In this article, we focus on the arbitration award issued on 4 May, 2017 by the ICSID, regarding case nº ARB/13/36.

The claimants, Eiser Infrastructure Limited and Solar Energy Luxembourg SAREL filed an application for arbitration with the International Centre for the Settlement of Investment Disputes (Hereinafter referred to as “ICSID”), against the Kingdom of Spain, founded essentially upon the following facts and arguments.

  • The claimants invested in photovoltaic energy plants based on the economic prospects derived from the regulatory framework of Spanish Royal Decree (RD) 661/2007, which established a determined rate for energy generated and discharged into the electricity grid with a premium from the State (the so called “Feed in Tariff” or “FIT”).
  • Due to the economic crisis arising from the 2007 crash, the Spanish government was not able to bear the economic cost of paying the premiums introduced by RD 661/2007, therefore a series of legislative measures created and modified the economic structure of the claimants’ plants, furthermore the Spanish government enacted a new regulatory framework based on Law 24/2013, Royal Decree (RD) 413/2014 and Spanish Ministry of Industry, Energy and Tourism Order (Order IET)1045/
  • The new framework implied the lowering of the premiums, and consequently, a very substantial reduction of the claimant’s income, who had financed their projects with outside resources, based on the then current existing tariff structure. Thereafter, the cash flows derived from the new regulatory framework so decreased that they found it difficult to pay the
  • The claimants complained that, under the new regulatory framework, the Kingdom of Spain breached its obligations under the Energy Charter Treaty (Hereinafter referred to as “ECT”), and in particular Articles 10 and 13 thereof.

Of all the aspects of the arbitration award, it is important to emphasize and comment upon the issues related to the guarantees of the “fair and equal treatment” of investors. In other words, the ICSID determined the following:

1. As regards to the concept and possible existence of an indirect expropriation in this case, contrary to Article 13 of the ECT, the arbitration court distinguishes, as it already has done so in the case of Charanne vs. The Kingdom of Spain in 2012, that the substantial impact derived from a regulatory modification is not sufficient to give rise to an expropriation situation. Damage caused by regulatory change should be equal to a real “destruction of value” of the investment, as defined in the 2012 UNCTAD (United Nations Conference on Trade and Development) expropriation.

2. This does not guarantee investors that the legal framework is to remain unmovable. The principle of stability derived from art. 10 of the ECT cannot, and should not, be confused with the impossibility of legislative developments, especially where no specific agreements exist. States are entitled to modify their regulatory regimes to respond to both changing circumstances and a higher interest, that is to say the public interest, but only under certain conditions.

3. Regulatory changes should