■ 100% in Novenergia-Solarsaor, S.L. ("Solarsaor");
■ 100% in Novenergia-Bonete, S.L., formerly called Paracel Investment, S.L. ("Bonete");
■ 100% in Novenergia-Almansa, S.L., formerly called Las Cabezuelas Fotoparque, S.L. ("Almansa");
■ 100% in Novenergia-Villares del Saz, S.L., formerly called Terrapower, S.L. ("Villares");
■ 90% in Energy Engineering I Mora la Nova, S.L. ("Mora");
■ 50% in Fuente Alamo Fotoparque, S.L. ("Alamo"); and
■ 70% in Novenergia-Lobon, S.L., formerly called Morcone Invest, S.L. ("Lobon").
■ 60.27% in Solarsaor;
■ 60.27% in Bonete;
■ 60.27% in Almansa;
■ 60.27% in Villares;
■ 57.26% in Mora;
■ 30.14% in Alamo; and
■ 71.47% in Lobon.
On behalf of Claimant:
(a) Mr. Henri Baguenier
(b) Mr. Carlos Solé Martin
(c) Dr. Manuel Abdala
On behalf of the Respondent:
(a) Mr. Carlos Montoya
(b) Mr. Eduard Saura
"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).
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.[…]
5. An arbitral 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 awards of arbitration, which may include an award of interest, shall be final and binding upon the parties to the dispute. An award of arbitration concerning a measure of a subnational government or authority of the disputing Contracting Party shall provide that the Contracting Party may pay monetary damages in lieu of any other remedy granted. Each Contracting Party shall carry out without delay any such award and shall make provision for the effective enforcement in its Area of such awards.
"The remuneration arrangements for electric power generation installations operating under the special regime shall be supplemented by the payment of a premium under statutory terms set out in regulations and in the following cases:
To work out the premiums, the voltage level on delivery of the power to the network, the effective contribution to environmental improvement, to primary energy saving and energy efficiency, the generation of economically justifiable useful heat and the investment costs incurred shall all be taken into account so as to achieve reasonable profitability rates with reference to the cost of money on capital markets."7
"Photovoltaic solar energy facilities in Sub-Group b.1.1 of no greater than 100 kW with installed power:
Tariff: 575 percent during the first 25 years from their start-up and 460 percent thereafter.
All other photovoltaic energy facilities in Sub-Group b.1.1:
Tariff: 300 percent during the first 25 years from their start-up and 240 percent thereafter.
Premium: 250 percent during the first 25 years from their start-up and 200 percent thereafter.
Incentive: 10 percent."19
" Article 40. Revision of tariffs, premiums, incentives and supplements for new facilities. [...] 3. The tariffs, premiums, incentives and supplements resulting from any of the revisions provided for in this section shall apply solely to the plants that commence operating subsequent to the date of the entry into force referred to the paragraph above and shall not have a backdated effect on any previous tariffs and premiums."20 (Emphasis in Exhibit C-89.)
"The modification of the economic and legal framework that regulates the existing special regime has become necessary for various reasons. First, the growth of the special regime in recent years, together with the experience accumulated during the application of [RD 2818/1998], and [RD 436/2004], have brought to light the need to regulate certain technical aspects in order to contribute to the growth of those technologies..."23
"Spanish society [...] is increasingly demanding the employment of renewable sources of energy and efficiency in the generation of electricity as basic principles in the achievement of sustainable development from an economic, social, [and] environmental point of view.
This new system protects the promoter when the revenues..."24
"1. In order to sell the totality or a part of their net production of electric energy, the owners of facilities to which this Royal Decree applies shall elect one of the following options:
a) To sell the electricity to the system through the transportation or distribution grid, receiving a feed in tariff, which shall be the same for all scheduling periods, expressed in Euro cents per kilowatt/hour.
