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Lawyers, other representatives, expert(s), tribunal’s secretary

Final Award

I. INTRODUCTION AND PARTIES

1.
This case concerns a dispute submitted to the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) on the basis of the Energy Charter Treaty (ECT), which entered into force on 16 April 1998 for Luxembourg, Italy, Denmark and the Kingdom of Spain.
2.
The claimants are:

(a) Foresight Luxembourg Solar 1 S.à.r.l. (Foresight 1) and Foresight Luxembourg Solar 2 S.à.r.l. (Foresight 2), which are private limited liability companies (société à responsabilité limitée) incorporated under the laws of Luxembourg, under the registration numbers B0146200 and B0151603, respectively;1

(b) GWM Renewable Energy I S.p.A. (GWM I), a public company duly incorporated under the laws of Italy and listed in the commercial register in Rome under the registration number RM - 1305360,2 and GWM Renewable Energy II S.p.A., which was originally incorporated under the laws of Italy and listed in the commercial register in Rome under the registration number RM - 1305410 but has since the filing of the Request for Arbitration changed its form into a limited liability company known as GWM Renewable Energy II S.r.l. (GWM II).3 On 30 June 2014, GWM I owned 71% of GWM II; and

(c) Greentech Energy Systems A/S (Greentech), a publicly-listed company duly incorporated under the laws of Denmark and listed in the Danish commercial register under the registration number 36696915.4 On 30 June 2014, GWM II owned 71% of Greentech.5

(Foresight 1, Foresight 2, GWM I, GWM II, and Greentech, together: Claimants)

3.
The Respondent is the Kingdom of Spain (Spain or Respondent).
4.
The dispute concerns legislative and regulatory measures enacted by Spain relating to the renewable energy sector in that country.

II. PROCEDURAL HISTORY

5.
The Tribunal sees no need to recapitulate the entirety of the correspondence with counsel for the Parties over the course of these proceedings. All procedural orders have been reduced to writing and no useful purpose would be served by reproducing or summarizing them in this section of the Award. The key procedural events in the course of this arbitration are set out below.

A. The Request and Constitution of the Tribunal

6.
The Claimants commenced these proceedings by Request for Arbitration dated 2 November 2015.
7.
In their Request for Arbitration, the Claimants invoked Article 26 of the ECT, which provides as follows:

ARTICLE 26

SETTLEMENT OF DISPUTES BETWEEN AN INVESTOR AND A CONTRACTING PARTY

(1) Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably.

(2) If such disputes can not be settled according to the provisions of paragraph (1) within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution:

(a) to the courts or administrative tribunals of the Contracting Party to the dispute;

(b) in accordance with any applicable, previously agreed dispute settlement procedure; or

(c) in accordance with the following paragraphs of this Article.

(3) (a) Subject only to subparagraphs (b) and (c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article.

(b) (i) The Contracting Parties listed in Annex ID do not give such unconditional consent where the Investor has previously submitted the dispute under subparagraph (2)(a) or (b).

(ii) For the sake of transparency, each Contracting Party that is listed in Annex ID shall provide a written statement of its policies, practices and conditions in this regard to the Secretariat no later than the date of the deposit of its instrument of ratification, acceptance or approval in accordance with Article 39 or the deposit of its instrument of accession in accordance with Article 41.

(c) A Contracting Party listed in Annex IA does not give such unconditional consent with respect to a dispute arising under the last sentence of Article 10(1).

(4) In the event that an Investor chooses to submit the dispute for resolution under subparagraph (2)(c), the Investor shall further provide its consent in writing for the dispute to be submitted to:

[...]

(c) an arbitral proceeding under the Arbitration Institute of the Stockholm Chamber of Commerce.

[…]

(6) A tribunal established under paragraph (4) shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law.

8.
The Claimants confirmed their consent to arbitration under the ECT and submitted their dispute to the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) in accordance with Article 26(4)(c) of the ECT.
9.
Accordingly, the procedural rules of this arbitration are the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce, adopted by the SCC and in force as of 1 January 2010 (SCC Rules).
10.
On 3 December 2015, the Respondent served the Claimants with its Answer to the Request for Arbitration.
11.
The Tribunal is composed of Dr Michael Moser, appointed by the SCC as Chairperson pursuant to Article 13 of the SCC Rules; Professor Dr Klaus Sachs, appointed by the Claimants; and Dr Raúl Emilio Vinuesa, appointed by the Respondent.
12.
On 15 February 2016, the SCC determined pursuant to Article 20 of the SCC Rules that the seat of the arbitration is Stockholm, Sweden. In accordance with Article 20(2) of the SCC Rules, the Parties have agreed to hold hearings in Paris, France.
13.
On 5 May 2016, the First Session of the Arbitral Tribunal was held.
14.
On 21 November 2017, Mr Paul Barker was appointed Administrative Secretary to the Tribunal with the agreement of the Parties.

B. First Procedural Conference

15.
On 5 May 2016, the First Procedural Conference was convened by the Tribunal with representatives of the Parties via teleconference.
16.
Following the First Procedural Conference, on 10 May 2016, the Chairperson, on behalf of the Tribunal, issued Procedural Order No. 1 (PO1), which records inter alia: the general procedural rules for the arbitration; the Procedural Timetable and provisional dates for the hearing; the procedural rules applicable to written submissions, document production, non-expert evidence and expert evidence for all hearings; and the logistical arrangements for the hearing.
17.
PO1 also established that the Parties have agreed that English and Spanish are the procedural languages of the arbitration.

C. The Parties' Written Submissions and Procedural Applications

18.
On 30 September 2016, the Claimants submitted their Statement of Claim (SoC), accompanied by: (i) the Witness Statements of Mr Alessandro Reitelli (Reitelli 1st), Mr Federico Giannandrea (Giannandrea 1st), Mr Gabriele Bartolucci (Bartolucci 1st), and Mr Jamie Richards (Richards 1st), respectively; and (ii) the Expert Reports of Professor Manuel Aragón Reyes (Aragón 1st), Dr Boaz Moselle and Dr Dora Grunwald (Moselle/Grunwald 1st), Mr Richard Edwards (Edwards 1st), and Mr Jaume Margarit (Margarit 1st), respectively.
19.
On 17 February 2017, the Respondent submitted its Counter-Memorial on the Merits and Memorial on Jurisdictional Objections (Counter-Memorial/Jurisdictional Memorial), accompanied by: (i) the Witness Statement of Mr Carlos Montoya (Montoya 1st); and (ii) the Expert Reports of BDO (BDO 1st), and of Professors Dr. Pablo Pérez Tremps and Dr. Marcos Váquer Caballería (Tremps/Váquer 1st), respectively.
20.
On 21 April 2017, the Parties submitted their respective document production requests to the Tribunal in the form of Redfern Schedules.
21.
On 4 May 2017, the Tribunal issued Procedural Order No. 2 containing the Tribunal's Ruling on Requests for Document Production.
22.
On 2 June 2017, the Parties produced documents as ordered by the Tribunal.
23.
On 21 July 2017, the Claimants submitted their Reply Memorial on the Merits and Counter-Memorial on Jurisdiction (Reply/Counter-Memorial), accompanied by: (i) the Second Witness Statements of Mr Alessandro Reitelli (Reitelli 2nd), Mr Federico Giannandrea (Giannandrea 2nd), Mr Gabriele Bartolucci (Bartolucci 2nd), and Mr Jamie Richards (Richards 2nd), respectively; and (ii) the Second Expert Reports of Professor Manuel Aragón Reyes (Aragón 2nd), Dr Boaz Moselle and Dr Dora Grunwald (Moselle/Grunwald 2nd), Mr Richard Edwards (Edwards 2nd), and Mr Jaume Margarit (Margarit 2nd), respectively.
24.
On 1 November 2017, the Respondent submitted its Rejoinder on the Merits and Reply on Jurisdiction (Rejoinder/Reply), accompanied by: (i) the Second Witness Statement of Mr Carlos Montoya (Montoya 2nd); and (ii) the Second Expert Reports of BDO (BDO 2nd), and of Professors Dr Pablo Pérez Tremps and Dr Marcos Váquer Caballería (Tremps/Váquer 2nd), respectively. In its Rejoinder and Reply, the Respondent withdrew one of the jurisdictional objections made in its Counter-Memorial/Jurisdictional Memorial concerning the Claimants' claim for damages.6
25.
On 10 November 2017, the Claimants submitted their Rejoinder on Jurisdiction (Rejoinder on Jurisdiction).
26.
On 18 January 2018, the Tribunal issued Procedural Order No. 3 concerning the organization of the oral hearing.

D. The Non-Disputing Party Application

27.
On 3 March 2017, the European Commission (Commission) applied to the Tribunal for leave to intervene as a non-disputing party (Commission's Application).
28.
On 7 March 2017, the Tribunal invited the Parties to comment on the Commission's Application by 17 March 2017.
29.
On 17 March 2017, the Claimants submitted their Response to the Commission's Application and the Respondent submitted its Observations on the Commission's Application, respectively.
30.
On 27 March 2017, the Tribunal issued its Decision on the Commission's Application for Leave to Intervene as a Non-Disputing Party, granting the Commission leave to file a written amicus curiae submission and denying the Commission leave to present its views at any oral hearing.
31.
On 29 June 2017, the Tribunal granted the Commission's request to file an amicus curiae brief on issues of jurisdiction in the arbitration.
32.
On 20 July 2017, the Commission filed its amicus curiae brief (Amicus Brief).

E. The Oral Procedure

33.
On 22-26 January 2018, the Hearing on Jurisdiction and Merits (Hearing) was held at the ICC's hearing facility in Paris.
34.
The following persons were present at the Hearing:

Tribunal

Dr. Michael Moser President

Prof. Dr. Klaus Michael Sachs Co-Arbitrator

Dr. Raúl Emilio Vinuesa Co-Arbitrator

Administrative Secretary to the Tribunal

Mr. Paul Barker

For the Claimants

Counsel:

Mr. Kenneth R. Fleuriet King & Spalding

Mr. Reginald R. Smith King & Spalding

Mr. Kevin D. Mohr King & Spalding

Ms. Héloïse Hervé King & Spalding

Mr. Enrique J. Molina King & Spalding

Ms. Isabel San Martin King & Spalding

Mr. Antoine Weber King & Spalding

Mr. Luis Antonio Gil Bueno Gómez-Acebo & Pombo

Ms. Inés Vázquez García Gómez-Acebo & Pombo

Ms. Beatriz Fernández-Miranda de León Gómez-Acebo & Pombo

Parties:

Mr. Jamie Richards Foresight Group, Partner

Mr. Federico Giannandrea Foresight Group, Partner

Mr. Gabriele Bartolucci GWM Group and Greentech Energy Systems A/S, General Counsel

Mr. Alessandro Reitelli Greentech Energy Systems A/S, CEO

Witnesses:

Mr. Jamie Richards Foresight Group, Partner

Mr. Gabriele Bartolucci GWM Group and Greentech Energy Systems A/S, General Counsel

Experts:

Mr. Jaume Margarit Independent Consultant, formerly Director of Renewable Energy at the IDAE

Dr. Manuel Aragón Reyes Autonomous University of Madrid (Professor of Constitutional Law)

Dr. Boaz Moselle Cornerstone Research

Dr. Dora Grunwald FTI Consulting

Mr. Richard Edwards FTI Consulting

Mr. Joel Franks FTI Consulting

Ms. Kristina Danilova FTI Consulting

Mr. Jose Alzate FTI Consulting

For the Respondent

Counsel:

Diego Santacruz Descartín Abogacía General del Estado

Antolín Fernández Antuña Abogacía General del Estado

Elena Oñoro Sáinz Abogacía General del Estado

Mónica Moraleda Saceda Abogacía General del Estado

Yago Fernández Badía Abogacía General del Estado

Patricia Iglesias Rey Abogacía General del Estado

Parties:

Raquel Vázquez Meco Instituto para la Diversificación y Ahorro

Energético

Witness:

Carlos Montoya Rasero Instituto para la Diversificación y Ahorro

Energético

Experts:

Professor Dr. Pablo Pérez Tremps Universidad Carlos III de Madrid

Professor Dr. Marcos Váquer Caballería Universidad Carlos III de Madrid

Eduardo Pérez Ruíz BDO

Javier Espel BDO

David Mitchell BDO

Susan Blower BDO

Manuel Alejandro Vargas BDO

35.
The following persons were examined during the Hearing:

Mr. Jamie Richards Foresight Group, Partner

Mr. Gabriele Bartolucci GWM Group and Greentech Energy Systems A/S, General Counsel

Mr. Jaume Margarit Independent Consultant, formerly Director of Renewable Energy at the IDAE

Dr. Manuel Aragón Reyes Autonomous University of Madrid (Professor of Constitutional Law)

Dr. Boaz Moselle Cornerstone Research

Dr. Dora Grunwald FTI Consulting

Mr. Richard Edwards FTI Consulting

Mr. Carlos Montoya Rasero Instituto para la Diversificación y Ahorro Energético

Professor Dr. Pablo Pérez Tremps Universidad Carlos III de Madrid

Professor Dr. Marcos Váquer Caballería Universidad Carlos III de Madrid

Mr. Eduardo Pérez Ruíz BDO

Mr. David Mitchell BDO

36.
On 6 April 2018, the Claimant submitted the Hearing transcripts with corrections agreed by the Parties.

F. The Post-Hearing Procedure

37.
On the final day of the Hearing, the Tribunal directed that the Parties simultaneously exchange post-hearing briefs on 18 May 2018 and reply posthearing briefs on 8 June 2018. The Tribunal further directed the Parties to simultaneously exchange costs submissions on 22 June 2018.
38.
On 2 February 2018, further to discussions between the Parties and the Tribunal at the conclusion of the Hearing on 26 January 2018, the Claimants made an application to the Tribunal in respect of (i) calculations requested of BDO during cross examination at the Hearing; and (ii) new calculations submitted in slide 36 of BDO's presentation at the Hearing. On 9 February 2018, the Respondent submitted comments on the Claimants' application, in which the Respondent raised objections to the Claimants' requests. On 14 February 2018, the Tribunal directed the Respondent to provide the Claimant with the information and calculations requested but denied the Claimants' request that BDO slide 36 be excluded from the record.
39.
On 5 April 2018, the Respondent wrote to the Tribunal requesting that the final judgment of the Court of Justice of the European Union in Slowakische Republik v Achmea BV dated 6 March 2018 (Achmea) be entered into the record and that the Parties be permitted to make comments on the judgment in their post-hearing brief.7 On 12 April 2018, the Claimants wrote to the Tribunal confirming their agreement to enter the Achmea judgment into the record on condition that the recent ECT award in Novenergia II - Energy & Environment (SCA), SICAR v. Kingdom of Spain (Novenergia) also be entered into the record.8 On 18 April 2018, the Tribunal admitted the new cases into the record.
40.
On 18 May 2018, the Parties exchanged post-hearing briefs (Claimants' PHB and Respondent's PHB, respectively). The Respondent also submitted BDO's responses to the Claimants' questions pursuant to the Tribunal's order of 14 February 2018 (Supplemental BDO Report). In their cover letter submitting their post-hearing brief, the Claimants notified the Tribunal that the award in Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain (Masdar), which addresses the Achmea judgment, had been made public earlier that same day.9 The Claimants stated their intention to address the Masdar award in their reply post-hearing brief.
41.
On 13 June 2018, the Parties exchanged reply post-hearing briefs (Claimants' Reply PHB and Respondent's Reply PHB, respectively).
42.
On 14 June 2018, the Respondent wrote to the Tribunal to complain that the Claimants' submissions in their reply post-hearing brief on the Masdar award amounted to "ambush" in violation of PO1. On 19 June 2018, the Claimants wrote to the Tribunal, pointing out inter alia that they had in their cover letter of 18 May 2018 given the Respondent notice of their intention to address the Masdar award. On 22 June 2018, the Tribunal wrote to the Parties stating that the Masdar award is admitted into the record and granting the Respondent until 25 June 2018 to submit brief comments on the Masdar award.
43.
On 21 June 2018, the Respondent wrote to the Tribunal alleging that the Claimants had violated PO1 by disclosing information regarding the Respondent's document production in this arbitration to the law firm Allen & Overy, who act as counsel for investors in other renewables arbitrations against Spain. On 26 June 2018, the Claimants wrote to the Tribunal to deny that they had violated PO1 or any other applicable rule. On 28 June 2018, the Tribunal wrote to the Parties stating that it had noted the points advanced and had decided to make no order.
44.
On 25 June 2018, the Respondent submitted its Comments on the Masdar award.
45.
On 27 June 2018, the Parties submitted their costs submissions to the Tribunal.
46.
On 27 June 2018, the Respondent wrote to the Tribunal requesting that the Claimants provide additional information as to their costs submission.
47.
On 6 July 2018, the Claimants wrote to the Tribunal stating that they had provided the necessary information in relation to their legal fees and requesting that the Tribunal deny the Respondent's request of 27 June 2018.
48.
On 13 July 2018, the Tribunal wrote to the Parties stating that the issue of costs would be dealt with in the Final Award. The Tribunal declined to make any further order at that time.
49.
On 19 October 2018, the Tribunal declared the proceeding closed.

III. THE ENERGY CHARTER TREATY

50.
The ECT was signed in December 1994 and entered into force in April 1998. The ECT has been signed or acceded to by fifty-two states (including Luxembourg, Italy, Denmark and Spain), the European Union (EU) and Euratom.
51.
The Energy Charter Secretariat's Guide summarizes the ECT's purpose in the following way:

According to Article 2 of the ECT, the purpose of the Treaty is to establish a legal framework in order to promote long-term cooperation in the energy field, based on complementarities and mutual benefits, in accordance with the objectives and principles of the Energy Charter. It is a milestone in international energy cooperation. By creating a stable, comprehensive and nondiscriminatory legal foundation for cross-border energy relations, the ECT reduces political risks associated with economic activities in transition economies. It creates an economic alliance between countries with different cultural, economic and legal backgrounds, but all united in their commitment to achieve the following common goals:

• To provide open energy markets, and to secure and diversify energy supply;

• To stimulate cross-border investment and trade in the energy sector;

• To assist countries in economic transition in the development of their energy strategies and of an appropriate institutional and legal framework for energy, and in the improvement and modernisation of their energy industries.10

IV. FACTUAL BACKGROUND

52.
The Tribunal will begin by summarizing the factual background to this dispute, including the applicable Spanish legal framework, the Claimants' investments in Spain, and the disputed measures.

