AES Solar and others v. Spain

Case summary

At a glance

Parties: The PV Investors (25 companies and one individual from 14 investor groups, including AES, HgCapital, Impax, NIBC, KGAL, MEIF and Element Power) v. the Kingdom of Spain
Case no.: PCA Case No. 2012-14
Forum and rules: Ad hoc arbitration under the UNCITRAL Arbitration Rules (2010), administered by the PCA; Swiss lex arbitri; hearings at the Peace Palace, The Hague
Treaty: Energy Charter Treaty (Article 10(1))
Tribunal: Prof. Gabrielle Kaufmann-Kohler (Presiding), The Hon. Charles N. Brower, Judge Bernardo Sepúlveda-Amor
Sector: Renewable energy; solar photovoltaic (PV) plants
Outcome: Final Award of 28 February 2020: the Primary Claim was dismissed and the Alternative Claim partly upheld. Spain breached Article 10(1) ECT towards 10 of 19 Claimant entities whose return fell below 7%. Charles N. Brower dissented on the dismissal of the Primary Claim. On 30 August 2022 a Colombian court rejected a request to recognise the award.
Amount: Claimed under the Alternative Claim: about EUR 520 million in aggregate. Awarded: EUR 91.1 million in total to 10 Claimant entities, plus interest at the Spanish 10-year bond rate, compounded semi-annually, from 30 June 2014. Arbitration costs of EUR 2,467,847.78 shared equally; each side bears its own legal costs (Claimants claimed GBP 11,387,747.75; Spain claimed EUR 6,075,665.52).

The dispute

The Claimants are foreign investors who said they invested about EUR 2 billion in Spanish PV plants of about 239 MW in total. All the plants were registered in the RAIPRE before the 29 September 2008 deadline, which entitled them to the feed-in tariff under RD 661/2007. From 2010 Spain cut that regime back with RD 1565/2010 and RDL 14/2010. It then replaced the regime with the "New Measures" (RDL 2/2013, RDL 9/2013, Law 24/2013, RD 413/2014 and the June 2014 Order on Parameters), which pay a "reasonable return" of 7.398% calculated on standard installations. The Claimants' Primary Claim was that these measures breached Article 10(1) ECT: fair and equitable treatment (legitimate expectations, unreasonable and disproportionate measures, lack of transparency), stable conditions, non-impairment and full protection and security. Their Alternative Claim was that Spain in any event lowered the reasonable return below what was on offer when they invested. Spain argued that investors could only expect a dynamic "reasonable profitability" of around 7%, which the new regime still provided, and that the measures were justified by the tariff deficit and the economic crisis.

Key holdings

Primary Claim dismissed. Reasonable investors could not expect the RD 661/2007 tariff to stay unchanged for the life of their plants. They could legitimately expect only a reasonable return under Article 30.4 of the 1997 Electricity Law. That guarantee is not a cap on profits, but it marks the limit of regulatory changes that comply with the ECT. Final Award, pp. 190–191, 198–199
Apart from the reasonable-return question, the measures were not unreasonable, arbitrary or disproportionate. They responded to the tariff deficit (EUR 28.5 billion by the end of 2013) and the economic crisis, and they deserve a measure of deference. There was also no breach of transparency or of full protection and security. The EC State aid decision of 10 November 2017 did not affect these conclusions. Final Award, pp. 192–198
On the Alternative Claim, the reasonable return the Claimants could expect was about 7% post-tax. The Tribunal measured the loss with Brattle's DCF model, using an 'Alternative Tariff', a holding IRR (not an exit IRR) and an ex ante valuation date of 30 June 2014. It also used a size-reclassified marginal plant as the cost base, included the interest tax shield (Econ One's approach) and excluded developer premiums from initial investment costs (Econ One's figures). Final Award, pp. 217–257
Profits earned above 7% before the measures may not be clawed back, because that would offend the principle of non-retroactivity. Following Econ One's method, only returns above 7% are disregarded. Final Award, pp. 253–255
Ten of the 19 Claimant entities have an IRR below 7% under the measures. As to them, Spain acted unreasonably and disproportionately in breach of fair and equitable treatment. They were awarded amounts from EUR 0.1 million to EUR 29.3 million (EUR 91.1 million in total), with interest at the Spanish 10-year bond rate, compounded semi-annually, from 30 June 2014. The other nine entities received nothing. Final Award, pp. 264–267, 282–283
The Tribunal held that Article 21 ECT (taxation) does not bar its jurisdiction over the claim to gross up the award for tax. It dismissed that claim as speculative and uncertain and as not caused by Spain's breach. Final Award, pp. 269–270
Because the outcome was mixed, the arbitration costs of EUR 2,467,847.78 are borne in equal shares and each side bears its own legal fees and expenses. Final Award, pp. 279–283
Charles N. Brower agreed that Spain breached the ECT but dissented from the dismissal of the Primary Claim. He pointed out that eleven other tribunals had upheld equivalent primary claims. Using a proxy taken from Novenergia, he estimated the Claimants' damages at about €632 million instead of €91.1 million. Brower Opinion, ¶¶ 1–3, 16–17

Procedural history

28 September 2012Claimants file their Statement of Claim.
13 October 2014Preliminary Award on Jurisdiction upholds jurisdiction over 25 corporate entities and one natural person, with a concurring and dissenting opinion by Charles N. Brower dated 10 October 2014.
January 2015Claimants are given leave to amend their claim (PO8, 5 January 2015). By letter of 9 January 2015 the Tribunal refuses the European Commission's application to intervene on the intra-EU objection to jurisdiction. The Amended Statement of Claim is filed on 6 February 2015.
14–21 March 2016Hearing on liability at the Peace Palace, The Hague.
29 September 2016Procedural Order No. 12 asks the parties to quantify the Alternative Claim on a reasonable-return basis.
16–19 January 2018Hearing on the PO12 (quantum) issues in The Hague. The experts later file a joint valuation model under PO18 (5 October 2018).
15 October 2018PO19 refuses Spain's request to open a new jurisdictional phase based on the Achmea judgment.
28 February 2020Final Award: breach of Article 10(1) ECT towards 10 Claimant entities, which are awarded EUR 91.1 million in total.
28 February 2020Concurring and dissenting opinion of Charles N. Brower.
30 August 2022A Colombian court in Bogotá (Magistrate Octavio Augusto Tejeiro Duque) rejects the request of Swiss Renewable Power Partners S.A.R.L. to recognise the award, holding that Spain's immunity from jurisdiction applies.