b) To sell the electricity in the electric energy production market. In this case, the sale price of the electricity shall be either the price obtained on the organised market or the price freely negotiated by the owner or the representative of the facility, supplemented where applicable by a premium, in Euro cents per kilowatt/hour."26
"The values of the tariffs, premiums, supplements, and lower and upper limits to the hourly price of the market as defined in this Royal Decree, for Category b) and Sub-Group a.1.3, shall be updated on an annual basis using as a reference the increase in the CPI minus the value set out in Additional Provision One of the present Royal Decree."27
"3. During the year 2010, given the results of the monitoring reports on the degree of enforcement of the Renewable Energies Plan (PER) 2005– 2010 and of the Strategy for Energy Efficiency and Savings 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 special regime in covering the demand and its impact upon the technical and economic management of the system, and reasonable rates of return shall always be guaranteed with reference to the cost of money in capital markets. Further reviews shall be performed every four years, maintaining the same criteria as previously."28
"Taking the proposed energy objectives as a starting point, financing requirements were determined for each technology on the basis of their financial performance, defining several standard projects for the calculation of model.
These standard projects have been characterized by technical parameters relative to their size, equivalent operating hours, unit costs, implementation periods, service life, operation costs and maintenance and sales costs for the final energy unit. Likewise, some assumptions for funding have been applied, as well as a series of measures and financial aid, designed according to the requirements of each technology.
The technical sheets for each standard project, determined for the various technology sectors, whose data was used for the economic-financial calculation for the Plan for the 2005-2010 period, are found below."31 (Emphasis in Exhibit R-66.)
"Economic incentives are fundamental for the development of the different technologies, if they are sufficient to create investments. In certain cases, different incentives leading to higher returns are justified in order to reach the established targets. Said economic incentives, in a liberalised regulatory framework such as the one corresponding to electric energy production, represent an important tool of energy and environmental policy."33
"The NEC is of the understanding that transparency and predictability of the future of economic incentives reduces regulatory uncertainty which encourages investments in new capacity and minimises the cost of financing projects, reducing the end cost for consumers. The regulations must provide sufficient guarantees so as to achieve stable and predictable economic incentives throughout the lifespan of the facility, setting, as the case may be, both transparent annual update mechanisms based on solid indicators (the average or reference tariff, the CPI, 10-year bonds, etc.) as well as periodic reviews, for instance every four years which will only affect new facilities, and in terms of investment costs may also affect existing facilities."34
"Criteria to minimize regulatory uncertainty.
The production facilities under the special regime are often capitalintensive with long recovery periods. The regulation of production facilities under the special regime, established by Royal Decree 661/2007, has tried to minimize the regulatory risk of this group, providing security and predictability to the economic incentives during the facilities' lifespan, establishing transparent mechanisms for annual updates..."35 (Emphasis in Exhibit C-77.)
"Legal certainty and the protection of legitimate expectations.
The stability and predictability of economic incentives (tariffs and premiums) reduce regulatory uncertainty, which encourages investments in new capacity to tackle their projects, while minimizing financing cost, and reducing the final cost to the consumer. The current regulation has established annual updates of economic incentives based on robust indicators (such as CPI, ten-year bonds, etc.) and also periodic reviews every four years, which can only affect new facilities."36 (Emphasis in Exhibit C-77.)
"The technical and economic regulation of the special regime is developed mainly in Royal Decree 661/2007 of 25 May, as well as in Royal Decree 616/2007 of 11 May, for high-efficiency cogeneration, and in [RD 1578/2008] of 26 September, for photovoltaic facilities.
This regulation is based on the following basic criteria, contained in the methodology developed by the NEC:
a. Achieving planned targets : Financial incentives are justified by the planned targets. These incentives are a tool of environmental and energy policy. They should be adequate for investors to obtain a reasonable return, or greater if the targets are far from being achieved.
b. Regulatory stability and non-retroactivity. The predictability and security of the financial incentives during the facilities' lifespan is essential to encourage agents to invest in these new technologies, and also to minimise regulatory risk and the financial cost of bank loans.
Tariffs and premiums under the special regime must be sufficient and stable to incentivise agents in order to achieve the planned targets."37 (Emphasis in Exhibit C-79.)