A. Overview

53.
The Claimants' claims concern certain legislative and regulatory measures introduced by Spain since 2007 to support investment in renewable electricity generation. The measures were intended to enable Spain to meet national and EU level targets for electricity generation from renewable energy. In particular, Directive 2001/77/EC of the European Parliament and Council of 27 September 2001 (Directive 2001/77/EC) set Spain an indicative target for electricity energy generation from renewables at 29.4% of total electricity consumption by 2010.11 Pursuant to Directive 2009/28/EC of the European Parliament and Council of 23 April 2009 (Directive 2009/20/EC), this indicative target was later replaced by a mandatory target for renewable energy consumption set at 20% of Spain's total energy consumption by 2020.12 These EU directives were transposed by Spain into its domestic law; as a Member State of the EU, Spanish law is rooted in fundamental criteria established by EU law.13 The broader context of the EU's and Spain's measures was the international effort to reduce greenhouse gas emissions, most notably in the Kyoto Protocol 1997, pursuant to which signatories, including the EU and Spain, accepted ambitious targets for emissions reductions.
54.
Between 8 May 2009 and 7 May 2010,14 the Claimants acquired Spanish companies that operated three solar photovoltaic (PV) facilities registered under Royal Decree 661/2007 (RD 661/2007),15 a renewables support scheme enacted by Spain to achieve its renewable electricity target under Directive 2001/77/EC. Two salient features of RD 661/2007 were that it established fixed Feed in Tariffs (FiTs) for qualifying PV facilities - ostensibly to be paid for the lifetime of the facility - and priority of access and dispatch to the electricity grid.
55.
It is important to appreciate that RD 661/2007 was a regulatory instrument and therefore subordinate as a matter of Spanish law to the relevant Act of Parliament (Law) that established the general regulatory framework for the Spanish electricity system (SES). That was Law 54/1997, which liberalized the SES and updated the parameters of Spain's legal regime, both for conventional energy generation (termed the "Ordinary Regime") and for renewable energy production and supply (the "Special Regime").16 The RD 661/2007 support scheme operated within the broad framework established by Law 54/1997. Of particular relevance to the Parties' dispute, Law 54/1997 also provided that investors under the Special Regime would receive a "reasonable rate[] of return with regard to the cost of money in the capital markets".17 However, Law 54/1997 did not specify what this reasonable rate of return should be. That was left to regulations like RD 661/2007.
56.
RD 661/2007 succeeded in attracting significant investment in renewables; within just four months of its enactment, installed PV capacity reached 85% of the target set by RD 661/2007.18 But RD 661/2007 also coincided with - and indeed exacerbated - a widening gap between regulated electricity access charges (i.e. the amount retail customers paid for their electricity) and the regulated costs of the SES (which includes the costs of renewables support schemes). This shortfall is known as the "tariff deficit".
57.
The Claimants take issue with a number of measures that were subsequently enacted by Spain, purportedly to eliminate the tariff deficit. The Claimants contend that these measures materially reduced the returns on their investments. In particular, between 2010 and 2013, Spain modified the incentives available to PV facilities registered under RD 661/2007. Then, in 2013-2014, Spain repealed and replaced RD 661/2007 with what the Claimants term the "New Regulatory Regime", which inter alia replaced the fixed FiTs for PV facilities with remuneration designed to achieve a "reasonable rate of return" for a "standard plant" of the relevant type, as defined by Spain. The "reasonable rate of return" was initially set by Spain at the ten-year average of Spanish Government bond yields plus 3%, which was 7,398% (pre-tax). However, the Respondent contends that the New Regulatory Regime in fact maintained the essential characteristics of RD 661/2007, including the payment of a "subsidy" and priority of access to the grid.
58.
The key measures at issue in this arbitration are summarized in the following table:

LegislationMeasureDate
Renewables support scheme in which Claimants' PV facilities were enrolled RD 661/200719 For registered PV facilities, established inter alia: (i) fixed FiTs that were not linked to market rate movements; (ii) targets for installed PV capacity; and (iii) priority grid access. Closed to new entrants on 29 September 2008. RD 661/2007 was replaced on 26 September 2008 by RD 1578/2008, which established new, lower FiTs and annual capacity quotas for PV facilities registered after 29 September 2008. 25 May 2007
Disputed measures modifying incentives under RD 1565/201020 Duration of RD 661/2007 FiTs reduced from lifetime of PV facility to 25 years (subsequently extended to 28 years by RDL 14/2010 and to 30 years by Law 2/2011). 19 November 2010

RD 661/2007(and underRD 1578/2008) RDL 14/201 021 Imposes cap on annual production (operating hours) for which PV facilities entitled to receive FiTs. Introduces access toll of 0.5 €/MWh for electricity fed into the grid. 23 December 2010
Law 15/201222 Introduction of 7% tax on electricity generation revenue. 27 December 2012
RDL 2/201323 Changes inflation index used to update FiTs annually from the general CPI to CPI at constant taxes excluding unprocessed food and energy products. 1 February 2013
Disputed measures repealing and replacingRD 661/2007(and RD 1578/ 2008) support schemeDescribed byClaimants as the "New RegulatoryRegime" RDL 9/201324 Repeals the RD 661/2007 and RD 1578/2008 support schemes. Nevertheless, RD 661/2007 and RD 1578/2008 remuneration schemes remained in place pending elaboration in June 2014 of the "New Regulatory Regime" (see RD 413/2014 and MO 1045/2014 below). However, all remuneration paid between July 2013 and June 2014 under RD 661/2007 and RD 1578/2010 schemes was made subject to claw-back under the New Regulatory Regime. 12 July 2013
Law 24/20 1 325 Reforms regulatory framework. Explicitly recognizes the "principle of economic sustainability" of the SES. 26 December 2013
RD 413/2014; MO 1045/201426 Replaces FiT for PV facilities registered under RD 661/2007 and RD 1578/2008 with remuneration at a "reasonable rate of return" applicable to the relevant type of "standard plant", based on the 10-year average of Spanish Government bond yields plus 3% (initially, 7,398% pre-tax). 6 June 2014; 16 June 2014

60.
The background facts pertaining to these measures, as well as the broader regulatory framework, are discussed in greater specificity under sub-sections B and D below.

B. Regulatory Framework

(1) Hierarchy of regulatory measures under Spanish law

61.
The SES is regulated under Spanish law by the following instruments, in order of hierarchy: (i) the Spanish Constitution of 1978; (ii) Acts of the Spanish Parliament; (iii) Royal Decree-Laws, which have the force of an Act and may be enacted by the Government in situations of extraordinary need or urgency; (iv) Royal Decrees, which are regulations issued by the Government pursuant to powers granted by an Act; (v) Ministerial Orders, which are issued by ministerial departments (such as the Ministry of Industry, Energy and Tourism) to implement Royal Decrees; and (vi) Resolutions, which are issued by Government to also implement Royal Decrees. Finally, in the context of the SES, there are renewable energy plans, which are regulatory standard-setting instruments drawn up by the regulator.

(2) Evolution of Spain's renewable energy regulatory framework prior to the disputed measures

62.
Spain has a longstanding commitment to the promotion of renewable energy. In 1994, Spain enacted RD 2366/1994 creating the Special Regime, which is the name given to Spain's legal framework for qualifying renewable energy facilities.27
63.
The Tribunal summarizes below the relevant key legislative and regulatory developments that occurred prior to the disputed measures, from Spain's liberalization of its electricity market in late 1997 to the enactment of the RD 661/2007 support scheme under which the Claimants' PV facilities were registered.

(i) Law 54/1997

64.
In November 1997, Spain enacted Law 54/1997 to transpose into Spanish law EU Directive 96/92/EC on the internal market in electricity. To that end, Law 54/1997 liberalized Spain's electricity sector - particularly energy generation (production) and supply - and also committed Spain to produce 12% of its total energy demand from renewables by 2010.28
65.
Law 54/1997 established the essential characteristics of Spain's regulatory framework governing the electricity sector, as well as the limits of the regulatory power of the Spanish government.29 Notwithstanding the creation of a free market system, Law 54/1997 provided that incentives would be offered in order to promote investment in renewable energy facilities. Specifically, Law 54/1997 provided that remuneration of electricity producers under the Special Regime would be supplemented by a "premium" that would be established in subsequent regulations so as to achieve "reasonable rates of return with regard to the cost of money in the capital market."30
66.
In order to achieve its 12% renewables target by 2010, Law 54/1997 called for the drawing up of a renewable energies promotion plan that would be taken into account in the setting of the premiums for renewable energy producers.31

(ii) Royal Decree 2818/1998

67.
In December 1998, Spain enacted Royal Decree 2818/1998 to implement the specific parameters of Law 54/1997 applicable to the Special Regime, including a remuneration framework whereby renewable electricity producers could elect to receive either: (i) a FiT for each kWh produced; (ii) or a premium to the market price of the energy produced.32 RD 2818/1998 did not prescribe specific levels of remuneration for an individual facility.

(iii) 2000-2010 Renewable Energies Promotion Plan (1999 PER)

68.
Pursuant to the requirement under Law 54/1997, in December 1999 a renewable energies promotion plan for the 2000-2010 period (1999 PER) was prepared by the Institute for Energy Diversification and Savings (IDAE), an agency of the Spanish government. The plan proposed that a remuneration scheme be developed through regulations in order to meet the EU's indicative target that Spain produce 12% of its total energy demand from renewables by 2010. On 30 December 1999, the plan was approved by Spain's Council of Ministers.

(iv) Royal Decree 436/2004

69.
On 27 September 2001, the European Parliament and Council adopted Directive 2001/77/EC, which set Spain an indicative target for renewable energy generation at 29.4% of total electricity consumption by 2010.
70.
However, the RD 2818/1998 support scheme failed to attract a sufficient level of investment in renewable energy for Spain to meet its targets. By 2004, Spain had achieved only 56.2% of its 2006 objective for renewable electricity production, and only 28.4% of its target for 2010.33
71.
In February 2003, the Renewable Energies' Producers Association (APPA), which represents over 500 Spanish renewable energy companies, published a report that recommended improvements to the RD 2818/1998 support scheme. APPA recommended that: (i) incentives for certain technologies, including solar PV, be increased in order to guarantee an adequate return on investment; and (ii) incentives be explicitly guaranteed for the life of the investment.34
72.
In April 2003, Spain's energy regulator, the National Energy Commission (CNE), likewise concluded that it was necessary to increase remuneration and also to guarantee incentives throughout the facilities' useful life, in order to encourage sufficient investment and hit Spain's renewables targets.35
73.
In March 2004, Spain enacted RD 436/2004, a new renewables support scheme that addressed several perceived shortcomings of RD 2818/1998. The purpose of RD 436/2004 as articulated in its preamble was to provide "security and stability" and to establish a "long-lasting, objective, transparent regulatory framework" in order to promote investment in renewable electricity generation.36
74.
Like RD 2818/1998, RD 436/2004 gave eligible electricity producers the option to elect to receive either: (i) a FiT; or (ii) the market price plus an incentive for participating in the market and premium.37 RD 436/2004 also continued to guarantee that producers would receive a "reasonable remuneration".38
75.
In order to incentivize investors, RD 436/2004 revised the rate scale for FiTs, premiums and incentives. For example, PV facilities of 100kW or smaller received an almost 95% increase in FiT rates.39 However, the FiT rates were not fixed but were set as percentages of the "Average Electricity Tariff" (AET), which was an index determined annually by Spain based on a complex set of variables affecting the cost of the electricity system, including the cost of the renewables support scheme itself. Spain only subsequently realised that the linking of the FiTs to this index created a "feedback loop" whereby growth in renewable energy generation led to an increase in the AET, which in turn led to an increase in the FiTs even if the cost per kWh produced did not increase.40
76.
Notably, RD 436/2004 introduced a provision that any future revisions to the FiTs, premiums and incentives would not apply to facilities already registered and in operation under the support scheme.41

(v) Renewable Energies Plan 2005-2010 (2005 PER)

77.
In August 2005, a Renewable Energies Plan for the period 2005-2010 (2005 PER) prepared by IDAE was approved by the Council of Ministers. The 2005 PER revised the 1999 PER and acknowledged the insufficient growth of Spain's renewable electricity capability.42 In order to meet Spain's target of 29.4% share of renewables in total electricity consumption by 2010 in light of a projected growth in energy demand, the 2005 PER increased Spain's installed PV capacity target for 2010 from 144 MW to 400 MW.43 The 2005 PER also projected that PV electricity generation would require €1,875 billion in total capital investment, of which amount nearly 80% would be debt financed.44

(vi) Royal Decree 661/2007

78.
Like RD 2818/1998 before it, RD 436/2004 failed to attract the level of investment in renewable energy necessary for Spain to meet its 2010 targets. The shortfall in PV investment was pronounced; whereas the 2005 PER targeted a PV capacity of 400 MW by 2010, Spain's installed PV capacity as of 2006 was 84 MW.45
79.
Consequently, Spain decided to reform the RD 436/2004 support scheme. In February 2007, the CNE published a report on the draft regulations that would later become RD 661/2007. The CNE observed inter alia that economic incentives were necessary to promote the development of renewables and that "[i]n certain cases, differentiated incentives are justified that lead to higher returns, so that the objectives set in the planning can be achieved."46 The CNE also called for the draft regulations to be amended to include "sufficient guarantees to ensure that the economic incentives are stable and predictable throughout the entire life of the facilities...."47
80.
On 27 May 2007, Spain enacted the new regulation, RD 661/2007, which repealed and replaced RD 436/2004.
81.
RD 661/2007 introduced several changes to the incentives available to qualifying renewable electricity producers under the Law 54/1997 general regulatory framework. Unlike the RD 2818/1998 and RD 436/2004 support schemes, PV facilities registered under RD 661/2007 were entitled only to a FiT and were not given the option to receive a premium. But whereas incentives under RD 436/2004 were based on the AET index - which was determined annually by Spain - RD 661/2007 fixed the FiT in absolute numbers (c€/kWh), based on the facility's total electricity generation capacity, for the whole life of a facility.
82.
Annex V of RD 661/2007 contains the following table setting out the FITs offered to qualifying PV facilities ("Category b 1.1"), sub-grouped by power output of the facility.

Tabla 3
Grupo Subgrupo Potencia Plazo Tarifa regulada c€/kWh
b.1 b.1.1 P≤100 kW primeros 25 años 44,0381
a partir de entonces 35,2305
100 kW primeros 25 años 41,7500
a partir de entonces 33,4000
10 primeros 25 años 22,9764
a partir de entonces 18,3811

83.
For each sub-group, there is a fixed FiT that applies for the first 25 years of a PV facility's operations which is then reduced to 80% of the original tariff for the remaining life of the facility. The fixed FiT would be adjusted annually for inflation based on the Consumer Price Index.48 RD 661/2007 does not explain the methodology by which the fixed FiTs are arrived at.
84.
For PV facilities with a power output of between 100 kW and 10 MW, the fixed FiT rate in RD 661/2007 represented an almost 82% increase as compared to the corresponding FiT under RD 436/2004.49 However, the value of FiTs for PV facilities producing less than 100 kW or more than 10 MW of power remained virtually unchanged under RD 661/2007.50
85.
RD 661/2007 also granted renewable producers, including PV facilities, priority of dispatch and grid access, meaning that they could sell and transmit electricity whenever it was produced.51
86.
RD 661/2007 provided that Spain would review the fixed FiT rates in 2010 and every four years thereafter. Like RD 436/2004, RD 661/2007 required that any revisions to the FiT rates would guarantee a reasonable rate of return by reference to the cost of money in the capital markets and would not apply to facilities already enrolled in the support scheme. In full, the relevant provision of RD 661/2007, Article 44.3, reads as follows:

During the year 2010, [in view] of the results of the monitoring reports on the degree of fulfillment of the Renewable Energies Plan (PER) 2005-2010, and of the Energy Efficiency and Savings Strategy in Spain (E4), together with such new targets as may be included in the subsequent Renewable Energies Plan 2011-2020, there shall be a review of the tariffs, premiums, supplements and lower and upper limits defined in this Royal Decree with regard to the costs associated with each of these technologies, the degree of participation of the [S]pecial [R]egime in covering the demand, and its impact on the technical and economic management of the system, and a reasonable rate of profitability shall always be guaranteed with reference to the cost of money in the capital markets. Subsequently a further review shall be performed every four years, maintaining the same criteria as previously.

The revisions to the regulated tariff and the upper and lower limits indicated in this paragraph shall not affect facilities for which the deed of commissioning shall have been granted prior to 1 January of the second year following the year in which the revision shall have been performed.52

87.
Likewise, in a press announcement on RD 661/2007, Spain stated that:

The tariff revisions carried out in the future will not affect those installations already operating. This guarantee affords legal safety to the producer, providing stability to the sector and promoting its development. The new regulations will not be of a retroactive nature.53

88.
In order to receive the fixed FIT under the RD 661/2007 support scheme, PV facilities were required to obtain a "Final Commissioning Certificate" and be registered in the regional Administrative Registry for Special Regime Generation Facilities (RAIPRE).54
89.
Although the Respondent denies that it engaged in a campaign to attract foreign investment in renewable facilities covered by RD 661/2007, the Respondent did in fact conduct a number of roadshows for investors around the world in which its representatives promoted the stability and potential profitability of the RD 661/2007 support scheme.55
90.
In any event, private investors responded enthusiastically to RD 661/2007. In September 2007, four months after enactment, Spain hit 85% of the target set in RD 661/2007 to have 371 MW of installed PV capacity by 2010.56 Reaching this threshold triggered the twelve-month sunset clause under RD 661/2007, pursuant to which RD 661/2007 closed to entrants not registered by 29 September 2008.57

(vii) Royal Decree 1578/2008

91.
On 26 September 2008, Spain enacted RD 1578/2008, which created a new support scheme for PV facilities that were not registered by the deadline for enrollment under RD 661/2007.58 RD 1578/2008 retained the essential features of RD 661/2007 but reduced the FiTs available to PV facilities. RD 1578/2008 did not affect the incentives offered to those PV facilities already registered under RD 661/2007.

