precedents in the history of these disputes.
The sentence was forceful: Spain had violated Article 10 of the Energy Charter by radically altering the regulatory framework that initially offered incentives to renewable energy, causing significant harm to investors. As a result, the court ordered Spain to pay 128 million euros, although the figure was considerably lower than the more than 300 million euros initially demanded by the plaintiffs.
Context of arbitrations and cuts to renewable energies
The conflict related to this arbitration dates back to the decisions of the Spanish government of cut renewable energy premiums, a policy that had been instrumental in attracting investment in the sector in the first decade of the 2000s. Companies such as Eiser made significant investments in solar thermal plants, trusting in the favourable regulatory framework implemented under Royal Decree 661/2007.
However, in 2010, under the PSOE government, and then in 2013 under the PP government, major reforms were carried out that drastically reduced subsidies for green energy, which caused many international investors to decide to sue Spain. These reforms were seen by investors as a violation of their legitimate expectations of profitability, especially since they were based on calculations that predicted much higher profit figures.
The Spanish government, for its part, has repeatedly argued that state sovereignty gives it the right to modify regulations when necessary, and has argued that the 2013 reform was essential to correct an unsustainable tariff deficit. Despite the disputes, the courts have repeatedly reaffirmed that sovereign law cannot be applied in a way that causes disproportionate harm to investors.
The magnitude of ongoing arbitrations
This arbitration was only the beginning of a series of lawsuits. Today, according to ICSID and other international sources, Spain faces more than 52 arbitrations in international courts related to cuts in renewable energy, making the country one of the most sued in the world, along with Argentina, Russia and Venezuela. The total amount of lawsuits filed exceeds 10.000 billion euros.
So far, international courts have ruled in favor of investors in 25 of the 34 lawsuits resolved, although in some cases Spain has subsequently managed to annul the awards, as was the case with the Eiser award worth €128 million, which was annulled by ICSID due to a conflict of interest.
Another recent example includes the case of EBL, a Swiss company that sued Spain for €175 million in compensation due to the 2013 reform. In this case, ICSID ruled in favour of Spain, arguing that the claims were unfounded and forcing the claimants to cover Spain's legal costs.
The future of arbitration
Despite the legal victories, Spain continues to face a large number of unpaid awards. According to data from the Ministry for the Ecological Transition, of the 52 arbitrations filed, 34 awards have already been issued; Of these, three have been annulled, seven have been won by Spain and 25 have been ruled in favour of the investors. The State's legal services have managed to significantly reduce the compensation demanded to 84% of the initial request.
A key factor in these disputes has been the Energy Charter Treaty (TCE), a multilateral agreement aimed at protecting investments in the energy sector, which most of the claimants have opted to use. However, the validity of arbitrations based on the ECT has been questioned after the Court of Justice of the European Union declared that these arbitrations were incompatible with Community law in cases of intra-EU disputes. This fact has allowed Spain to annul some awards issued, especially in Swedish courts.
In December 2023, Spain took a further step by announcing its withdrawal from the ECT, although the treaty stipulates that investments made before its withdrawal will be protected for a further 20 years. To date, none of the major compensations The sums awarded in arbitrations against the country have been paid, in part because the European Commission ordered Spain not to pay until it is determined whether the bonuses constitute illegal State aid.
Elecnor and its role in investments
An important player in the development of renewable infrastructure in Spain has been ELEC, a business group that is involved in these lawsuits. Elecnor has been a partner of Eiser in the investments related to the solar thermal plants that motivated Eiser's initial claim before the ICSID. With more than 60 years in the energy and infrastructure sector, Elecnor remains one of the main players in renewable energy projects both in Spain and internationally.
Elecnor's diversification of activities over the years has allowed the company to continue to move forward, despite litigation and pay cuts in Spain. With a presence in more than 50 countries and a strong focus on renewable energy and new technologies, Elecnor has managed to maintain its position as one of the most influential groups in the global energy sector.
The reshaping of Spain's energy landscape, driven by legal and tax reforms in the sector, together with ongoing international litigation, has important implications for the country's future as a destination for clean energy investments. Disputes related to the 2010 and 2013 reforms are likely to continue in the courts for several more years, with the possibility that new investors may decide to opt for arbitration if they do not find a solution to their claims through administrative or judicial means in the country.