"Aid for operation is provided to photovoltaic facilities connected to the grid by means of the feed in tariff in Royal Decree 661/2007 published in the Official State Gazette (BOE) No. 126, of 26 May of 2007."40 (Emphasis in Exhibit C-74.)
|IDAE - RENEWABLE ENERGY DIRECTION Photovoltaic Energy|
|Tariffs established in Article 36 of Royal Decree 661/2007:|
|CAPACITY FEED IN TARIFF ('2007')|
|C< 100 kW 0.440381 € / kWh first 25 years 0.352305 € / kWh thereafter|
|100 kW< C< 10 MW 0.417500 € / kWh first 25 years 0.334000 € / kWh thereafter|
|C >10 MW 0.229764 € /kWh first 25 years 0.183811 €/kWh thereafter|
|Tariffs are updated annually according to the CPI - 0.25% until 2012, with CPI - 0.50% thereafter.|
"Based on experience, it can be concluded that choosing the right economic support model is critical to successfully developing a renewable electricity generation system. Spain chose to support the sales price of renewable electricity by establishing either a fixed tariff (which differs from one technology to the next) or a premium paid on top of the market price for installations that opt to sell their electricity on the market. The scheme, commonly known as a feed-in tariff, is basically the same as that used in countries such as Germany or Denmark, which, along with Spain, have also successfully rolled out renewable energies."43
"Shortly after the second international oil crisis, Law 82/1980 on energy conservation was enacted, representing the start of the development of renewable energies in our country. Since then, comprehensive legislation has given rise to a sustained support framework for these sources of energy, which has boosted investor confidence and enabled developers and equipment manufacturers to procure the financing required to make significant investments and position "Renewables Made in Spain" at the top of the world league."44
"The reference equivalent hours for these facilities, which depend on the climate zone where the solar facility is located, according to the classification of climatic zones based on the average solar radiation in Spain, established by Royal Decree 314/2006 of 17 March, Approving the Technical Building Code, will be:
|Technology||Equivalent reference hours /year|
|Zone I||Zone n||Zone DI||Zone IV||Zone V|
|Facility with 1 axis tracking..............||1,602||1,770||1,940||2,122||2,279|
|Facility with 2 axis tracking.............||1,664||1,838||2,015||2,204||2,367|
For this purpose, the number of the equivalent hours of operation of a facility for the production of electric energy is defined as the ratio of net annual production in kWh and the nominal power of the facility in kW."49
|Technology||Equivalent reference hours / year|
|Facility with 1 -axis tracking............................||1,644|
|Facility with 2-axis tracking............................||1,707|
"The tax base shall consist of the total amount to be received by the taxpayer for the production and incorporation into the electric energy system, measured at plant busbar cost, for each facility, in the tax period.
For these purposes, in the calculation of the total amount, the remuneration provided in all economic regimes coming under provisions of Law 54/1997 of 27 November, on the Electric Sector, during the corresponding accounting period as well as the remuneration provided in the specific economic system in the case of production and incorporation activities into the electric energy system in non-mainland territories, will be considered."51
"The core foundation of this Act resides in Article 45 of the Constitution, a provision in which the protection of our environment stands as one of the guiding principles of social and economic policies. Therefore, one of the focuses of this tax reform will be the internalisation of environmental costs arising from the production of electric energy and the storage of spent nuclear fuel or radioactive waste. Thus, the Act must serve as a stimulus to improve our levels of energy efficiency while enabling a better management of natural resources and to move forward with the new model for sustainable development, both economically and socially as well as environmentally."54
"Article 1. Updates to the remunerations for activities in the electric system linked to the Consumer Price Index ("CPI").
In force from 1 January 2013, this index will be replaced by the Consumer Price Index at constant taxes, excluding unprocessed food and energy products, in all methodologies that, linked to the Consumer Price Index, govern the update of the remuneration, tariffs, and premiums that the participants in the electric system receive from the sectorial regulation."55
"The Government, at the proposal of the Minister of Industry, Energy, and Tourism, shall approve a Royal Decree regulating the legal and economic regimes for the facilities for the production of electric energy from renewable energy sources, cogeneration, and waste with premium remuneration that shall modify the remuneration model of existing facilities.