(viii) Spain's PV capacity following enactment of RD 61/2007

92.
Spain far surpassed the target specified in RD 661/2007, which had been to achieve an installed PV capacity of 371 MW by 2010. Between 2006 and 2007, Spain's installed PV capacity in fact increased from approximately 167 MW to 690 MW. By 2008, it had grown to over 3,000 MW.59 In 2008, Spain accounted for half of all the solar power installed globally.60
93.
By 2010, Spain had achieved an aggregate installed PV capacity of over 3,960 MW.61 This meant that renewable energy supplied 13.2% of Spain's total energy consumption and 29.2% of its electricity, close to Spain's 2010 target of 29.4%.62

C. Claimants' Investments

94.
The Claimants' investments were comprised of three PV plants: (i) Madridejos, an 8 MW PV plant, acquired by Foresight 1 in May 2009; (ii) La Castilleja, a 9.8 MW PV plant, in which Foresight 2 and GMW II jointly invested in March 2010; and (iii) Fotocampillos, a 1.8 MW PV project comprised of eighteen 100 kW plants, in which GWM II invested in May 2010.
95.
As discussed further below, in August 2011, GMW II contributed its interests in La Castilleja and Fotocampillos to Greentech and became a parent company of Greentech.63 As of 30 June 2014, Greentech was a direct owner of the La Castilleja operating company (together with Foresight 2) and the sole direct owner of Fotocampillos. GWM I and GWM II are indirect owners of the La Castilleja and Fotocampillos operating companies through GWM II's shareholding in Greentech.64
96.
The Spanish operating companies that the Claimants invested in and the PV plants that each company owned as of 30 June 2014 is set out in the following diagram from the First Expert Report of Mr Richard Edwards of FTI:65

(1) Madridejos

97.
On 28 August 2008, Madridejos received its registration under RD 661/2007.
98.
Madridejos was constructed and developed by BP Solar, one of the world's largest solar power companies, and Acacia Instalaciones Fotovoltaicas S.L. (Acacia), a Spanish company. Acacia was owned by Santander Investments S.A. (Santander), an investment fund organized within the Spanish Santander Group.
99.
Foresight learned from BP Solar that Santander was looking to sell its interest in the Madridejos project. Foresight retained PricewaterhouseCoopers (PwC) and Landwell Abogados y Asesores Fiscales (Landwell) to conduct due diligence of the potential acquisition. Foresight also developed a valuation model to forecast the project's returns over a 36-year period based on the tariffs under RD 661/2007. Following this due diligence, Foresight decided to acquire Madridejos.
100.
On 8 May 2009, Foresight I purchased Acacia for over €9.3 million, thereby acquiring 100% of Madridejos. In their representations and warranties, the sellers guaranteed that "[Acacia] has entered into all the necessary contracts in order to buil[d], exploit and maintain the PV Plant according to...Spanish law, [e]specially.Royal Decree 661/2007, of May 25."66
101.
On 20 November 2009, Foresight I transferred its entire Acacia shareholding to its wholly owned Dutch subsidiary, Foresight Netherlands Solar 1 B.V..

(2) La Castilleja

102.
On 25 September 2008, La Castilleja received its RAIPRE registration under RD 661/2007.
103.
La Castilleja was originally owned by Magtel Redes de Telecomunicaciones S.A.U., a Spanish company. At the time of the Claimants' acquisition, the facility was operated by La Castilleja Energía S.L.U.
104.
Foresight decided to jointly invest in La Castilleja with GWM II with whom Foresight had become acquainted through its work in Italy. Foresight and GWM retained PwC, Landwell and Garrigues to conduct due diligence on the project.
105.
The Claimants describe the acquisition process in the following terms:

On March 18, 2010, Foresight 2 purchased a 49.97225% stake in a Spanish company that would serve as the joint venture with GWM, called Global Litator S.L., while GWM II purchased the remaining 50.03775% interest. The same day, Global Litator S.L. bought La Castilleja Energía S.L.U. Then, on March 26, 2010, La Castilleja Energía S.L.U. exercised the option under its lease agreement to purchase the La Castilleja facility for over €58 million. Thus, as of March 26, 2010, Foresight 2 and GWM jointly owned 100% of La Castilleja through Global Litator S.L.67

106.
Foresight's acquisition costs for La Castilleja were approximately €6.35 million and GWM's acquisition costs were approximately €6.3 million.68

(3) Fotocampillos

107.
On 20 May 2008, the Fotocampillos PV project received their RAIPRE registrations.
108.
The Fotocampillos park was developed by a company called Abantia Sol de Málaga S.L., financed with a €12 million loan from the Spanish bank Caja de Ahorros del Mediterráneo.69
109.
The Claimants describe the acquisition process in the following terms:

To carry out the acquisition, on May 3, 2010, the subsidiary of what is now Claimant GWM II - GWM Renewable Energy S.p.A. - made a capital contribution of over €10 million to Lux Energia, acquiring a 61.35% ownership interest in that company. Then, on May 7, 2010, Lux Energía purchased the project companies that owned and managed the Fotocampillos facilities. Thus, as of May 8, 2010, through its wholly owned subsidiary GWM Renewable Energy S.p.A., GWM II held a 61.35% interest in Fotocampillos.70

110.
In January 2011, GWM became the 100% owner of the Fotocampillos PV project when its subsidiary GWM Renewable Energy S.p.A acquired Lux Energía.71
111.
GWM's acquisition costs for Fotocampillos were approximately €3.8 million.72

(4) Consequences of GWM's takeover of Greentech

112.
On 11 August 2011, GWM II acquired Greentech, a renewable energy company listed on the Nordic stock exchange.73 As a result of the acquisition, GWM II contributed its solar portfolio to Greentech, including its 50.03% interest in La Castilleja and its 100% interest in Fotocampillos.74
113.
Consequently, the Claimants contend that the interests of GWM II and Greentech in this arbitration are coextensive.75

D. Spain's tariff deficit and the sustainability of the Spanish electricity system

114.
After enacting RD 661/2007, Spain became increasingly concerned by its growing "tariff deficit", which is the difference between the regulated costs of the SES, on the one hand, and revenues from regulated electricity prices paid by consumers, on the other. In short, the SES did not generate enough revenue to cover the costs of FiTs and other remuneration.
115.
Spain's tariff deficit was attributable to several factors. These include the fact that actual electricity consumption in Spain fell below forecasts in the 2005 PER as a result of the global financial crisis and subsequent recession in Spain.76 However, the tariff deficit had in fact emerged several years earlier and is not therefore exclusively the product of the financial crisis.
116.
As illustrated by the following chart taken from the first report of Drs Moselle and Grunwald of FTI, Spain's annual tariff deficit first materialized in 2000 and subsequently grew to over €6 billion for the year 2008, before returning to surplus in 2014:77
117.
On an accumulated basis, Spain's tariff deficit exceeded €40 billion by 2013 (approximately 4% of GDP), an increase of 271% from 2007, when the accumulated deficit stood at approximately €10.8 billion.78
118.
In April 2009, Spain enacted Royal Decree-Law 6/2009 (RDL 6/2009), which adopted certain measures to address the tariff deficit. The preamble to RDL 6/2009 explains that:

The increasing tariff deficit [...]is causing serious problems which in the current context of international financial crisis, is profoundly affecting the system and endangering, not only the financial situation of the companies in the electricity sector, but the system's sustainability itself. This imbalance is unsustainable and has serious consequences by deteriorating the security and investment financing capacity necessary to supply electricity in the quality and safety levels demanded by Spanish society. [...] by its increasing incidence on the tariff deficit, mechanisms are established with regard to the remuneration system of the facilities under the special regime. The trends followed by these technologies could put at risk in the short term, the sustainability of the system, both from the economic point of view due to their impact on the electricity tariff, and from a technical point of view, further compromising the economic viability of the already completed facilities, whose operation depends on the proper balance between manageable and non-manageable generation.79

119.
In addition to RDL 6/2009, Spain adopted several other measures addressed to the tariff deficit, including those discussed in the following section on the disputed measures in this arbitration.
120.
The tariff deficit became a political issue in Spain. In his inaugural speech on 19 December 2011, the newly elected prime minister of Spain, Mariano Rajoy, stated:

Another essential structural reform concerns our energy system. Energy policy must aim to pursue an adequate balance between its objectives: competitiveness, security of supply and environmental impacts [...]. Energy is a key factor in the competitiveness of Spanish companies. It is important for us to realise Spain has a major energy problem, especially in the electricity sector, with an annual deficit in excess of 3,000 million Euros, and an accrued tariff deficit of more than 22,000 million.

Electricity tariffs for domestic consumers are the third most expensive in Europe, and the fifth highest for industrial consumers.

[…] If reforms are not made, the imbalances will be unsustainable, and increases in prices and tariffs will place Spain at the greatest disadvantage in terms of energy costs in the entire developed world. We must therefore introduce policies based on putting a break on and reducing the average costs of the system, take decisions without demagoguery, employ all the technologies available, without exception, and regulate with the competitiveness of our economy as our prime objective.80

121.
In March 2012, the CNE published a report in response to a request from the Security of State for Energy to propose regulatory adjustment measures to address the tariff deficit. The CNE report stated that:

[T]he current situation is unsustainable. The introduction of regulatory measures, as requested by the document of the [Secretary of State for Energy], is called for with immediate effect in the short term, in order to eliminate the deficit of the system, mitigate the cost of funding the yet unsecuritised debt and clearly define the access costs that will be assumed by electricity customers, in order to determine their access tariffs in a satisfactory and stable manner.81

122.
Among the short-term measures proposed by the CNE was the removal of annual CPI indexing for FiTs, and the elimination of FiTs at the end of the economic (or useful) life of a facility (as opposed to its operating life).82
123.
On 20 July 2012, as part of an EU financial assistance package relating to the financial crisis in Spain, the Respondent signed a Memorandum of Understanding with the Eurogroup in which the Respondent committed to take measures to address the tariff deficit.83

E. The Disputed Measures

(i) RD 1565/2010

124.
In November 2010, Spain enacted Royal Decree 1565/2010, which cancelled the right of PV facilities to receive the FiTs specified in RD 661/2007 after the first 25 years of their operation.84
125.
However, in response to criticism, Spain subsequently extended the cut-off to 28 years in RDL 14/2010, and then to 30 years in Law 2/2011.85

(ii) RDL 14/2010

126.
In December 2010, Spain enacted Royal Decree-Law 14/2010, which concerned urgent measures to address the tariff deficit.86
127.
RDL 14/2010 capped the annual operating hours (i.e. the total quantity of electricity produced) for which PV facilities could receive FiTs under RD 661/2007 and RD 1578/2008.87 The actual operating hour limit depended on the type of PV technology and geographic location.88 PV facilities in locations with higher solar radiation had a higher cap. Once a PV facility hit the applicable cap, additional electricity could only be sold at market prices.
128.
RDL 14/2010 also established a new 0.5 EU/MWh "access toll" on all electricity a producer delivered to the grid.

(iii) Law 15/2012

129.
In December 2012, Spain enacted Law 15/2012, which introduced a 7% "energy production value tax" on all revenues (including FiT revenues) derived from the production of electricity (TVPEE).89

(iv) RDL 2/2013

130.
In February 2013, Spain enacted Royal Decree-Law 2/2013, which introduced an "amended CPI" that excluded prices changes in food, energy products and certain tax effects for the purposes of calculating annual FiT inflation revisions under RD 661/2007 (and RD 1578/2008).90 Initially, the amended CPI was lower than the general CPI. However, from late 2014, the amended CPI was higher than the general CPI.91

(v) RDL 9/2013

131.
In July 2013, Spain enacted RDL 9/2013, concerning the tariff deficit and "urgent measures to guarantee the financial stability of the electricity system".92 RDL 9/2013 abolished the RD 661/2007 and RD 1578/2008 support schemes - including the FiT regime - and authorized the government to approve a new legal framework for renewable energy production.
132.
Pursuant to Article 1(2) RDL 9/2013, Article 30.4 of Law 54/1997 was modified as follows:

4. Additionally, and in the terms set forth in the regulations by royal decree of the Board of Ministers, for the compensation of the sale of generated energy valued at market price, the facility can receive a specific compensation composed of one period by unit of installed power that covers, when applicable, the investment costs of a typical facility that cannot be recovered by the sale of energy and one period of operation that covers, in any case, the difference between the exploitation costs and the income for the market share of said typical facility.

For the calculation of said specific remuneration, the following aspects shall be considered, taking into account a standard facility throughout its legal service life, according to the activity performed by an efficient, well-managed business:

a) The standard income for the sale of generated energy valued at the price of the production market.

b) The standard exploitation cost.

c) The standard value of the initial investment.

To these effects, in no case, will the costs and investments that come determined by norms or administrative actions that are not applicable in all the Spanish territory be considered. In the same manner, only those costs and investments are taken into account that respond exclusively to the electrical energy production activity.

As a consequence of the peculiar characteristics of the electrical systems internal and external to the Iberian peninsula, specific type installations can be exceptionally defined for each one of them.

This compensation regime will not surpass the minimum level necessary to cover the costs that will allow the installations to compete on an equal level with the rest of the technologies in the marketplace and that permit the possibility of obtaining a reasonable profit in reference to the installation type in each applicable case. Notwithstanding the foregoing, the compensating regime can also exceptionally incorporate an investment and execution incentive within a determined period of time when its installation supposes a significant cost reduction in the insular and extra-peninsular systems.

This reasonable profitability will be based, before taxes, on the average yield in the secondary market of the Obligations of the State to ten years applying the adequate differential.93

133.
The gist of the new framework envisaged by RDL 9/2013 - the precise details of which were left to subsequent legislation and regulations - was that all renewable energy facilities would be required to sell electricity on the wholesale market; instead of FiTs, producers would receive the market price plus remuneration designed to achieve a "reasonable rate of return" for a "standard" facility over a defined regulatory life.94 RDL 9/2013 set the target rate of return at 300 points above the ten-year average yield of Spanish government ten-year bonds.95
134.
RDL 9/2013 provided that PV facilities would temporarily continue to receive remuneration under the RD 661/2007 and RD 1578/2008 support schemes until the new legal framework was enacted. However, any such payments would be subject to a "true-up" adjustment (or claw back) once the new framework was in force.96

(vi) Law 24/2013, RD 413/2014 and MO IET/1045/2014

135.
In December 2013, Spain enacted Law 24/2013 to implement the new renewable energies framework envisaged by RDL 9/2013. Law 24/2013 eliminated the distinction between the Ordinary and Special Regimes that had prevailed under Law 54/1997.97 Law 24/2013 further provided that remuneration under the new renewables support scheme would be "compatible with the economic stability of the electric system" and would:

"not exceed the minimum level required to cover the costs which allow the production installations from sources of renewable energies... to compete on an equal footing with the other technologies on the market and which allows a fair return to be obtained pertaining to the standard installation applicable in each case".98

136.
Following the enactment of the new general framework for renewables under Law 24/2013, a new support scheme was established by RD 413/2014 and supplemented by Ministerial Order IET/1045/2014 (MO 1045), which detailed precisely how remuneration for PV facilities would be calculated.
137.
In sum, remuneration of renewable energy facilities under the new support scheme was comprised of:

(a) Market remuneration from the sale of electricity in the wholesale market (€/MWh); and

(b) "specific remuneration", which was based on "standard" not actual costs of a PV facility and consisted of:

(i) an "operating incentive" (or "Return on operation"), calculated per unit of electricity produced (€/MWh), to compensate facilities for operating expenses not covered by the wholesale price of electricity; and

(ii) an "investment incentive" (or "Return on investment"), calculated per unit of installed capacity (€/MWh), to enable investors to cover their investment (capital) costs and receive a "reasonable rate of return" over a defined regulatory life, which was set at 30 years for PV facilities. The "reasonable rate of return" prescribed by Spain was initially the 10-year average of Spanish 10-year treasury bonds, plus 300 basis points, which was 7,398% pre-tax for 2013-2018.99

138.
The formula for calculating the "specific remuneration" that a PV facility would receive was published in MO 1045, a 1,761-page document that sets the "remuneration parameters" for 1,517 different "standard facilities", including 578 different "standard" PV facilities.
139.
Pursuant to MO 1045, each PV facility was assigned one of 578 "standard" facility codes (known as "IT codes") on the basis of several factors, including technology type, capacity, date of installation and location.100 Within each IT code, MO 1045 sets out the parameters of compensation applicable to that standard facility, including: an imputed investment cost; estimated current operating costs; estimated future operating costs; estimated hours of operation; estimated daily and intraday market prices of electricity; and net asset value of the facility.101
140.
MO 1045 also set a minimum operating hours threshold for a PV facility to receive the operating incentive and investment incentive, as well as a maximum operating hours threshold to receive the operating incentive.102
141.
The parameters used to set the operating incentive were subject to revision every three years. The parameters for the investment incentive and the level of the "reasonable rate of return" were subject to revision every six years.103 Although the initial target reasonable rate of return (7,398% pre-tax) was based on the ten-year average yield of ten-year Spanish treasury bonds, the periodic review would be based on a two-year average of the ten-year bond, taking into account "the cyclical state of the economy, the electricity demand and an appropriate remuneration."104