This new model shall comply with the criteria laid down in Article 30 of Law 54/1997 of 27 November, on the Electric Sector, introduced by the present Royal Decree-Law and shall be applicable from the entry into force of the present Royal Decree-Law."57
"4. Additionally, and in the terms legally determined by Royal Decree of the Council of Ministers, for the remuneration for the sale of generated energy valued at market price, the facilities may receive specific remuneration that consists in a term for each installed capacity unit, covering, where applicable, the investment costs of a model facility that cannot be recovered by the sale of energy and a term for operation covering, where appropriate, the difference between operation costs and the revenue for the market share of said model facility.
To calculate said specific remuneration for a model facility, during its regulatory lifespan, and in reference to the activity carried out by an efficient and well-managed company, the following shall be considered:
a) The standard revenue from the sale of generated energy valued at the market price of production.
b) The standard operation costs.
c) The standard value of the initial investment.
For this purpose, under no circumstance shall the costs or investments that are determined by regulation or administrative acts that are not applicable throughout the Spanish territory be taken into account. Similarly, only the costs and investments that respond exclusively to electric energy production shall be taken into account.
As a consequence of the unique characteristics of the insular and nonmainland electric systems, facilities may be exceptionally defined as specific model facilities for each one of them."59
"This remuneration regime shall not exceed the minimum necessary level to cover the costs that allow the facilities to compete on an equal footing with the rest of technologies and to enable obtaining a reasonable return by reference to the model facility applicable in each case. […]
This reasonable return shall turn, before taxes, on the average yield of ten-year Government bonds on the secondary market, applying the adequate differential.
The parameters of the remuneration regime may be revised every six years."60
"The high penetration of production from renewable energy resources, cogeneration, and waste, included in the so-called special regime for electric energy production, has caused its unique regulation associated with power and its technology to lack purpose […] so the difference between the ordinary and special regime is abandoned."62
(a) "Remuneration for investing";
(b) "Remuneration for operating"; ("Ro")
(c) "Investment incentive by reducing the generation cost";
(d) "Regulatory lifespan";
(e) "Minimum number of operating hours";
(f) "Operating threshold";
(g) "Maximum number of operating hours for the purposes of receiving the remuneration for operating, if any";
(h) "Upper and lower limits of the annual market price"; and
(i) "Average annual price of the daily and intraday market".63
(a) "Standard value of the initial investment for the model facility";
(b) "Estimated price of the daily and intraday market";
(c) "Number of operation hours of the model facility";
(d) "Estimated future income for the participation in the production market";
(e) "Other operating income";
(f) "Estimated future operating costs";
(g) "Update rate for which the value is that of the reasonable return";
(h) "Adjustment coefficient of the model facility"; and
(i) "Net asset value".64
"1. Without prejudice to the provisions of Article 19, the remaining remuneration parameters may be reviewed at the end of each regulatory period by order of the Minister of Industry, Energy, and Tourism, with the prior agreement of the Executive Government Commission for Economic Affairs.
In said review, all the values of the remuneration parameters may be modified in accordance with the provisions of Article 14.4 of Law 24/2013 of 26 December.
Notwithstanding the foregoing, neither the regulatory lifespan nor the standard value of the initial investment of the model facility may be revised.
2. After each regulatory semi-period, the estimates of model facilities' standard incomes from the sale of energy valued at market price as well as the remuneration parameters directly linked thereto may be reviewed by order of the Minister of Industry, Energy, and Tourism, with the prior agreement of the Executive Government Commission for Economic Affairs.
As a result of this review, new model facilities to which remuneration for operating is applicable may be removed or added.
3. In accordance with the methodology established by regulation, the remuneration for operating for the model facilities to which it is applicable and for which the operating costs depend essentially on the price of fuel shall be reviewed at least annually.
As a result of this annual review, new model facilities to which this remuneration for operating is applicable shall not be removed or added."66
■ the right to incorporate all energy production into the grid;
■ a fixed FIT for the lifespan of the PV plants; and
■ that there would be no changes to the FIT except for updates in accordance with the CPI.69
"Royal Decree 436/2004 is meant to be a permanent law (guaranteeing a highly convenient regulatory certainty), which is not necessarily a "petrification" of the law.
[The] NEC [is] of the opinion that the need to make the Draft for Royal Decree retroactive has not been sufficiently justified, the transition period from passing from the current remuneration system to the one established in the Draft for Royal Decree is not adequate and, last of all, investors are not sufficiently compensated for the lower remuneration.
[T]he Draft for Royal Decree analysed and reported on herein shall not apply to facilities that are already in operation as of 1 January 2008."97
■ RD 1565/2010: introduced a cap on the number of years for which the FIT was available;100
■ RDL 14/2010: introduced a cap of the number of yearly production hours entitled to the FIT;101
■ Law 15/2012: introduced a 7% tax on energy production with a dramatic effect on remuneration (though its effects were somewhat mitigated by the Specific Regime);102 and
■ RDL 2/2013: modified the mechanism for updating the FIT. From being indexed to the CPI, updates of the FIT became indexed to a significantly less beneficial ad hoc CPI.103
■ RDL 9/2013 and Law 24/2013: repealed the Special Regime and modified Law 54/1997, including defining the concept of "reasonable rate of return" as a cap on returns. A Specific (rather than a "Special") Regime was introduced with a remuneration based on the investment costs of "model facilities" defined with reference to "an efficient and well-managed company", but provided no content to these concepts. The new Specific Regime applied retrospectively to the entire lifespan of PV plants. It affected those plants that had already begun operation and had already registered with the RAIPRE. This regime could be revised, without limitation, every six years.104
■ RD 413/2014 and Order 1045/2014: provided the details for the operation of the Specific Regime. Remuneration became contingent on a litany of criteria that were wholly different from those in the Special Regime – criteria that investors were unaware of when investing in their PV plants and registering them with the RAIPRE under RD 661/2007. Further, said criteria could (and the expectation was that they would) easily be extensively reviewed, changed, and amended going forward.105
1. The Claimant assumed obligations and granted express warranties to a financial entity when it signed a bridge loan with BPI on 19 March 2008 for a sum of EUR 35 million.114 These obligations that the Claimant assumed must also be considered part of the investment activity of the Claimant.
2. The Claimant assumed the role of guarantor in other project finance vis-à-vis other lending banks. Through these contracts, the Claimant assumed new obligations as guarantor during the months of June and July 2008.115
3. The construction of all the PV Plants did not end until November 2008. Their construction implied an evident risk of delays. The investment committee minutes of 6 October 2008 shows that Alamo had not yet been concluded.116 The investment committee minutes of 11 and 24 November 2008 are the minutes that reveal that the construction of all the PV Plants had ended and that they are connected to the grid.117
4. Even the Claimant itself had to lend money to the company Novenergia Spain given that the economic and regulatory uncertainty was making it hard to obtain external financing for the PV Plants. The Claimant granted 23 loans to Novenergia Spain from 13 July 2007 until 31 January 2009.118
(1) the will to provide a reasonable rate of return on investments in RE plants,
(2) the dynamic nature of said return, and (3) the intervention of the government in cases of distortion of the energy market or the discovery of overremuneration.
(a) The Spanish Constitution of 1978 : The supreme law of the Spanish legal system that configures the organisation of public authorities, its institutional and territorial structure, and regulates the essential aspects of the rights and duties of citizens.
(b) The law : A written rule issued by the legislative power. There are two classes of Laws:
- Organic laws : Reserved for regulating certain subjects envisaged in the Constitution (fundamental rights and public freedoms, general electoral regime, among others). An absolute majority of the congress of deputies is required for its approval.
- Ordinary laws : Regulate matters not reserved by the Constitution for an organic law. For approval, a simple majority of the congress of deputies will suffice.
(c) Royal decree-law : This is a rule with the force of law that the constitution authorises the government to approve in extraordinary situations of necessity or urgency. The adoption of a royal decree law is subject to strict conditions, controls and limits and its subsequent validation by parliament.
(d) Royal decree : a royal decree is a statutory rule that emanates from the government. It complements or develops laws and is hierarchically inferior to them. It can regulate within the authorisations that granted by law and cannot violate it.
(e) Ministerial order : This is a statutory regulation that emanates from one or several ministerial departments. In the field of energy, the most common is the ministerial order that emanates from the Minister of Industry, Energy and Tourism.