F. Claimants' sale of the PV plants

142.
On 6 November 2015, Foresight 1's subsidiary, Foresight Netherlands Solar 1 B.V., sold the Madridejos project to a third party, Vela Energy Holdings, for €4.2 million.105
143.
On 26 July 2016, Greentech acquired Foresight 2's 49.97% shareholding in Global Litator, the owner of La Castilleja, for €3.8 million.106 Greentech thereby became the sole owner of La Castilleja.
144.
On 28 September 2016, Greentech sold its 100% shareholding in the Fotocampillos project to a third party, Vela Energy Holdings, for €2.9 million.107

G. Spanish Domestic Court Decisions

145.
In Spain, it is the courts that control the exercise of regulatory power by the Executive branch.108
146.
The Respondent has entered into the record over one hundred judgments of the Spanish Supreme Court concerning the Special Regime support schemes.
147.
Of those, the following seven judgments pre-date the Claimants' investments:

(a) 15 December 2005, concerning a challenge to the application of RD 436/2004 to facilities under RD 2366/1994 or RD 2818/1998;109

(b) 25 October 2006110 and 20 March 2007,111 concerning a challenge to an amendment to RD 2818/1998;

(c) 9 October 2007, concerning a challenge to RD 1454/2005;112

(d) 9 December 2009, concerning a challenge to articles 28, 45.4 and 5 of RD 661/2007;113

(e) 3 December 2009, concerning a challenge to Transitory Provision No. 1 of RD 661/2007.114

148.
Since the Claimants' made their investments, the Spanish courts have issued several decisions concerning the changes to the RD 661/2007 support scheme.
149.
On 17 December 2015, the Spanish Constitutional Court ruled that the New Regulatory Regime was valid and neither violated investors' legitimate expectations, nor had prohibited retroactive effect as a matter of Spanish law.115
150.
On 12 July 2016, the Spanish Supreme Court rejected a challenge to RD 413/2014 and MO 1045/2014, stating:

It is not possible to counter the support through subsidies for renewable energy generation and the defence of the system's financial sustainability, when the latter is a necessary condition for the very survival thereof, since it is senseless to design a support system for these technologies that is financially unsustainable and, accordingly, is not economically viable in the medium and long term.116

V. REQUESTS FOR RELIEF

A. Claimants' Request for Relief

151.
The Claimant seeks the following relief:117

• a declaration that the Tribunal has jurisdiction under the ECT to adjudicate all of Claimants' claims, thereby rejecting Respondent's jurisdictional objections in full;

• a declaration that Spain has violated Part III of the ECT and international law with respect to Claimants' investments;

• compensation to Claimants for all damages they have suffered as set forth in their Memorial on the Merits and in their Reply Memorial on the Merits and as may be further developed and quantified during the course of this proceeding;

• all costs of this proceeding, including (but not limited to) Claimants' attorneys' fees and expenses, the fees and expenses of Claimants' experts, and the fees and expenses of the Tribunal and the SCC;

• pre- and post-award compound interest at the highest lawful rate from the Date of Assessment until Spain's full and final satisfaction of the Award; and

• any other relief the Tribunal deems just and proper.

B. Respondent's Request for Relief

152.
The Respondent seeks the following relief:118

a) Declare that it holds no jurisdiction to hear the complaints of the Claimant or, if appropriate, the inadmissibility thereof, in accordance with section III of this Memorial, on Jurisdictional Objections;

b) In the alternative, in the event that the Arbitral Tribunal considers it does have jurisdiction to hear the present dispute, that it dismisses all the Claimant's [sic] claims on the merits, due to the fact that the Kingdom of Spain has not in any way failed to comply with the ECT, in accordance with sections IV and V of this Memorial, on the Facts and the Merits of the Case, respectively;

c) In the alternative, dismiss all claims for compensation of the Claimant as Claimant is not entitled to compensation in accordance with section VI of this Memorial; and

d) Order that the Claimant pays all costs and expenses arising from this arbitration, including administrative expenses and SCC fees, as well as the fees of the legal representation of the Kingdom of Spain, its experts and advisers, and any other costs or expenses that may have incurred, all of which include a reasonable interest rate from the date these costs are incurred until the date of their actual payment.

VI. JURISDICTION

153.
The Respondent has raised two objections to the Tribunal's jurisdiction.

A. First Objection: The Intra-EU Objection

154.
The Respondent's first objection to jurisdiction is that the ECT does not apply to so-called "intra-EU" disputes, such as the present case, where the Claimants are nationals of EU Member States and the Respondent is also an EU Member State.
155.
There are several distinct aspects to the Respondent's "intra-EU" objection, including:

(a) The interpretation of Article 26(1) ECT, which limits the Tribunal's jurisdiction to disputes "between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former.";

(b) The question of whether or not, in the event of a conflict, EU law prevails over the ECT by virtue of Article 26(6) ECT, which provides that the Tribunal "shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law"; and

(c) The question of whether or not the ECT in fact conflicts with EU law, in particular as regards (1) the submission of an "intra-EU" investor-State dispute under the ECT to international arbitration rather than to the domestic courts of the EU, and (2) EU rules governing State aid.

(1) The Parties' Positions

a. Respondent's Position

(i) Overview

156.
The Respondent contends that the Tribunal does not have jurisdiction over "intra-EU" disputes because the ECT is incompatible with applicable EU law, specifically (i) as regards investor-State arbitration, and (ii) EU rules on State aid.
157.
There are several elements to the Respondent's jurisdictional objection, including that: (i) there is not a dispute "between a Contracting Party and an Investor of another Contracting Party" for the purposes of Article 26(1) ECT because the EU is a Contracting Party and the Claimants are also EU nationals; (ii) pursuant to Article 267 of the Treaty on the Functioning of the EU (TFEU) (the procedure for preliminary reference from EU Member State courts to the Court of Justice of the EU (CJEU)) and Article 344 TFEU (enshrining the autonomy of the EU legal system), the interpretation of EU law is the exclusive preserve of the EU judicial system, which does not include arbitral tribunals constituted under investment treaties;119 (iii) the Tribunal must interpret the ECT in accordance with applicable EU law pursuant to Article 26(6) ECT; (iv) the Tribunal is required to apply EU law because the subject matter of this dispute concerns a support scheme that qualified as State aid under EU law; (v) in the event of a conflict, EU law prevails over express provisions of the ECT; (vi) there is such a conflict in the present case because (a) EU law forbids EU Member States from arbitrating disputes with EU investors, and also (b) an award of damages by the Tribunal would be contrary to EU State aid rules, and the Tribunal may not interfere with the judicial competence of the EU; and (vii) the only interpretation of Article 26(1) ECT that is compatible with EU law is one that precludes an EU investor from bringing an ECT arbitration against an EU Member State.
158.
The Respondent relies on the final judgment issued on 6 March 2018 by the CJEU in the Achmea case (Achmea Judgment),120 which the Respondent contends confirms that intra-EU disputes under the ECT are precluded by binding EU law. The Respondent also notes that enforcement of the Novenergia v. Spain award in the Svea Court has been suspended pending annulment based on the Achmea Judgment.121

(ii) Article 26(1) ECT

159.
The Respondent contends that the Claimants are not protected investors under the ECT because the dispute is not "between a Contracting Party and an Investor of another Contracting Party" for the purposes of Article 26(1) ECT.
160.
The Respondent does not deny that Luxembourg, Denmark, Italy and Spain all individually ratified the ECT as Contracting Parties in their own right. However, the Respondent contends that the Claimants are not protected investors "of another Contracting Party" because: (1) the Claimants are nationals of Luxembourg, Denmark and Italy, which are EU Member States; (2) the Respondent, Spain, is also an EU Member State; and (3) the EU is itself a Contracting Party to the ECT.
161.
The Respondent contends that its interpretation of Article 26(1) ECT is consistent with the object and purpose of the ECT. In this regard, the Respondent contends that the ECT was intended, following the fall of the Berlin Wall, to promote East/West cooperation between regions of Europe that had been divided by the Iron Curtain; the ECT's investment protections were never intended to operate within EU Member States.
162.
The Respondent also relies on the fact that the definition of "Contracting Party" under Article 1(2) ECT includes "Regional Economic Integration Organisations" (ORIE), which are in turn defined at Article 1(3) ECT as:

an organisation constituted by states to which they have transferred competence over certain matters a number of which are governed by this Treaty, including the authority to take decisions binding on them in respect of those matters.

163.
The Respondent submits that the EU is the only ORIE that is a Contracting Party to the ECT. Accordingly, the Respondent contends, Article 1(3) ECT (and Article 1(10) defining the "Area" of an ORIE) demonstrates that the ECT was not intended to interfere with matters over which contracting States have transferred competence to the EU, including investor protection.

(iii) Primacy of EU law

164.
The Respondent submits that the "essential principle of which the objection to the jurisdiction of the Arbitral Tribunal is raised by the Kingdom of Spain" is "the principle of primacy of EU law".122
165.
The Respondent contends that the following provisions and declarations in the ECT establish the primacy of EU law over the ECT:

(a) Article 16 ECT, pursuant to which a more favourable provision to an investor or investment in another treaty between two or more Contracting Parties concerning the same subject matter prevails over the ECT;

(b) Article 25 ECT, which provides that:

(1) The provisions of this Treaty shall not be so construed as to oblige a Contracting Party which is party to an Economic Integration Agreement (hereinafter referred to as "EIA") to extend, by means of most favoured nation treatment, to another Contracting Party which is not a party to that EIA, any preferential treatment applicable between the parties to that EIA as a result of their being parties thereto.

(2) For the purposes of paragraph (1), "EIA" means an agreement substantially liberalising, inter alia, trade and investment, by providing for the absence or elimination of substantially all discrimination between or among parties thereto through the elimination of existing discriminatory measures and/or the prohibition of new or more discriminatory measures, either at the entry into force of that agreement or on the basis of a reasonable time frame.

(c) The European Community's declaration to Article 25 ECT, which states:

[…] the application of Article 25 of the Energy Charter Treaty will allow only those derogations necessary to safeguard the preferential treatment resulting from the wider process of economic integration resulting from the Treaties establishing the European Communities.

(d) Article 36(7) ECT, which states that, in respect of decisions taken by the Charter Conference, a REIO shall have the number of votes equal to the number of its member States that are Contracting Parties; and

(e) Article 26(6) ECT, which states that an investor-State arbitral tribunal established under the ECT "shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law", which the Respondent contends includes EU law.

(iv) EU law prevails over conflicting provisions of ECT

166.
The Respondent contends that there is a conflict between the ECT and EU law because EU law does not permit arbitration under the ECT between an EU investor and an EU Member State. In this situation, the Respondent contends that EU law must prevail over the ECT.
167.
In particular, the Respondent contends that Article 26(6) ECT requires the Tribunal to apply EU law as the "applicable rules and principles of international law". This in turn directs the Tribunal to Article 344 TFEU, which provides that:

Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein.123

168.
According to the Respondent, EU Member States are therefore prohibited by Article 344 TFEU from submitting to ECT arbitration any matters relating to the EU internal market in electricity, over which the Respondent has transferred its sovereignty to the EU.
169.
Further, the Respondent contends that the Tribunal may not interfere with the competencies of the CJEU.
170.
As far as the Respondent is concerned, the EU has its own intra-EU system of investor protection that is preferential to the protection conferred by the ECT and any BIT. Further still, the Claimants enjoy the full protection of EU law, and should be pursuing their claim in the courts of the EU.

(v) CJEU's Achmea Judgment

171.
The Respondent submits that Achmea Judgment is fully applicable to the present dispute and confirms that the Respondent's "intra-EU objection" to jurisdiction should be upheld.
172.
In particular, the Respondent contends that the Achmea Judgment precludes an investor from an EU Member State from bringing arbitration proceedings against another EU Member State under the ECT.
173.
The Respondent relies on the CJEU's ruling that:

Articles 267 and 344 TFEU must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8 of the Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federative Republic, under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept.124

174.
The Respondent contends that the ECT is such an "international agreement concluded between Member States" and the effect of the Achmea Judgment is not limited to disputes under bilateral investment agreements.
175.
The Respondent contends that the Tribunal must apply EU law to this dispute because EU law is "international law" for the purposes of Article 26(6) ECT, the governing law clause of the Treaty, which provides that the Tribunal "shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law". In particular, the Respondent contends, the Tribunal must give effect to the EU Treaties, the Decision of the European Commission concerning Spain's renewables support scheme and State aid dated 10 November 2017 (EC State Aid Decision),125 and the Achmea Judgment.

b. Claimants' Position

(i) Overview

176.
The Claimants submit that the Tribunal has jurisdiction over so-called "intra-EU disputes". The Claimants rely primarily on the language of Article 26(1) ECT, which provides for the settlement of disputes "between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in an Area of the former." The Claimants contend that these jurisdictional requirements are satisfied here because they are nationals of Contracting Parties to the ECT and the Respondent is also a Contracting Party. In accordance with the rules of treaty interpretation, there is no need for the Tribunal to look beyond the unambiguous language of Article 26(1) ECT in deciding this issue.
177.
In any event, the Claimants reject the Respondent's contentions that EU law grants "preferential" investment protections or that there is any conflict between the ECT and EU law such that EU law would prevail over the ECT's investorState dispute settlement mechanism.
178.
The Claimants further rely on the unanimous practice of twenty investment treaty tribunals considering this issue, all of which have concluded that the ECT applies to intra-EU disputes.
179.
Finally, the Claimants reject the CJEU's Achmea Judgment as irrelevant to the present dispute. The Claimants rely on the recent ECT award in Masdar v. Spain, which found the Achmea Judgment to be inapplicable to ECT cases.126

(ii) Article 26(1) ECT

180.
The Claimants contend that the Tribunal must exercise jurisdiction over this dispute according to the clear terms of Article 26(1) ECT because Spain is a Contracting Party to the ECT and the Claimants are nationals of "another" Contracting Party (Luxembourg, Denmark and Italy, respectively).
181.
The Claimants contend that it is irrelevant that the EU is also a Contracting Party to the ECT: the present dispute is against Spain, not the EU.
182.
The Claimants reject the Respondent's contention that Article 26(6) ECT requires the Tribunal to apply EU law to this dispute. Rather, the Claimants contend, the reference to international law in Article 26(6) ECT requires the Tribunal to apply the ECT according to its provisions, as well as in accordance with the applicable rules of public international law, but not the regional law of the EU. In sum, Article 26(6) ECT is not a "back door" for the application of another set of legal rules outside the Treaty.
183.
The Claimants further contend that the case law on this issue is unanimous, consistent and definitive in finding that the ECT applies to intra-EU disputes.127 For example, the Claimants contend that the tribunal in Eiser v. Spain rejected exactly the same arguments that the Respondent now advances in this case. In Eiser, the tribunal stated that:

...Respondent's arguments do not justify disregarding the ECT's ordinary meaning in order to exclude a potentially significant body of claims. It is a fundamental rule of international law that treaties are to be interpreted in good faith. As a corollary, treaty makers should be understood to carry out their function in good faith, and not to lay traps for the unwary with hidden meanings and sweeping implied exclusions.

[…] The Tribunal finds nothing ambiguous or obscure in the interpretation of Article 26 [of the ECT], so recourse to supplementary means of interpretation is not required, or even permitted.

Even were the circumstances to warrant recourse to supplementary means of interpretation, Respondent has not offered evidence to document its characterization of the [EU Member States'] supposed negotiating objective in the ECT negotiations. Of perhaps greater significance, there is no evidence showing that any such objective was shared by all [EU Member States], or was communicated to and accepted by the other parties to the treaty.128

(iii) No disconnection clause excluding "intra-EU" claims

184.
The Claimants reject the Respondent's contention that EU Member States either did not have the competence or did not intend to enter into obligations as between themselves when they ratified the ECT. The Claimants contend that the absence of a "disconnection clause" is fatal to the Respondent's position. Whereas a disconnection clause has been included in certain treaties to make them, in whole or in part, inapplicable between EU Member States,129 there is no such provision in the ECT.
185.
Further, even if a disconnection clause could be implied, the Claimants rely on the conclusion of the tribunal in Charanne v. Spain, which held that there was no need to consider the disconnection issue because "there is no conflict between the [ECT and the TFEU].no contradiction exists in this case between the ECT and EU law."130

(iv) No conflict with EU law

186.
The Claimants contend that the Respondent mischaracterizes both the principle of EU "primacy" and Article 25 ECT. The Claimants contend that the "primacy" issue is not relevant because it only arises where an EU Member State enacts a measure that conflicts with existing EU law. The Claimants deny that Article 25 ECT explicitly recognizes the primacy of EU law. Rather, the Claimants contend that Article 25 ECT could only apply to the treatment that Spain must accord to nationals outside the EU.
187.
The Claimants deny that there is any conflict in the present case between the ECT and EU law. In particular, the Claimants contend that the ECT and EU law do not share the same subject matter and, crucially, EU law does not afford investors a right to international arbitration. Moreover, the Claimants contend there is no need to interpret EU law to resolve the dispute because the Claimants' claims are based exclusively on the ECT. Indeed, the Claimants have not submitted any claims of violation of EU law in this arbitration. Rather, the Claimants seek compensation for Spain's alleged violations of its obligations under the ECT.
188.
The Claimants rely inter alia on the award in Eiser v. Spain, where the tribunal stated:

The Tribunal's jurisdiction is derived from the express terms of the ECT, a binding treaty under international law. The Tribunal is not an institution of the European legal order, and is not subject to the requirements of that legal order. However, the Tribunal need not address the possible consequences that might arise in case of a conflict between its role under the ECT and the European legal order, because no such conflict has been shown to exist.131

189.
The Claimants also rely on the CJEU Advocate General's observation in his opinion in the Achmea case, where he stated that the EC could not "offer the slightest explanation of the how the prohibition of illegal expropriation [under the Netherlands-Slovakia BIT] is incompatible with the EU and FEU Treaties."132
190.
Even assuming a conflict between the ECT and EU law existed, the Claimants contend that the ECT would prevail over EU law. The Claimants rely on Article 16 ECT, which provides that:

Where two or more Contracting Parties have entered into a prior international agreement, or enter into a subsequent international agreement, whose terms in either case concern the subject matter of Part III [Investment Promotion and Protection] or V [Dispute Settlement] of [the ECT],

(1) nothing in Part III or V of this Treaty shall be construed to derogate from any provision of such terms of the other agreement or from any right to dispute resolution with respect thereto under that agreement, and

(2) nothing in such terms of the other agreement shall be construed to derogate from any provision of Part III or V of this Treaty or from any right to dispute resolution with respect thereto under this Treaty, where any such provision is more favorable to the Investor or Investment.