(f) Resolutions : These are acts with a lower rank than the ministerial order that emanate from the competent bodies of the administration, with a technical content.
(a) A directive obliges the recipient member state regarding the result to be achieved, but allows national authorities to choose the form and methods.
(b) A decision is compulsory for the recipient member state in all its elements.
(c) Recommendations and opinions are not binding.
"Case law shall complement the legal system by means of the doctrine repeatedly upheld by the Supreme Court in its interpretation and application of statutes, customs and general legal principles."120
■ Said principle appears in Law 54/1997 preamble: "[T]he basic purpose of this Act is to regulate the electricity sector with the traditional, three-fold goal of guaranteeing the supply of electric power, its quality and the provision of such supply at the lowest possible cost. [...]"124
■ Said principle was acknowledged by associations of energy producers. In 2006, during the processing of RD 661/2007, the Spanish Electricity Association ("UNESA") called for the need to: "have a stable regulation in time. It has to be capable of providing the necessary legal security to carry out Capital-intensive investments and, in those respects, [...] continue the development of the electric system in a path of sustainability."125
■ Said principle is mentioned in RD 661/2007 preamble, which the Claimant omits: "Spanish society [...] is increasingly demanding the employment of renewable sources of energy and efficiency in the generation of electricity as basic principles in the achievement of sustainable development from an economic, social, [and] environmental point of view."126
■ The Spanish Wind Energy Association (the "AEE") also invoked this principle as a guiding principle for public subsidies: "As regards wind energy, Royal Decree 661/2007 characterizes itself, in general terms, by the idea of economic sustainability and control over costs".127
■ Said principle was invoked by the General Secretary of Energy in October 2008, prior to the introduction of the subsequent Royal Decree 1578/2008, of 26 September, on Remuneration for the Activity of Electricity Production Using Solar Photovoltaic Technology for Facilities after the Deadline for the Maintenance of the Remuneration Fixed under Royal Decree 661/2007 ("RD 1578/2008"): "I received a number of foreign investors who told me that if the premiums were maintained up to the next year, they would invest billions of euros in Spain [...] We want to obtain investments that generate wealth, not just ones that absorb the resources of the consumers. [..] we must be aware of the economic sustainability of the cost of the energy [...] and that it is important for the families and for the productive sector."128
"Using the proposed energy targets as the baseline, the financing needs for each technology have been determined according to their return, therefore defining some standard projects for the calculation model.
These standard projects have been characterised by technical parameters relating to their size, equivalent hours of operation, unit costs, periods of implementation, lifespan, operational and maintenance costs and sale prices per final unit of energy. Similarly, some financing assumptions have been applied, as well as a series of measures or financial aid designed according to the requirements of each technology."
" Return on Project Type : calculated on the basis of maintaining an Internal Rate of Return (IRR), measured in legal tender and for each standard project, around 7% on equity (before any financing) and after taxes."142 (Emphasis in Exhibit R-66.)
"It is important for all operators to receive this message and to be aware that our road map entails adapting to this framework as quickly as possible, which involves generating more market that we hope will be efficient, because it is not always so, and obviously, the tariffs are not going to pay for anyone's party. Tariffs, by law can only take into account energy costs, and shareholder ventures are not energy costs. This is also a very important message for the [RE] sector [...] there shall be no further criteria other than objective energy costs and, obviously, the market price is not included; the stock market is a mixture of future remuneration expectations, etc. [...], however the tariff framework will be strictly bound to what the regulations state, that is to say, only the costs shall be taken into account, and this shall be our principle of action."144
"[I]t is worth underlining that the last communication by the European Commission on the subject, dated last 10 November 2010, states in its section 2 that:
The development of renewable energies shall depend on such aid regimes as may be determined over time. The Commission must perform its role in guaranteeing that these are sustainable, in consonance with technological progress and with not hindering innovation or competition. '"150
"The remuneration for electricity generated, as measured at the power station busbars, by generators under the special regime, shall be the remuneration corresponding to the generation of electric power, [...] and, where applicable, a premium that will be determined by the Government after seeking the views of the Autonomous Regions as set out in article 30.4."152
"The remuneration arrangements for electric power generation installations operating under the special regime shall be supplemented by the payment of a premium under statutory terms set out in regulations and in the following cases:
To work out the premiums, the voltage level on delivery of the power to the network, the effective contribution to environmental improvement, to primary energy saving and energy efficiency, the generation of economically justifiable useful heat and the investment costs incurred shall all be taken into account so as to achieve reasonable profitability rates with reference to the cost of money on capital markets".153
(a) Firstly, Special Regime producers have the right to obtain a "return", allowing them to recover both the amounts invested (CAPEX) as well as the operating costs for such assets (OPEX) and, moreover, obtain an industrial profit;
(b) Secondly, this means that the industrial profit guaranteed to the producers must be "reasonable". Thus, this profit cannot be disproportionate or "irrational".
(c) Thirdly, the assessment of reasonableness must be made based on an element that is objective and variable: "with reference to the cost of money on the capital market".
"[T]he aforementioned Sentence rejects the unmodifiability of the remuneration system: [...] the prescriptive content of Law 54/1997, of 27th November, on the Electricity Sector, does not envisage the petrification or freezing of the remunerative system for owners of electricity facilities under the special regime, nor any recognition of the right of producers under the special regime nor the unmodifiability of said system, [...]
The Sentence determines that, apart from the fact that there is no damage, the Government may modify, in the exercising of its regulatory powers, a specific remuneration system, but providing this falls within the provisions of the Electricity Sector Act."166 (Emphasis omitted.)
"Article 40. Revision of tariffs, premiums, [incentives] and supplements for new plants. [...] 3. The tariffs, premiums, incentives and supplements resulting from any of the revisions provided for in this section shall apply solely to the plants that commence operating subsequent to the date referred of the entry into force referred to in the paragraph [above] and shall not have a backdated effect on any previous tariffs and premiums."
"[T]hrough the analysing of previous justification of retroactive measures in relation to [RD 661/2007], 25 of May with respect to [RD 436/2004]. [...] said Royal Decree applied a retroactive measure to premiums of the wind sector and at the time, this was justified by the distortion of the market price. Initially, when [RD 436/2004] was passed, the price was low (36c€/nNh) and later it went up to 50/60 c€/KWh. This fact led to an exaggerated increase in the remuneration and the moving of the wind parks to the remuneration system of the market price. Faced with this distortion, and in the name of general interest as a result of the deviation of a free market price when this was variable, a retroactive measure was applied."171
"It is important for all operators to receive this message and to be aware that our road map entails adapting to this framework as quickly as possible, which involves generating more market that we hope will be efficient, because it is not always so, and obviously, the tariffs are not going to pay for anyone's party. Tariffs by law can only take into account energy costs, and shareholder ventures are not energy costs. This is also a very important message for the [RE] Sector [...] there shall be no further criteria other than objective energy costs and, obviously, the market price is not included".172
"The regulation of wind power in 2004 was rather unfortunate. […] This remuneration has an IRR of around 20 percent. I believe in renewable energies as much as anyone, but I also believe that we have to do things reasonably. Technologies, that is my opinion, whose investment is guaranteed through a premium […] cannot have returns of 20 per cent; nobody has those. Some speculators do have them. We must be reasonable ".173 (Emphasis added to Exhibit R-260.)
■ "the appearing associations can only state their rejection, their most profound discontent and their most serious concern about how and why the process is being carried out".
■ "[RDL 7/2006] substantially ruptures the regulation of renewable energies established in the Energy Sector Act (Law 54/1997)".
■ "[RDL 7/2006] eliminates the objective parameters that established minimum remuneration for the different renewable energies included in said Act. These minimums were the guarantee of stability, predictability and durability that attracted investment to the sector (....)"
■ "This situation, already compromising and disconcerting, is further compounded when we acknowledge that the planned revision of RD 436/2004 is being transformed into the introduction of a new regulatory framework."
■ "RD 436/2004 [...] is therefore conditioned by the elements of retroactivity and legal uncertainty introduced in the sector by said [RDL 7/2006]."