191.
The Claimants further rely on the following analysis of Article 16(2) ECT by the Eiser tribunal:

To the extent that provisions of European law may in some manner provide protections more favorable to Investors or Investments than those under the ECT, Article 16(2) makes clear that they do not detract from or supersede other ECT provisions, in particular the right to dispute settlement under ECT Part V. By its terms, Article 16 assures Investors or their Investments the greatest protection available under either the ECT or the other agreement. Thus, an agreement covered by Article 16(2) may improve upon particular protections available to Investors or their Investments, but it cannot lessen rights or protections under the ECT that are in other respects more favorable.133

192.
The Claimants contend that the upshot of Article 16 ECT is that EU law would only take priority over the dispute settlement provision in the ECT if EU law afforded the Claimants a "more favourable" dispute settlement mechanism. However, the Claimants contend that their right to investor-State arbitration under the ECT is in fact more favourable than pursuing remedies under EU law, which would first require them to litigate in Spain's courts.
193.
Thus, Article 26 ECT, and in particular the Claimants' right to international arbitration under the ECT, trumps EU law that allegedly may be in conflict with the ECT.
194.
The Claimants also reject the Respondent's interpretation of Article 344 TFEU. Quoting the provision, the Claimants contend that Article 344 TFEU only prevents EU Member States from "submit[ting] a dispute concerning the interpretation or application of the [Treaty on the European Union (TEU) and TFEU] to any method of settlement other than those provided for therein".134 Article 344 TFEU is therefore inapplicable because the Claimants have not invoked either the TEU or TFEU in this arbitration.
195.
The Claimants also reject the Respondent's arguments that the ECT conflicts with EU State aid law. Further, the Claimants contend that the EC State Aid Decision is irrelevant to the Respondent's jurisdictional objection (as well as the Claimants' legitimate expectations claim). The Claimants rely on the Novenergia award, which decided that the EC State Aid Decision was irrelevant to Spain's "intra-EU" jurisdictional objection in that case because it concerned breaches of the ECT, not EU law.135

(v) The CJEU's Achmea Judgment

196.
The Claimants contend that the CJEU's Achmea Judgment is irrelevant to the present dispute, for four principal reasons: (i) the literal jurisdictional requirements of Article 26(1) and (2) ECT, which is the exclusive basis for the Tribunal's jurisdiction, are met, and therefore the Tribunal must conclude that it has jurisdiction to hear the dispute; (ii) the CJEU's Achmea Judgment has no impact on the reasoning of the known investment treaty awards to have considered this issue, all of which have unanimously rejected the "intra-EU" objection; (iii) even if relevant, the CJEU's Achmea Judgment is clearly distinguishable because (a) the decision concerns an intra-EU BIT "concluded between Member States",136 whereas by contrast the ECT is a multilateral investment treaty to which the EU is a Contracting Party, and (b) unlike Article 8(6) of the Netherlands-Slovakia BIT at issue in Achmea (which required that tribunal to apply the domestic law of the host State or other relevant agreements between the contracting parties to the BIT), the governing law clause of the ECT (Article 26(6)) does not permit the Tribunal to interpret or apply EU law, so it does not matter that the Tribunal is not a "tribunal or court" that can refer questions of EU law to the CJEU pursuant to Article 267 TFEU; and (iv) the theoretical future impact (if any) of the CJEU's Achmea Judgment on the Claimants' ability to enforce an award in certain EU jurisdictions is not a relevant factor for the Tribunal in determining this issue.

(vi) Masdar v. Spain

197.
The Claimants rely on the decision of the ECT tribunal in Masdar v. Spain, which is the first award rendered by an ECT tribunal since the CJEU's Achmea Judgment. The Claimants contend that the Masdar tribunal rejected the same arguments on the "intra-EU" objection that the Respondent puts forward in this case. In sum, the Claimants submit that there is no reason why the Tribunal should reach a different decision to the Masdar tribunal, which concluded that "the Achmea Judgment has no bearing upon the present case" because "it does not take into consideration, and thus it cannot be applied to, multilateral treaties, such as the ECT, to which the EU itself is a party".137

(2) The Tribunal's Analysis

200.
The Tribunal turns to the interpretation of Article 26 ECT, which provides in relevant part as follows:

(1) Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably.

(2) If such disputes can not be settled according to the provisions of paragraph (1) within a period of three months [...] the Investor party to the dispute may choose to submit it for resolution:

[...]

(c) in accordance with the following paragraphs of this Article.

(3) (a) [...] each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article. [...]

201.
As any other treaty provision, the text of Article 26 ECT must be interpreted in accordance with the normal canons of treaty interpretation contained in

Article 31 and 32 of the Vienna Convention on the Law of Treaties (VCLT), which provide as follows:

Article 31. GENERAL RULE OF INTERPRETATION

1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:

(a) Any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty;

(b) Any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.

3. There shall be taken into account, together with the context:

(a) Any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;

(b) Any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;

(c) Any relevant rules of international law applicable in the relations between the parties.

4. A special meaning shall be given to a term if it is established that the parties so intended.

Article 32. SUPPLEMENTARY MEANS OF INTERPRETATION

Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:

(a) Leaves the meaning ambiguous or obscure; or

(b) Leads to a result which is manifestly absurd or unreasonable.

202.
In short, Article 31 VCLT is the primary rule of treaty interpretation. In limited circumstances, the Tribunal may have regard to the supplementary means of interpretation under Article 32 VCLT.
203.
Accordingly, the Tribunal begins the interpretative exercise by considering the ordinary meaning of the ECT's terms, their context, and the object and purpose of the ECT. Pursuant to Article 31(2) VCLT, "t[h]e context for the purpose of the interpretation of a treaty shall comprise […] the text, including its preamble and annexes […]."
204.
The Tribunal must also interpret the text of the ECT in accordance with Article 31(3)(c) VCLT, which requires that "[a]ny relevant rules of international law applicable in the relations between the parties" shall be taken into account together with the context.
205.
The Tribunal considers that the context of Article 26 ECT includes:

(a) Article 1(2) ECT, which defines "Contracting Party" as "a state or Regional Economic Integration Organization which has consented to be bound by this Treaty and for which the Treaty is in force.";

(b) Article 1(7)(a)(ii) ECT, which defines "Investor" of a Contracting Party as "a company or other organization organized in accordance with the law applicable in that Contracting Party.";

(c) Article 10(1) ECT, by which Contracting Parties to the ECT promise to accord certain international standards of treatment, including fair and equitable treatment, to "Investments of Investors of other Contracting Parties"; and

(d) Article 13 ECT, which establishes the requirements of a lawful expropriation by a Contracting Party of "Investments of Investors of a Contracting Party in the Area of any other Contracting Party".

206.
The purpose of the ECT is expressly set out under Article 2 ECT, which provides as follows:

This Treaty establishes a legal framework in order to promote longterm cooperation in the energy field, based on complementarities and mutual benefits, in accordance with the objectives and principles of the Charter.

207.
The ECT does not contain a disconnect clause. Further, the Tribunal can discern no attempt in the ECT's provisions to carve out "intra-EU" investorState disputes from the protections afforded by the treaty.
208.
It follows that the provisions of Article 26 ECT should be given their ordinary meaning in accordance with Article 31 VCLT.
209.
The Respondent does not contest that the Claimants are nationals of Luxembourg, Denmark, and Italy. In the Tribunal's opinion, the Claimants are therefore Investors of "another" Contracting Party to the ECT for the purposes of Article 26(1) ECT.
210.
Likewise, the Tribunal has no doubt that the Respondent, being "a state.which has consented to be bound by this Treaty and for which this Treaty is in force", falls within the definition of "Contracting Party" under Article 1(7)(a)(ii) ECT.139
211.
Article 26(1) ECT requires that a dispute between a Contracting Party and an Investor must relate to "an Investment of the latter in the Area of the former".140 Article 1(10) ECT defines "Area" as "the territory under [a Contracting Party's] sovereignty.".141 Again, the Tribunal considers that this requirement is clearly met.
212.
Following the textual approach to interpretation under Article 31 VCLT, the Tribunal would therefore conclude that it has jurisdiction over the Parties' dispute under the plain language of Article 26(1) ECT.
213.
Further, the Tribunal considers that there is no need to resort to supplementary means of interpretation under Article 32 VCLT. Indeed, there is nothing ambiguous or obscure in Article 26(1) ECT, nor is the Tribunal's conclusion from the text that it has jurisdiction a manifestly absurd or unreasonable result.
214.
For completeness, the Tribunal shall nevertheless briefly dispose of the Respondent's submissions based on the "primacy" of EU law over allegedly inconsistent provisions of the ECT.
215.
The Respondent primarily relies on Article 25 ECT, which concerns Economic Integration Agreements. Yet there is plainly nothing in the language of Article 25 ECT on the subject of the primacy of EU law. The Tribunal accordingly rejects this submission.
216.
Additionally, the Respondent contends that the Tribunal must apply applicable rules of EU law pursuant to Article 26(6) ECT. The Respondent contends that such applicable rules of EU law include a prohibition on ECT arbitration between EU investors and an EU Member State. This prohibition allegedly overrides the plain meaning of Article 26(1) ECT.
217.
The Respondent also contends that there is a conflict between EU law and the ECT because the Tribunal is being asked to rule upon a regulatory regime that constitutes State aid under EU law. The Respondent places significant weight on the EC State Aid Decision dated 10 November 2017.142 The Respondent contends inter alia that the EC State Aid Decision stands for the proposition that any award by the Tribunal in this arbitration ordering the Respondent to pay compensation would constitute State aid, which the Tribunal does not have the competence to authorize as it falls within the exclusive competence of the EC.
222.
Accordingly, the Respondent's first jurisdictional objection is dismissed.

B. Second Objection: The TVPEE Claim

223.
In this arbitration, one of the Claimants' claims is that the Respondent breached Article 10(1) ECT when it introduced a 7% tax on the value of the production of electrical energy (TVPEE) under Law 15/2012. The Respondent objects that it has not consented to submit to arbitration any claims under Article 10(1) ECT relating to "Taxation Measures", pursuant to the carve-out in Article 21(1) ECT.
224.
Consequently, the Respondent contends that the Tribunal does not have jurisdiction to hear the Claimants' claim that the introduction of the TVPEE is a breach of Article 10(1) ECT. However, the Respondent does not contest jurisdiction in respect of the Claimants' separate claim that the TVPEE violated Article 13 ECT on expropriation, as Article 13 ECT is expressly exempt from the carve-out.

(1) The Parties' Positions

a. Respondent's Position

(i) Overview

225.
The Respondent submits that Article 21 ECT contains a general exclusion of taxation measures from the scope of application of the ECT, and that none of the claw-backs under Article 21(2) to (5) ECT are applicable. Accordingly, the Respondent contends that the Tribunal is barred from hearing the claim that Spain breached its obligations under Article 10(1) ECT through the introduction of the TVPEE, which is a bona fide "Taxation Measure" for the purposes of Article 21 ECT.

(ii) Article 21 ECT

226.
The Respondent contends that there is no doubt that the TVPEE is a "tax[] of the domestic law of the Contract Party" and therefore meets the definition of "Taxation Measure" in Article 21(7)(a)(i) ECT.
227.
Specifically, the Respondent submits that Law 15/2012 is a national law of the Kingdom of Spain, approved by the Spanish Parliament pursuant to its Constitutional authority to impose taxes through law and in accordance with the ordinary legislative procedure under Spanish law.
228.
In determining this point, the Respondent contends that the Tribunal should have regard to the pronouncements of Spain's courts and domestic bodies,147 as well as decisions at the international level pursuant to Article 26(6) ECT. The Respondent contends that these decisions demonstrate that the TVPEE is a tax both as a matter of domestic law and also under international law.148
229.
Further, as a matter of international investment law, the Respondent contends that a tax has the following characteristics: (i) the tax is established by law; (ii) the law imposes an obligation on a class of people; (iii) such obligation implies paying money to the state; and (iv) the tax is for public purposes.149 The Respondent contends that these defining characteristics are met by the TVPEE. In particular, the Respondent contends that the TVPEE is established by Law 15/2012, which imposes an obligation on all persons who produce and incorporate electricity (both conventional and renewable) into the SES, and the revenue raised from the TVPEE is included in the General State Budgets for the financing of public expenditure.150

(iii) Bona fide taxation measure

230.
The Respondent rejects the Claimants' contention that the TVPEE is not a "bona fide" taxation measure and is therefore outside of the scope of Article 21 ECT.
231.
The Respondent contends that the Claimants' reliance on Yukos v Russian Federation is misplaced. The Respondent contends that the tribunal's finding in Yukos that the carve-out under Article 21(1) ECT applied only to bona fide taxes was limited to the "extraordinary circumstances" of that case, where the purpose of the taxation measure was "entirely unrelated" to the purpose of raising general revenue for the State, namely "the destruction of a company or the elimination of a political opponent".151 The Respondent contends that such extraordinary circumstances are clearly not present in this case.
232.
The Respondent contends that an economic analysis of the taxation measure is unnecessary. The Respondent relies on EnCana v Ecuador, where the tribunal stated:

The question whether something is a tax measure is primarily a question of its legal operation, not its economic effect.[…] The economic impacts or effects of tax measures may be unclear and debatable; nonetheless a measure is a taxation measure if it is part of the regime for the imposition of a tax.152

233.
In any event, the Respondent contends that such an analysis reveals the TVPEE to be a bona fide taxation measure that was not designed to reduce the tariffs paid to renewable plants.
234.
The Respondent also contends that the Claimants consider the TVPEE to be a bona fide tax, as demonstrated by the fact the Claimants have referred the issue of whether or not the TVPEE is expropriatory to the competent Spanish tax authority pursuant to Article 21(5)(b)(i) ECT.153
235.
Finally, the Respondent refers to the awards in Isolux and Eiser, in which both tribunals declared that they lacked jurisdiction to hear claims for breach of Article 10(1) ECT arising out of introduction of the TVPEE.154

b. Claimants' Position

(i) Overview

236.
The Claimants submit that the Tribunal has jurisdiction over this claim because the TVPEE is not a "Taxation Measure" for the purposes of the carve-out in Article 21 ECT. In particular, the Claimants contend that the TVPEE is not a bona fide tax of general application but is in fact unfair, arbitrary and a disguised reduction to the tariffs that the Respondent promised to investors in renewable electricity facilities.
237.
Accordingly, the Claimants contend that the Tribunal has jurisdiction to determine whether or not the TVPEE breached Article 10(1) ECT.

(ii) Article 21 ECT

238.
The Claimants contend that Article 21 ECT does not exclude the application of Article 10 ECT to the TVPEE because the TVPEE is not a "bona fide tax".
239.
The Claimants rely inter alia on the award in Yukos v. Russian Federation, where the tribunal held that:

[T]he carve-out of Article 21(1) can apply only to bona fide taxation actions, i.e., actions that are motivated by the purpose of raising general revenue for the State. By contrast, actions that are taken only under the guise of taxation, but in reality aim to achieve an entirely unrelated purpose.cannot qualify for the exemption from the protection standards of the ECT under the taxation carve-out in Article 21(1).155

[…]

Since the claw-back in Article 21(5) of the ECT relates only to expropriations under Article 13 of the ECT, a State could, simply by labelling a measure as "taxation", effectively avoid the control of that measure under the ECT's other protection standards. It would seem difficult to reconcile such an interpretation with the purpose of Part III of the ECT.156

240.
In the absence of a definition of "taxes" in the ECT, the Claimants contend that the Tribunal must "look behind the label" in order to determine whether a purported tax falls within the scope of Article 21 ECT.
241.
In this regard, the Claimants contend that the measure's status as a tax under domestic law is not dispositive. Still, the Claimants question the conformity of the TVPEE with Spanish law. Specifically, the Claimants contend that Spain's Supreme Court has raised doubts regarding the constitutionality of the measure and has referred the question of its compatibility with EU law to the CJEU.157 The Claimants further contend that regulations and declarations of fiscal authorities relied on by the Respondent have no bearing on the lawfulness of the measure. The Claimants submit that the validity of the TVPEE under Spanish law therefore remains unsettled.
242.
In any event, the Claimants contend that whether or not the TVPEE is considered to be a valid tax as a matter of Spanish law is not determinative of this point. The Claimants rely on several awards in which tribunals have developed legal tests to help determine whether a measure qualifying as a tax under domestic law is a "tax" for the purposes of an investment treaty.158

(iii) Bona fide tax measure

243.
The Claimants cite Walde and Kolo that a purported tax "can constitute a 'velvet' revocation of contractually conceded investment incentives, and it can be escalated up to the level of what is the economic equivalence of a direct expropriation."159
244.
The Claimants submit the TVPEE does not have the characteristics of a bona fide tax. In order to assess whether or not a measure is a bona fide tax, the Claimants contend that the Tribunal should focus on three issues:160 (i) is it imposed by law?; (ii) is it imposed on broad classes of persons?; and (iii) does it raise money for the State treasury to be used for public purposes?
245.
Although the TVPEE is imposed by law, the Claimants contend that the measure does not satisfy the other two requirements because: (i) it applies to revenues including incentive tariffs, rather than profits or the wholesale value of electricity generation, and therefore applies disproportionately to incentive revenues that only renewable producers received (i.e. renewable facilities paid a higher "tax" on the same amount of electricity production than conventional electricity facilities); and (ii) it does not raise general revenue for the State but is syphoned into the electricity system in order to reduce the regulated tariffs that electricity consumers pay into the system to cover costs such as the tariffs.
246.
The Claimants seek to distinguish the awards in Isolux, Eiser and Masdar on the grounds that they focused on Spain's alleged bad faith intent, whereas the Claimants submit that the proper test is the legal and economic effect of the measure, which is not taxation but a reduction of incentives so that electricity consumers will not have to pay for them.

(2) The Tribunal's Analysis

VII. LIABILITY

A. Overview

261.
The Claimants contend that the Respondent violated Article 10(1) ECT -specifically: (i) the fair and equitable treatment ("FET") standard, (ii) the nonimpairment standard, and (iii) the requirement to observe obligations entered into with an Investor (the so-called "umbrella clause") - and Article 13 ECT concerning unlawful expropriation and measures having equivalent effect, when it enacted the disputed measures.
262.
On the basis of the Parties' respective submissions, the Tribunal considers that the issues to be decided on liability are as follows:

(a) Fair and equitable treatment (Article 10(1) ECT):

(i) Factually, did Spain incentivize the Claimants to invest when it enacted the tariff regime under RD 661/2007?

(ii) Did the Claimants have legitimate expectations that the tariff regime under RD 661/2007 would not change?

(iii) Did Spain subsequently abrogate the RD 661/2007 regime? If so, was this:

(1) a breach of the Claimants' legitimate expectations?

(2) a failure to treat the Claimants' investments transparently and consistently?

(3) a failure to act in good faith towards the Claimants' investments?

(b) Impairment: Whether Spain impaired the Claimants' investments through unreasonable or discriminatory measures, in violation of the non-impairment standard under Article 10(1) ECT?

(c) Umbrella clause: Whether the Respondent violated the ECT's umbrella clause under Article 10(1) ECT when it retroactively amended and then abrogated the RD 661/2007 tariff regime?

(d) Expropriation: Whether the Claimants' investments were unlawfully expropriated under Article 13 ECT as a result of the changes to the regulatory framework after RD 661/2007?

263.
The Tribunal has had the benefit of a full exchange of written pleadings and submissions addressing each of these issues. For the avoidance of doubt, even if not specifically mentioned in the summary of the Parties' submissions in the following sections of the Award, all of the Parties' submissions and arguments have been carefully considered by the Tribunal in reaching its decisions.

B. Applicable Law

264.
The Tribunal is bound to decide the merits of this dispute in accordance with:

(a) Article 22(1) of the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce in force since 1 January 2010 (the "Rules"), which provides that the Arbitral Tribunal "shall decide the merits of the dispute on the basis of the law(s) or rules of law agreed upon by the parties"; and

(b) Article 26(6) ECT, which provides that: "The Tribunal shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of International Law."

C. Fair and Equitable Treatment under Article 10(1) ECT

265.
The fair and equitable treatment (FET) obligation is contained in Article 10(1) ECT, which provides in full that:

Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment. Such Investments shall also enjoy the most constant protection and security and no Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal. In no case shall such Investments be accorded treatment less favourable than that required by international law, including treaty obligations. Each Contracting Party shall observe any obligations it has entered into with an Investor or an Investment of an Investor of any other Contracting Party.

266.
The Claimants contend that:

Spain violated its duty of fair and equitable treatment in at least three distinct ways: 1) by violating Claimants' legitimate expectation of fixed tariffs for all the electricity produced by their photovoltaic facilities for the lives of those facilities; 2) by failing to treat Claimants' investments transparently and consistently; and 3) by failing to act in good faith towards Claimants' investments.167

267.
Further to the Tribunal's directions to the Parties at the conclusion of the Hearing,168 the Tribunal has distilled the Parties' submissions on the FET claim into four issues:

(a) Factually, did Spain incentivize the Claimants to invest when it enacted the tariff regime under RD 661/2007?

(b) Did the Claimants have legitimate expectations that the tariff regime under RD 661/2007 would not change?

(c) Did Spain subsequently abrogate the regime?

(d) If so, was this:

(i) a breach of the Claimants' legitimate expectations?;

(ii) a failure to treat the Claimants' investments transparently and consistently?; and/or

(iii) a failure to act in good faith towards the Claimants' investments?

(1) The Parties' Positions

a. Claimants' Position

(i) Factually, did Spain incentivize the Claimants to invest when it enacted the tariff regime under RD 661/2007?

268.
The Claimants contend that Spain:

exercised its regulatory power to incentivize renewable energy investments by granting fixed tariffs and deliberately relinquishing its discretion to reduce those tariffs for existing (already built) plants, because Spain needed and wanted to induce massive investment in its renewable energy sector.169

269.
In particular, the Claimants contend that they were incentivized to invest by the explicit terms of RD 661/2007 and by certain roadshows, statements and promises of high-ranking Spanish representatives reinforcing that RD 661/2007 offered stability and an attractive and predictable level of profitability for renewable energy investors.
270.
The Claimants contend that RD 661/2007 expressly established fixed FiTs (indexed to inflation) that would be paid for the lifetime of a PV plant, established priority of access and dispatch to the grid, and, crucially, guaranteed that Spain would not in future alter the benefits for an existing (already built) PV facility properly registered under RD 661/2007.170 FiTs would be reviewed four years after enactment, but any future revisions would not affect the FiTs guaranteed to existing PV facilities already in operation.
271.
The legal framework for the RD 661/2007 support scheme was provided by Law 54/1997, which aimed to reduce electricity costs through market mechanisms and instructed the regulator to set above-market FiTs in order to meet Spain's renewable energy targets, taking into account many different factors. These factors included a "reasonable rate of return", which the Claimants contend was neither intended to be a cap nor a target for incentives.171
272.
The Claimants contend that the incentives in RD 661/2007 were necessary for Spain to attract sufficient investment to meet its ambitious EU and international environmental targets for renewable energy production. By contrast, the support schemes enacted by Spain in 1998 (RD 2818/1998) and 2004 (RD 436/2004) had failed to attract sufficient investment for Spain to meet its targets because they had not offered fixed or stable FiTs. Spain finally "got it right" when it enacted RD 661/2007.172
273.
The Claimants contend that rational investors would not have constructed PV facilities without government support because of the capital-intensive nature of PV investments. Approximately 90% of the total installed costs of a PV facility are upfront capital costs incurred in constructing the facility.173 In the case of the Claimants' PV facilities, that figure was 92%.174 These costs are sunk upon completion and will never decrease for the existing PV facility in question. By contrast, operating costs are relatively low (approximately 8% of total installed costs).175 Moreover, the up-front cost of constructing PV facilities was higher than the price of electricity, and the average cost of constructing a PV facility decreased with technological advances over time, meaning that a rational investor would always delay investing in the knowledge that a PV facility would cost less to build in future.176 Thus, the Claimants contend, stable and predictable incentives were necessary in order to encourage investment in PV facilities by mitigating the capital-intensive and high cost nature of such investment.
274.
The Claimants contend that Spain "very aggressively promoted the transparency, stability and non-retroactivity" of the RD 661/2007 support scheme.177 The Claimants rely inter alia on the following:

(a) a press release accompanying RD 661/2007, in which Spain stated:

It will be in 2010 that the tariffs and premiums set out in the proposal will be revised in accordance with the targets set in the Renewable Energies Plan 2005-2010 and in the Energy Efficiency and Savings Strategy and in line with the new targets included in the following Renewable Energies Plan for the period 2011-2020.

The revisions carried out in the future of the tariffs will not affect those Installations already in operation. This guarantee provides legal safety for the producer, affording stability to the sector and fostering its development.

[…]

Every 4 years the tariffs will be revised, bearing in mind compliance with the targets set. This will allow an adjustment to the tariffs in line with the new costs and the degree of compliance with the targets. The tariff revisions carried out in the future will not affect those installations already operating. This guarantee affords legal safety to the producer, providing stability to the sector and promoting its development.178

(b) assurances of "legal security" and "stable remuneration" by senior Spanish officials;179

(c) CNE presentations promoting Article 44.3 RD 661/2007 as a guarantee that FiTs would not be retroactively changed for existing facilities;180

(d) CNE, IDAE and INVEST IN SPAIN "roadshows" held to promote RD 661/2007 across the globe, in which returns of "between 8 and 11%" and "sometimes even up to 20%" were touted;181

275.
The Claimants also rely on the finding of the ECT tribunal in Novenergia v. Spain, which concerned the same measures as in the present case, that Spain made "a number of relevant statements or assurances" that "were indeed aimed at incentivizing companies to invest heavily in the Spanish electricity sector", and "[a] considerable number of RE companies...invested in reliance on these statements and assurances."182
276.
In sum, the Claimants contend that they were offered an extraordinary degree of security through the combination of: (i) a perfectly known price (since the FiT was fixed) and (ii) inflation-indexed adjustments, together with (iii) the guarantee of continued support throughout the entire life of each PV facility, and (iv) the guarantee of no retroactive effect of future revisions.
277.
Further, with the comfort of fixed, long-term FiTs - which comprised 80-90% of a PV facility's revenue - the Claimants were able to secure financing for their investments. The Claimants contend that they conducted due diligence and were advised by prominent counsel and experts with no caveats that they were eligible for the fixed FiTs under RD 661/2007.183
278.
The Claimants contend that, in reliance on the guarantees in RD 661/2007, as well as the representations of Spanish officials, they acquired and developed three PV projects: Madridejos (acquired by Foresight I in May 2009), La Castilleja (acquired by Foresight 2 and GWM in March 2010), and Fotocampillos (acquired by GWM II in May 2010; contributed to Greentech in August 2011). All three were registered in the Administrative Registry for Special Regime Generation Facilities (RAIPRE) (see paragraph 88 above), at which point the Claimants contend that the right to receive the FiTs stipulated in RD 661/2007 vested. The Claimants' PV facilities initially received the RD 661/2007 FiTs.
279.
More generally, the Claimants contend that RD 661/2007 was a great success and resulted in approximately €18 billion being invested into Spain's renewable energy sector between 2007 and 2009,184 thereby transforming Spain's PV sector into a global leader. Spain subsequently enacted a similar, albeit scaled back, FiT support scheme under RD 1578/2008.

(ii) Did the Claimants have legitimate expectations that the tariff regime under RD 661/2007 would not change?

280.
The Claimants submit that the protection of legitimate expectations is a well-established component of the FET standard.185
281.
The Claimants contend that their legitimate expectations that they would receive the precise FiTs specified in RD 661/2007 over the lifetime of their PV facilities are based primarily on the unequivocal terms of RD 661/2007, specifically:

(a) The right to receive incentives "for the total of partial sale of the net electricity generated" pursuant to Article 17;

(b) The right to fixed incentives pursuant to Article 36, as follows:

PV facilities under 100 kW - Fixed FiTs of 44.0381 c€ per kWh of electricity produced for the first 25 years of the facilities' operation (and fixed tariffs of 35.2305 c€ per kWh of electricity produced for the remaining life of the facilities);

PV facilities between 100 kW and 10 MW - Fixed FiTs of 41.75 c€ per kWh of electricity produced for the first 25 years of the facilities' operation (and fixed tariffs of 33.4 c€ per kWh of electricity produced for the remaining life of the facilities).

(c) The right to have those FiTs updated "on an annual basis using as a reference the increase in the CPI" pursuant to Article 44.1;

(d) The guarantee against any other revisions to the FiTs granted to existing plants pursuant to Article 44.3, which provides:

The revisions to the regulated tariff and the upper and lower limits [under the premium option] indicated in this section shall not affect facilities for which the deed of commissioning shall have been granted prior to January 1 of the second year following the year in which the revision shall have been performed.

282.
Further, the Claimants contend that their legitimate expectations that the tariff regime under RD 661/2007 would not change are also based on: (i) the fact that, under Spanish law, registration in the RAIPRE "transformed RD 661/2007's offering of incentives to a specific, identifiable class of investors into an individual (plant-specific) right to a certain incentive tariff recognized by Spain";186 (ii) the context in which Spain enacted RD 661/2007, which established a clear, straightforward and stable legal framework to incentivize renewable investment after earlier support schemes had failed; (iii) roadshows, statements and promises of high-ranking Spanish representatives and offices, including by the Council of Ministers in its announcement accompanying RD 661/2007; (iv) advice from Spanish lawyers; and (v) the fact that international banks were willing to provide financing on favourable terms based on predictable cash flows under the RD 661/2007 regime.187
283.
The Claimants submit that their legitimate expectations are supported by the findings of the Novenergia v. Spain tribunal, which found that, "RD 661/2007 was so adamantly clear that its understanding by common readers did not require a particularly sophisticated analysis", and that the 2005 PER, RD 661/2007, RD 436/2004 and Spanish Supreme Court cases could not have:

given the Claimant the expectation that a 'reasonable rate of return' would be limited to 7%, that stability and predictability could not be expected in the SES, that the Special Regime could be abolished, or any of the other arguments that the Respondent appears to make.188

284.
Applying the approach of the Novenergia tribunal, the Claimants contend that the date of investment for the purposes of the ECT is 8 May 2009, when the first of the Claimants' investments was made by Foresight.189 However, the Claimants contend that the majority of the Respondent's evidence purportedly demonstrating that the Claimants should have expected changes to the RD 661/2007 incentives in fact post-dates the Claimants' investments. For example, only seven of the hundreds of Spanish Supreme Court decisions between 2005 and 2012 relied on by the Respondent were rendered before the Claimants made their investments between 8 May 2009 and 7 May 2010,190 and none of those cases involved the RD 661/2007 support scheme, nor considered the effect of a clause precluding future changes to incentive rates for existing PV facilities (such as that in Article 44.3 of RD 661/2007).191 In sum, the Claimants contend that there was no indication at the time the investments were made that the Respondent would or could reduce incentives for existing PV facilities.
285.
Moreover, the Claimants contend that, at the time they made their investment, neither the Respondent nor the EC asserted that payment of FiTs under RD 661/2007 constituted State aid under EU law. The Claimants submit that the EC State Aid Decision dated 11 November 2017 relied on by the Respondent - concerning the lawfulness of the New Regulatory Regime under EU State aid law - does not assess the RD 661/2007 support scheme and is therefore irrelevant to the question of the Claimants' legitimate expectations.192

(iii) Did Spain subsequently abrogate the RD 661/2007 regime?

286.
The Claimants contend that Spain, having met its renewable energy targets for 2010, subsequently reneged on the guarantees of stability and non-retroactivity under RD 661/2007 and began cutting the incentives granted to existing PV facilities, including the Claimants' three facilities.
287.
In particular, the Claimants contend that:

(a) In November 2010, Spain reduced the duration of the RD 661/2007 FiTs from the lifetime of the PV facility to 25 years (RD 1565/2010, subsequently extended to 28 years by RDL 14/2010 and to 30 years by Law 2/2011);

(b) In December 2010, Spain reduced the effective FiT rates for the Claimants' PV facilities by 24% in 2011-2012 through the introduction of an "emergency" operating hour cap on PV production,193 and also imposed a 0.5€/MWh "access toll" on all electricity delivered to the grid (RDL 14/2010).

(c) In December 2012, Spain introduced a 7% "tax" on the production of electricity (Law 15/2012).

(d) In February 2013, Spain amended the inflation index used to annually update FiTs under RD 661/2007 (RDL 2/2013).

(e) Finally, between July 2013 and June 2014, Spain enacted the New Regulatory Regime, which abolished the fixed FiT support schemes under RD 661/2007 and RD 1578/2008 and replaced them with far less valuable incentives under a result-orientated regime that engineered remuneration to achieve a "reasonable rate of return" for a "standard facility" initially set at the ten-year average of Spanish Government bond yields plus 3% (7,938% pre-tax).

288.
The Claimants further contend that the New Regulatory Regime implemented major structural changes in comparison to RD 661/2007, including: (i) the change from a "regulated return" to an "at risk" regulatory framework;194 (ii) stricter targets to earn the target rate of return, in particular an increase in operating hours and electricity production that a PV facility must achieve to obtain the target return;195 (iii) the change in the FiT incentive structure from a production payment (a fixed €/MWh FiT, with no limit on production) to a payment based mainly on plant capacity, and the introduction of a cap on production incentives at the maximum operating hours;196 (iv) reduction in the reasonable return on investments by setting it at 7,398% pre-tax for 2013-2018 (5.9% after-tax, compared with 7%-9.5% after-tax under RD 661/2007);197 (v) introduction of a mechanism to retroactively "clawback" profits earned prior to the New Regulatory Regime by reducing remuneration earned in 2013-2018, so as to ensure PV facilities earn a return around the new 7,398% pre-tax target over their entire regulatory lives;198 (vi) cut the duration that incentives would be paid from the lifetime of a PV facility to 30 years;199 and (vii) changed the allocation of interest rate risk.200
289.
The Claimants contend that the Respondent's decision to cut renewable incentives, rather than set electricity prices at levels sufficient to cover total electricity costs, was a political choice taken with full knowledge that Spain would be liable to compensate investors. The Claimants cite an article in the El Mundo newspaper dated 8 October 2014, which reported that:

...[T]he Government estimates that... if all arbitrations are resolved against Spain, the impact for the state would be €1.2 billion... In the [Energy Ministry] they believe that this number is 'minor' if [it is] compared with the savings for the electricity consumer due to the latest reforms on the remuneration of renewable [energy] and cogeneration.201

290.
The Claimants contend that Spain's abrupt regulatory about-face severely harmed the Claimants' investments. In particular, Spain's measures: (i) reduced the revenues and cash flows that had been promised under RD 661/2007, thereby also shortening the economic life of the Claimants' investments; (ii) increased working capital requirements; (iii) increased the risk of default and insolvency; (iv) increased exposure to changes in market prices, interest rates, and operating costs; and (v) increased regulatory risk.
291.
The Claimants' quantum expert calculates that the disputed measures reduced the revenues of the Claimants' PV facilities by approximately 23% (or €150 million) over their lifetimes.202
292.
On 6 November 2015, Foresight 1's subsidiary, Foresight Netherlands Solar 1 B.V., sold the Madridejos project for €4.2 million, compared to the over €9 million it had originally paid to acquire Madridejos.203 As part of its mitigation strategy, in July 2016 Greentech acquired Foresight 2's 49.97% share of La Catilleja for €3.8 million, and has thereby become sole owner of that project.204 On 28 September 2016, Greentech sold its equity the Fotocampillos project for €2.9 million.205

(iv) Was there a breach of the Claimants' legitimate expectations?

293.
The Claimants submit that the Respondent violated their legitimate expectations when it: imposed a limit on the annual operating hours for which PV facilities could receive FiTs (RD 14/2010); further reduced the effective tariff rate through the introduction of a 7% tax on the production of electricity (Law 15/2012) and by de-linking tariff adjustments from the CPI (RDL 2/2013), and then ultimately replaced the guaranteed FiTs with an arbitrarily defined "reasonable rate of return" when it repealed and replaced RD 661/2007 with the New Regulatory Regime (RDL 9/2013; Law 24/2013; RD 413/2014; MO 1045/2014).
294.
The Claimants contend that these measures violated Spain's obligations under RD 661/2007, as summarized below:

MeasureViolationRelevantRD 661/2007 provision
2010 Operating Hours Restrictions (RDL 14/2010) Spain's obligation to pay incentives on all electricity an eligible PV facility could produce Article 17
2012 TVPEE (Law 15/2012) Spain's obligation to pay fixed incentives for the lifetime of PV facility operation Article 36
2013 Change in CPI inflation index (RDL 2/2013) Spain's obligation to adjust RD 661/2007 incentives according to the CPI Article 44.1
2013-2014 "New Regulatory Regime" (RDL 9/2013; Law 24/2013; RD 413/2014; MO 1045/2014) Spain's obligation to pay fixed incentive rates for the lifetime of PV facility operation Article 36

295.
The Claimants submit that there is "a critical distinction to be made in this case between existing, already built plants versus future PV plants".206 The Claimants recognize that Spain could always change the FiTs for new or future PV facilities. However, the Claimants contend that Spain may not, without breaching its obligations under the ECT, change FiTs for existing, already built PV facilities.207
296.
The Claimants deny that the awards in Charanne v. Spain and Isolux v. Spain, in which both tribunals found that investors did not have legitimate expectations that Spain would not change the RD 661/2007 support scheme,208 are relevant to the present case. The Claimants criticize and seek to distinguish the Charanne and Isolux awards on a number of grounds, including that Charanne concerns only the 2010 measures and the claimant in Isolux did not invest until 2012, after Spain had already enacted changes to RD 661/2007.
297.
In the alternative, the Claimants submit that, even if they did not have a legitimate expectation of stability regarding the precise FiTs in RD 661/2007, Spain's enactment of the New Regulatory Regime still violates the FET standard because it is, to quote the tribunal in Eiser v. Spain, a "fundamental change to the regulatory regime in a manner that does not take account of the circumstances of existing investments made in reliance on the prior regime."209 The Claimants also rely on the finding of the ECT tribunal in Novenergia v. Spain that Spain violated the ECT by implementing the New Regulatory Regime, which the Novenergia tribunal found "radically", "unexpectedly", and "drastically" altered the RD 661/2007 support scheme, fell "outside the acceptable range of legislative and regulatory behavior", and "entirely transformed and altered the legal and business environment under which the investment was decided and made".210
298.
However, the Claimants contend that it is unnecessary for the Tribunal to apply the "fundamental change" standard - or to engage in any balancing exercise that seeks to evaluate whether or not Spain's modifications to the regulatory regime were appropriate - because there was, to quote Eiser, a "specific assurance giving rise to a legitimate expectation of stability" in Article 44.3 of RD 661/2007.211

(v) Was there a failure to treat the Claimants' investments transparently and consistently?

299.
The Claimants contend that the Respondent also violated the FET standard by failing to treat the Claimants' investments transparently and consistently, which the Claimants submit is a distinct component of the ECT's FET clause.212
300.
The Claimants submit that a State's duty of transparency "requires both the absence of any ambiguity or opacity in its treatment of investments, and that the legal framework that will apply to an investment be readily apparent."213

The Claimants contend that none of the changes enacted by the Respondent subsequent to the Claimants' investments can be traced to the legal framework under which they invested.

301.
Moreover, the Claimants contend that the New Regulatory Regime is plainly inconsistent with the regime under which the Claimants invested. Indeed, Spain repealed Law 54/1997, which provided the overarching legal framework under which the RD 661/2007 support scheme operated, so that it could enact the New Regulatory Regime.
302.
In short, the Claimants contend, the Respondent "has made the investment environment entirely uncertain and future remuneration impossible to predict."214
303.
Further, the Claimants contend that the Respondent's pleaded case on legitimate expectations - that RD 661/2007 did not mean what it plainly said when it guaranteed specific FiTs for the life of a facility, that RD 661/2007 did not mean what Spanish officials repeatedly said it said, and that RD 661/2007 did not mean what sophisticated investors and lenders believed it said - is "essentially a damning confession on the subject of transparency (as well as consistency and good faith)".215

(vi) Was there a failure to act in good faith towards the Claimants' investments?

304.
The Claimants contend that the Respondent violated the FET standard by failing to treat the Claimants' investments in good faith, which the Claimants submit is a distinct component of the ECT's FET clause.216
305.
The Claimants contend that the Respondent's conduct was not in good faith because it: (i) cut the FiTs after reaping the benefit of new PV capacity and in the knowledge that the majority of investors' costs in PV facilities was sunk at the time of investment; and (ii) used the Claimants and other renewable energy investors as a "scapegoat" for its tariff deficit.217

b. Respondent's Position

(i) Factually, did Spain incentivize the Claimants to invest when it enacted the tariff regime under RD 661/2007?

306.
The Respondent admits that RD 661/2007 was one of the incentives it offered for renewable energy investors at the time the Claimants made their investments.218
307.
However, the Respondent contends that it never guaranteed that the Claimants' PV plants would receive a fixed FiT throughout their operating lives. Rather, Article 30.4 RD 661/2007 guaranteed only a "reasonable rate of return" assessed by reference to returns in the capital markets. The Respondent accepts that the press release accompanying RD 661/2007 did state that future revisions to the FiTs would not affect PV facilities that had already been commissioned, but the Respondent contends that this statement concerned revisions within the framework of Article 44 RD 661/2007.219 As Mr Váquer, the Respondent's expert on Spanish law, stated at the Hearing, the press release "doesn't say a thing about the possibility of having [RD 661/2007] being repealed afterwards. It only speaks about revisions carried out under that particular royal decree."220
308.
Further, the Respondent contends that RD 661/2007 did not offer more stability than RD 436/2004 and was actually intended to correct windfall profits generated under the RD 436/2004 support scheme, and to reverse the tariff deficit so as to ensure the sustainability of the SES. Indeed, the Respondent contends that RD 661/2007 actually reduced remuneration for all PV facilities under 100kWh, which in 2009 were 99% of all PV facilities in Spain.221
309.
Moreover, the Respondent contends that the fact that RD 661/2007 amended the RD 436/2004 support scheme is fatal to the Claimants' theory that they were guaranteed fixed FiTs for the lifetime of their PV facilities. The Respondent contends that this reflects the reality that the RD 436/2004 and RD 661/2007 support schemes were merely regulations that could not as a matter of Spanish law petrify the legal framework under Law 54/1997. The Respondent also rejects the Claimants' reliance on the supposed guarantee under Article 44.3 of RD 661/2007. Rather, the Respondent contends that Article 44.3 RD 661/2007 is very similar to Article 40.3 RD 436/2004, which did not prevent the changes to FiTs and other aspects of the support scheme subsequently introduced by RD 661/2007.
310.
The Respondent also denies that it conducted an "aggressive campaign" to attract foreign investment under RD 661/2007.
311.
The Respondent contends that the Claimants misrepresent the alleged assurances of Spanish officials. The Claimants knew - or would have known, had they conducted proper due diligence of the strategically important and highly regulated SES - that they were entitled only to a reasonable rate of return under Law 54/1997, which provided the regulatory framework for the RD 661/2007 support scheme. Further, the Claimants' reliance on the purported stabilization clause in Article 44.3 RD 661/2007 is completely misplaced. No diligent investor could have believed that existing regulations could never be adapted to changing economic circumstances or technical developments. Indeed, prior to the enactment of RD 661/2007, there were a number of regulatory changes to the renewable energy support schemes that were introduced under Law 54/1997.
312.
The Respondent also contends that the Claimants have not provided any evidence supporting their claim that they acquired a right to the payment of future FiTs in respect of all the energy their PV facilities might produce, for the whole operating life of those PV facilities, without any possible limit.

(ii) Did the Claimants have legitimate expectations that the tariff regime under RD 661/2007 would not change?

313.
The Respondent submits that the Claimants did not have legitimate expectations that the tariff regime under RD 661/2007 would not change during the entire life of the PV facilities registered thereunder.
314.
The Respondent contends that it did not make any specific commitment to the Claimants, without which the Respondent submits there can be no legitimate expectation that a general regulatory framework will remain unchanged.222 The Respondent submits that the Claimants' position effectively requires the regulatory framework to be "petrified" at the time an investment is made, contrary to the position under Spanish law, EU State aid law, and the Parties' rights and obligations under the ECT.
315.
The Respondent contends that the Claimants never commissioned legal due diligence on the specific issue of whether or not the tariff regime could be changed, as admitted by Mr Jamie Richards, a partner of Foresight Group, at the Hearing.223 The Respondent contends that such legal due diligence would have revealed that there was no basis for the Claimants to objectively and reasonably expect the regulatory framework to be "petrified". The Respondent further contends that the Claimants' expectations were not reasonable or justified in light of the information regarding regulatory risk that the Claimants knew, or should as a diligently informed investor have known, at the time of their investments.
316.
The Respondent contends that the following factors demonstrate that the Claimants could not have had legitimate expectations that the tariff regime would not change.
317.
First, the Respondent contends that the evolution of the Spanish support schemes demonstrated to the Claimants that the regulatory regime could be changed. In particular, the Respondent relies on the fact that RD 436/2004 was modified by RD 661/2007 - notwithstanding Article 40.3 RD 436/2004, which is similar to the supposed "guarantee" language in Article 44.3 RD 661/2007 relied on by the Claimants - as well as the Fifth Additional Provision of RD 1578/2008, which expressly provided for revision to FiTs of existing facilities in 2012.224
318.
Second, the Respondent submits that it is significant to the issue of legitimate expectations that the Claimants invested in a strategic and highly regulated sector. In particular, the Respondent contends that any diligent investor would have been aware that the Respondent was required to balance investor and consumer interests pursuant to the legal and regulatory framework. The Respondent refers to the preamble to RD 661/2007, which provides:

The economic framework established in the present Royal Decree develops the principles provided in Law 54/1997, of 27 November, on the Electricity Sector, guaranteeing the owners of facilities under the special regime a reasonable return on their investments, and the consumers of electricity an assignment of the costs attributable to the electricity system which is also reasonable, [...].225

319.
The Respondent further explains that the SES is based on two basic principles: sustainability and reasonable return. In accordance with the principle of hierarchy under Spanish law, RD 661/2007 operated within the regulatory framework established by Law 54/1997, which subordinates the payment of renewable electricity subsidies to the need to ensure the financial sustainability of the SES.226 The Respondent contends that since 2006 it has warned investors that returns must be proportional to consumers' bills.227 The Respondent further contends that RD 661/2007, RD 1578/2008, CNE Report 30/2008, RDL 6/2009, and Law 2/2011 all emphasized the need to ensure the sustainability of the SES.228
320.
Third, the Respondent contends that a reasonable investor would have known that the incentives under RD 661/2007 could be amended as a matter of Spanish law, as interpreted by the Spanish Supreme Court.229 The Respondent contends that the Supreme Court has confirmed in its judgments that the Respondent's power to make regulatory changes to renewable electricity support schemes is limited only to ensuring that investors have: (i) a reasonable rate of return; (ii) priority of access to the grid; and (iii) priority of dispatch to the grid.230 The Respondent contends there is no material difference in the jurisprudence dated prior to and after the Claimants' investments.231 Moreover, before the Claimants invested the limits of the Respondent's regulatory power under Article 30.4 of Law 54/1997 had been clearly established in the Supreme Court's decision of 25 October 2006.232 The Respondent relies inter alia on the decision of the Spanish Supreme Court dated 9 December 2009 concerning a challenge to RD 661/2007, in which the court stated:

[The claimant] does not pay enough attention to the case law of this Chamber specifically referred to with regard to the principles of legitimate expectation and non-retroactivity applied to the successive incentives' regimes for electricity generation. This involves the considerations set out in our decision dated October 25, 2006 and repeated in that issued on March 20, 2007, inter alia, about the legal situation of the owners of electrical energy production installations under a special regime to whom it is not possible to acknowledge for the future an "unmodifiable right " to the maintenance unchanged of the remuneration framework approved by the holder of the regulatory authority provided that the stipulations of the Law on the Electricity Sector are respected in terms of the reasonable return on investments.233

321.
Fourth, the Respondent contends that the payment of FiTs under RD 661/2007 was a subsidy intended only to create a level playing field between conventional and renewable energy producers. The Claimants could not therefore expect to receive a higher FiT than necessary to compensate for the difference between the cost of producing renewable electricity and the market price.
322.
Fifth, the level of subsidy was set on the basis of assumptions and forecasts regarding macroeconomic circumstances but was also subject to ensuring the overall sustainability of the SES. The Claimants could not therefore have had a legitimate expectation that FiTs would not change in the event a change of macroeconomic circumstances impaired the sustainability of the SES.
323.
Relatedly, the Respondent also relies on the EC State Aid Decision dated 11 November 2017, which concerns whether or not the New Regulatory Regime that replaced RD 661/2007 and RD 1578/2008 constituted unlawful State aid under EU law.
324.
The Respondent contends that the EC State Aid Decision stands for five propositions. First, the RD 661/2007 support scheme constitutes State aid under EU law, which requires that subsidies are constantly monitored in to order to ensure that they are always proportionate from an economic perspective to the State's policy goal of promoting renewable energy. Second, under EU law there is no right of an investor to State aid generally or to a specific structure or level of support. Third, the RD 661/2007 support scheme was not authorized by the European Commission, meaning that its lawfulness under EU State aid rules was not determined. Fourth, the Claimants, as recipients of State aid, could not have had legitimate expectations that the unnotified State aid, i.e. RD 661/2007, was either lawful or would not be modified. Fifth, the European Commission is the only authority with the competence to decide the lawfulness of State aid; it follows that the Tribunal does not have the competence to authorize the granting of State aid.234
325.
Sixth, the Respondent relies on the fact that certain of the Claimants' contracts relating to the Claimants' acquisitions of the PV facilities contain provisions acknowledging the possibility of regulatory changes.235

(iii) Did Spain subsequently abrogate the RD 661/2007 regime?

326.
The Respondent contends that it has not in fact abrogated the support scheme for PV electricity producers, from either an economic or legal perspective. The Respondent admits that the disputed measures have introduced some changes but maintains that the essential nature of the renewables regime has remained unchanged, specifically the granting of a subsidy, priority of market access and dispatch, and a reasonable rate of return of 7,398% pre-tax (6.39% post-tax) that was well above the market weighted average cost of capital (WACC) (6.89% pre-tax236).237 There has been no negative impact on the Claimants' investments as a result of the disputed measures.
327.
The Respondent contends that fixed FiTs were never guaranteed under RD 661/2007 and it permissibly made changes to incentives in response to changing circumstances. The economic situation in Spain by the time of the Claimants' investments in 2009-2010 was completely different from that which had prevailed when RD 661/2007 was enacted. As a result of the financial crisis, electricity demand fell to 2005 levels.238 Whereas the Respondent had intended the FiTs to yield a 7% rate of return,239 investors in PV facilities ended up receiving excessive remuneration resulting in a rate of return of more than 9%.240 This negatively impacted the economic sustainability of the SES.
328.
In order to address this situation, the Respondent did two things. First, it increased the access tariffs paid by Spanish electricity consumers to among the highest in Europe, representing an 81% increase between 2004 and 2011.241 Second, between 2010 and 2014, the Respondent enacted the disputed measures to restore the economic sustainability of the SES.
329.
From an economic perspective, the Respondent contends that the disputed measures maintain the essence of the RD 661/2007 support scheme that the Claimants invested under. In particular, the Respondent contends that the Claimants have received up to 88% of their revenues from FiTs,242 and have received a reasonable rate of return of 8.6% pre-tax.243 According to the Respondent's primary valuation methodology, the Claimants have not suffered any loss as a result of the disputed measures.244 The Claimants' PV facilities will generate enough cash-flows to recover investment costs, operating costs, and to obtain a reasonable return that is above the benchmark market return (WACC (6.89% pre-tax)245) and the reasonable return established by the Respondent (7,398% pre-tax246). More generally, the Spanish PV sector has received government subsidies in the amount of €64.2 billion.247
330.
From a legal perspective, the Respondent contends that the New Regulatory Regime maintains the essential features of the RD 661/2007 support scheme under which the Claimants invested, namely a reasonable rate of return with reference to the cost of money in the capital markets, guarantee of priority of access to grid and priority of dispatch, all in accordance with EU State aid law.

(iv) Was there a breach of the Claimants' legitimate expectations?

331.
The Respondent submits that, given the absence of a specific commitment of stability, the Claimants did not at the time they made their investments have legitimate expectations that RD 661/2007 would not be amended, nor did they have legitimate expectations that their PV facilities would receive a guaranteed fixed FiT throughout the plants' operating lives. Accordingly, the Respondent contends that there has been no breach of the Claimants' legitimate expectations.
332.
The Respondent contends that the Eiser, Novenergia and Masdar cases against Spain were wrongly decided.248 The Respondent submits that the Tribunal should follow the Charanne and Isolux awards in finding that the Claimants did not have legitimate expectations that their incentives would never be changed and there was no violation of the FET standard.249
333.
In any event, the Respondent contends that the disputed measures were reasonable and proportionate, and are therefore non-compensable regulatory measures.250 The measures were reasonable because they were inter alia addressed to the rational policy of ensuring the economic sustainability of the SES, which is the guiding principle of the regulatory framework. The SES had become unsustainable because of: (i) a fall in energy demand as a result of the financial crisis; (ii) an increase in tariffs paid by Spanish consumers, which were amongst the highest in the EU; (iii) over-remuneration in the renewables sector resulting in windfall profits; and (iv) an increasing tariff deficit. The Respondent contends that the measures are proportionate because they reduced the economic burden to consumers of delivering a sustainable electricity system while renewable energy investors continued to have priority of access and dispatch, and received a reasonable rate of return of approximately 7,398% pre-tax. Moreover, the disputed measures were totally in accordance with EU State aid law.

(v) Was there a failure to treat the Claimants' investments transparently and consistently?

334.
The Respondent contends that it acted transparently and consistently as regards the Claimants' investments.
335.
The Respondent submits that there cannot be a breach of the transparency obligation when it was notorious that regulatory changes could be made, as demonstrated by the evolution of the renewables support schemes enacted by Spain and the jurisprudence of the Supreme Court.
336.
In any event, the Respondent contends that the disputed measures followed the established procedures and maintained the essential nature of the regulatory framework under which the Claimants invested, in particular: a subsidy, priority of market access and dispatch, and a reasonable rate of return in accordance with the cost of money on the capital markets. The Respondent denies that the contested measures were retroactive. In fact, the Respondent contends, the disputed measures apply to future rights only, as provided in RDL 9/2013.251
337.
The Respondent submits that the duty of consistency does not require the regulatory framework to be petrified or frozen absent a specific commitment to an investor by the host State. The Respondent contends that the disputed measures were consistent with the guiding principles of the regulatory framework, namely sustainability and a reasonable rate of return.

(vi) Was there a failure to act in good faith towards the Claimants' investments?

338.
The Respondent contends that it has acted in good faith at all times towards the Claimants' investments. Moreover, the Respondent contends that the fact that the Claimants' failed to conduct adequate due diligence so as to understand the regulatory framework does not support a finding of bad faith on the part of the Respondent.
339.
Further, the Respondent contends that the disputed measures were adopted in good faith and were non-discriminatory. The Respondent submits that the disputed measures were ultimately the consequence of the severe economic crisis in Europe from 2009-2014, including a resulting fall in energy demand, and the need to correct the tariff deficit. The Respondent further contends that, in accordance with the basic principles of sustainability and reasonable return, it is not required to elevate the interests of foreign investors above other considerations. In any event, the Claimants have in fact received a reasonable rate of return.

(2) The Tribunal's Analysis

340.
This case raises the important question of the circumstances in which a State will be found to have violated its obligations under the ECT as a consequence of the exercise by that State of its inherent right to regulate in the public interest.
341.
The Tribunal's first task is to determine the content of the FET obligation, including the question of whether or not the duties of transparency/consistency and good faith are stand-alone obligations under Article 10(1) ECT or form part of the assessment of the Claimants' legitimate expectations. The Tribunal shall then apply that standard to the facts of this case.

(i) The FET Standard

342.
The Tribunal turns first to the construction of the obligation to accord fair and equitable treatment, which is set out under Article 10(1) ECT and provides in relevant part as follows:

Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment.

343.
As any other treaty provision, the text of Article 10(1) ECT must be interpreted in accordance with the normal canons of treaty interpretation contained in the VCLT.
344.
Article 31 VCLT, the primary rule of treaty interpretation, provides that "[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose." In limited circumstances, the Tribunal may if necessary have regard to the supplementary means of interpretation under Article 32 VCLT.
345.
Accordingly, the Tribunal begins the interpretative exercise by considering the ordinary meaning of the ECT's terms, their context, and the object and purpose of the ECT. Pursuant to Article 31(2) VCLT, "t[h]e context for the purpose of the interpretation of a treaty shall comprise […] the text, including its preamble and annexes […]."
346.
The Tribunal must also interpret the text of the ECT in accordance with Article 31(3)(c) VCLT, which requires that "[a]ny relevant rules of international law applicable in the relations between the parties" shall be taken into account together with the context.
347.
Article 2 ECT states that the "Purpose of the Treaty" is as follows:

This Treaty establishes a legal framework in order to promote longterm cooperation in the energy field, based on complementarities and mutual benefits, in accordance with the objectives and principles of the Charter.

348.
As regards the ECT's object and purpose, the Claimants cite An Introduction to the Energy Charter Treaty, which states that the ECT's "fundamental aim" is "to strengthen the rule of law on energy issues".252 Citing the preamble and Article 2 ECT, the Claimants further submit that two overarching purposes of the ECT are to "catalyze economic growth" through investment and trade and in energy and to establish "a legal framework to promote long-term cooperation" between States and investors.253
349.
The Respondent submits that the "main objective" of the ECT is "to create an efficient energy market based on the principle of non-discrimination and price formation according to market rules."254 The Respondent contends that the Claimants' assertion of a right to a guaranteed fixed FiT - which the Respondent considers to be tantamount to the assertion of a right to a specific amount of State aid - is incompatible with the ECT's objective of creating an efficient market.255
350.
The Tribunal agrees with the Eiser tribunal that the purpose of the ECT is to ensure that national legal frameworks are "stable, transparent, and compliant with international legal standards."256 Accordingly, the FET standard must be interpreted in this context.
351.
Indeed, the Tribunal considers that it is well established that legal stability is part of the FET standard under the ECT.257
352.
Further, the Tribunal considers that it is widely accepted that the protection of an investor's legitimate expectations is one of the most important components of the FET standard.258 The Tribunal agrees with the Claimants that a State's "arises when the State has generated 'legitimate expectations' of such stability on the part of investors".259
353.
As the Micula v. Romania tribunal stated, in order for an investor to have such a legitimate expectation:

There must be a promise, assurance or representation attributable to a competent organ or representative of the state, which may be explicit or implicit. The crucial point is whether the state, through statements or conduct, has contributed to the creation of a reasonable expectation, in this case, a representation of regulatory stability. It is irrelevant whether the state in fact wished to commit itself; it is sufficient that it acted in a manner that would reasonably be understood to create such an appearance. The element of reasonableness cannot be separated from the promise, assurance or representation, in particular if the promise is not contained in a contract or is otherwise stated explicitly. Whether a state has created a legitimate expectation in an investor is thus a factual assessment which must be undertaken in consideration of all the surrounding circumstances.260

354.
An investor's expectations of legal stability must be reasonable and objective. As the Plama Consortium v. Bulgaria tribunal held:

the ECT does not protect investors against any and all changes in the host country's laws. Under the fair and equitable treatment standard the investor is only protected if (at least) reasonable and justifiable expectations were created in that regard.261

355.
Likewise, the Charanne v. Spain tribunal held:

A finding that there has been a violation of investor's expectations must be based on an objective standard or analysis, as the mere subjective belief that could have had the investor at the moment of making of the investment is not sufficient. Moreover, the application of the principle accordingly depends on whether the expectation has been reasonable in the particular case with relevance to representations possibly made by the host State to induce the investment.262

356.
It is also well-established that there are limits to the legal stability that an investor can legitimately expect. In the absence of a specific commitment to the investor by the host State, the investor cannot expect the legal or regulatory framework to be frozen. In such circumstances, a host State has space to reasonably modify the legal or regulatory framework without breaching an investor's legitimate expectations of stability.
357.
As the Micula v. Romania tribunal held:

[T]he fair and equitable treatment standard does not give a right to regulatory stability per se. The state has a right to regulate, and investors must expect that the legislation will change, absent a stabilization clause or other specific assurance giving rise to a legitimate expectation of stability.263

358.
Similarly, the AES v. Hungary tribunal held:

The stable conditions that the ECT mentions relate to the framework within which the investment takes place. Nevertheless, it is not a stability clause. A legal framework is by definition subject to change as it adapts to new circumstances day by day and a state has the sovereign right to exercise its powers which include legislative acts. Therefore, to determine the scope of the stable conditions that a state has to encourage and create is a complex task given that it will always depend on the specific circumstances that surround the investor's decision to invest and the measures taken by the state in the public interest.264

360.
The next question for the Tribunal is whether the obligation of transparency and consistency, and the obligation of good faith, are stand-alone obligations under Article 10(1) ECT that should be determined separately, or whether they form part of the obligation to respect the legitimate expectations of an investor.
361.
As for the obligation of transparency and consistency, the Tribunal agrees with the findings of the tribunals in Plama v. Bulgaria, Charanne v. Spain, Isolux v. Spain, and Novenergia v. Spain that this is not an independent obligation.267 Rather, the obligation of transparency and consistency is "simply an illustration of the obligation to respect the investor's legitimate expectations through the FET standard."268
362.
Likewise, the Tribunal considers that the obligation of good faith is a component of legitimate expectations. Accordingly, the Tribunal shall consider the Parties' submissions on good faith as part of its assessment of the Claimants' legitimate expectations.
363.
Finally, this case raises the issue of Spain's right to regulate in the public interest. As the Philip Morris v. Uruguay tribunal held:

It is common ground in the decisions of more recent investment tribunals that the requirements of legitimate expectations and legal stability as manifestations of the FET standard do not affect the State's rights to exercise its sovereign authority to legislate and to adapt its legal system to changing circumstances.269

364.
However, as Eiser and the cases cited above demonstrate, the right to regulate must be subject to limitations if investor protections are not to be rendered meaningless. As the ADC v. Hungary tribunal held:

423. [...] while a sovereign State possesses the inherent right to regulate its domestic affairs, the exercise of such right is not unlimited and must have its boundaries. [...] [T]he rule of law, which includes treaty obligations, provides such boundaries. Therefore, when a State enters into a bilateral investment treaty like the one in this case, it becomes bound by it and the investmentprotection obligations it undertook therein must be honoured rather than be ignored by a later argument of the State's right to regulate.

424. The related point made by the Respondent that by investing in a host State, the investor assumes the 'risk' associated with the State's regulatory regime is equally unacceptable to the Tribunal. It is one thing to say that an investor shall conduct its business in compliance with the host State's domestic laws and regulations. It is quite another to imply that the investor must also be ready to accept whatever the host State decides to do to it. In the present case, had the Claimants ever envisaged the risk of any possible depriving measures, the Tribunal believes that they took that risk with the legitimate and reasonable expectation that they would receive fair treatment and just compensation and not otherwise.270

(ii) Did the Claimants have legitimate expectations that the tariff regime under RD 661/2007 would not change?

366.
The Claimants contend that Article 44.3 RD 661/2007 is a specific assurance giving rise to a legitimate expectation that the Claimants would receive fixed FiTs for the lifetime of their PV plants. The Tribunal is not persuaded. The Tribunal agrees with the finding in Eiser that RD 661/2007 did not give investors "immutable economic rights that could not be altered by changes in the regulatory regime".271
367.
The Tribunal notes that the Masdar tribunal's finding of the existence of a specific commitment is distinguishable because in that case the claimant sought and received specific clarification from Spain that their facilities would receive the RD 661/2007 FiTs throughout their operating lives.272
368.
The Tribunal considers that, in the absence of specific commitments guaranteeing the immutability of the legal framework, it is difficult to assume that a reasonable investor would not have expected any regulatory changes to RD 661/2007 at all.
369.
First, remuneration under the Special Regime had been regularly amended prior to the enactment of RD 661/2007. Indeed, prior to the Claimants' making their investments, Spain had modified the regime when it enacted RD 2818/1998, RD 436/2004, RD 661/2007 itself, and RD 1578/2008.
370.
Second, again prior to the Claimants' investments, the Spanish Supreme Court had rejected challenges to these modifications and denied that investors had a vested right to specific subsidies. For example, in December 2005, the Supreme Court stated that:

There is no legal obstacle that exists to prevent the Government, in the exercise of the regulatory powers and of the broad entitlements it has in a strongly regulated issue such as electricity, from modifying a specific system of remuneration […] Producers do not have an unmodifiable right that the economic scheme which regulates modifications to premiums will stay the same. Said regime is not [a] guarantee to remain unaltered in the future.273

371.
And in October 2006, the Supreme Court held that:

electricity producers under the special regime do have an "unalterable right" to remain in an unchanged economic regime governing the collection of premiums. The scheme is, in fact, to encourage the use of renewable energy through an incentive mechanism, like all of this genre, and cannot be guaranteed to remain unchanged in the future.274

372.
In its judgment dated 3 December 2009 concerning the interpretation of Article 40.3 RD 436/2004 - a clause similar to Article 44.3 RD 661/2007 - the Spanish Supreme Court held that:

Ultimately, it shall be considered that the claim that the Administration be sentenced to update the tariffs for 2007, applying the updating methodology resulting from Royal Decree 436/2004, or from Royal Decree 661/2007, must be rejected, since the criterion of not raising the values of the regulated tariff for photovoltaic technology installations is justified in that the profitability of the generation activity from this technology was higher than that considered as sufficient and reasonable remuneration.275

373.
This judgment was rendered after the Claimants' investment in Madridejos, but before their investments in La Castilleja and Fotocampillos.
374.
After the 3 December 2009 judgment, the Majority of the Tribunal considers that a diligent investor might have been in a position to foresee the possibility of regulatory changes altering RD 661/2007.
375.
As the Charanne tribunal held:

Although decisions of the Spanish courts are not binding on the Arbitral Tribunal, they remain relevant as factual elements to verify that an investor could not, at the time of the disputed investment, have the reasonable expectation that in the absence of a specific commitment the regulation would not be modified throughout the life of the plants.276

376.
The Tribunal also agrees with the Charanne tribunal that:

503. In this case, the Claimants could not have the legitimate expectation that the regulatory framework laid down by RD 661/2007 and RD 1578/2008 would remain unchanged during the entire lifespan of their plants. Accepting such an expectation would, in fact, amount to freezing the regulatory framework applicable to eligible plants, even though the circumstances may change [...] The Arbitration Tribunal cannot accept such a conclusion.

504. The conclusion drawn by the Tribunal, i.e. that in the absence of a specific commitment the Claimants could not reasonably expect that the applicable regulatory framework provided in RD 661/2007 and RD 1578/2008 would remain unchanged, is backed by case law from the highest courts in Spain. Prior to the investment, these courts had clearly established the principle that domestic law could modify the regulations in force.

505. [...] in the present case, the Arbitration Tribunal considers that the Claimants could have easily foreseen the possibility that the regulatory framework was going to be modified [...]. Indeed, the Spanish Law left wide open the possibility of modifying the remuneration scheme applicable to photovoltaic energy. [...]

511. Therefore, the Tribunal concludes that the Claimants could not have the reasonable expectation that RD 661/2007 and RD 1578/2008 were not going to be modified during the lifespan of their facilities.277

377.
However, the Tribunal is of the view that the Claimants had legitimate expectations that the regulatory framework would not be fundamentally and abruptly changed, depriving them of a significant part of their projected revenues, as opposed to merely modified. In this regard, the Tribunal also agrees with the Charanne v. Spain tribunal that:

[A]n investor has the legitimate expectation that, when modifying the regulation under which it made the investment, the State will not act unreasonably, contrary to the public interest, or in a disproportionate manner.278

378.
The Claimants' legitimate expectation that the remuneration and benefits their PV facilities received would not be radically changed were based foremost on the express language of RD 661/2007, which sets out fixed FiTs to be paid for entire operating life of a PV facility.279 This expectation was reinforced by statements of Spanish officials emphasizing the stability of the remuneration regime for PV facilities registered under RD 661/2007 and promoting the possibility of returns for investors well above 7%.280 Further, the Majority of the Tribunal considers that a reasonable investor would not have interpreted the Spanish Supreme Court jurisprudence concerning modifications to earlier support schemes as a warning that Spain had the power to abrogate RD 661/2007 and replace it with a radically different support scheme. Ultimately, the Majority of the Tribunal arrives at the same conclusion as the Novenergia v. Spain tribunal that investors such as the Claimants could not have expected that:

a 'reasonable rate of return' would be limited to 7%, that stability and predictability could not be expected in the SES, [or] that the Special Regime could be abolished...281

379.
The Respondent contends that the Claimants could not have had such legitimate expectations because they failed to conduct proper legal due diligence that would have confirmed the Respondent's power to replace RD 661/2007 with the New Regulatory Regime. Indeed, none of the due diligence reports submitted by the Claimants contain an analysis of the Spanish legal framework surrounding RD 661/2007.282 However, the Claimant contends that the Garrigues Abogados law firm confirmed that RD 661/2007 assured stability and long-term remuneration throughout the whole life of the Claimants' PV plants. In particular, the Claimants rely on a "Note on the Economic Regime of Application to [La Castilleja]" produced by Garrigues dated 14 January 2010, which states:

The stability of the economic system provided under the RD 661/2007 for electricity producers in the special regime is guaranteed by system updates and reviews of the tariffs, premiums, and incentives provided in Article 44.283

(iii) Did Spain subsequently abrogate the RD 661/2007 regime? If so, did Spain breach the Claimants' legitimate expectations?

382.
The Tribunal now turns to the issue of whether or not the Respondent breached the Claimants' legitimate expectations when it enacted the disputed measures. As explained above, the Tribunal considers that the obligation of transparency and consistency, and the obligation of good faith, form part of the Claimants' legitimate expectations. The Parties' submissions on transparency/consistency and good faith have therefore been considered as part of the Tribunal's assessment of the Claimants' legitimate expectations.