■ "Last June, [RDL 7/2006] was approved, which contains a frontal attack against the national policy of promoting renewables: it eliminates the 8090% band and the retributive stability mechanisms [of RD 436/2004] , without also contemplating the guarantees and timeframes established. The legislation, which tears up the rules half way through play, introduces retroactivity and seriously destroys legitimate investor confidence. "175
"[T]he profitability foreseen by the [NEC] was between 7.6% and 8% annually, slightly higher than that proposed by the Ministry of Industry, Tourism and Commerce for the regulated tariffs which was 7.1%. The [NEC] determined the internal rate of return of free cash flows and after taxes (IRR) based on the regulated tariff of the Royal Decree proposal and the real costs of the facilities commissioned since the year 2004."180 (Emphasis in Exhibit R-183.)
|1998||1999||2000||2001||2002||2003||2004||2005||2006 2006 (julio)||2007|
|TMR ∆ TMR||€/MWh %||7,0853||7,2072 1,72%||7,3304 1,71%||7,5588 7,7644 4,48% 1,38%||8,2193 5,86%|
|TR RD 2818/1998||c€/kWh||39,6668||39,6668||39,6668||39,6668||39,6668||39,6668||39,6668|
|TR RD 435/2004||c€/kwh||41,4414||42,1498||44,0381 44,0381||44,0381|
|TR RD 661/2007||c€/kWh||44,0381|
■ The RE plant's owners do not have a "right " to the economic regime remaining unaltered;
■ Unless Article 30(4) of Law 54/1997 is amended, the limit for the government in regulatory modifications is to provide Special Regime Plants a reasonable rate of return with reference to the cost of money on the capital market.
■ The integration of the Special Regime Plants into the SES implies that the companies have to assume a regulatory risk.
"Until it is replaced by another, the above outlined legal regulation (Article 30 of the Electricity Law) allows the respective companies to expect that the fixing of the premiums can be included as a factor relevant to their obtaining "reasonable rates of return with reference the cost of money in the capital market" or, to put it again in the words of the preamble to [RD 436/2004], 'reasonable compensation for their investments.' However the payment regime under examination does not guarantee to special regime electricity producers that a certain level of profits or revenues will be unchanged relative to those obtained in previous years, or that the formulas for fixing the premiums will stay unchanged."186
"To such purpose, the recent Judgment by the Supreme Court dated 25 October 2006 […] is highly illustrative. This Judgment analyzes in particular a regulatory change provided in said Royal Decree in regard to the calculation procedure for premiums offered to encourage the electrical power production activity under the special regime. In said Judgment, the Supreme Court concludes that such regulatory modification did neither violate the principle of legal certainty nor the principle of protection of legitimate expectation".190
"As long as not replaced by another one, the abovementioned legal regulation (article 30 of the Electricity Sector Act) enables the relevant companies to pursue that premiums include as a significant factor when being established, the achievement of 'reasonable return rates in reference to the cost of money in capital markets' or, to express it once again in words of the preamble of [RD 436/2004], 'a reasonable remuneration for their investments'. The regime for remunerations being analyzed does not assure, on the contrary, owners of facilities operating under the special regime an intangible nature of certain level of profit or income in comparison to that obtained in previous years as it neither assures indefinite application of formulae used for establishment of premiums. In the same way as based on economic policy drivers of a widely varying sign (…) premiums and incentives for production of electrical power under the special regime may increase from one year to the following but also decrease whenever made advisable by those same consideration. Provided that, we insist, variations are kept within the legal limits [...].
Companies that decide to get established on free will in a market such as the electrical power generation under the special regime, while knowing beforehand that this market is highly dependent on the establishment of incentives by public authorities, are or must be aware that such incentives may be modified, within legal guidelines, by said authorities. One of the 'regulatory risks' facing these companies -and which must necessarily be taken into account- is precisely the change in parameters for calculation of premiums or incentives, which is mitigated by the Electrical Sector Act in this regard, but not excluded altogether."191 (Emphasis omitted.)
" LEGAL CONSIDERATIONS IN REGARD TO THE RETROACTIVE NATURE OF THE ROYAL DECREE PROPOSED. [...] "As both scientific research and case law have shown, [...] the principle of legal security [...] does not mean that the legal framework is reformproof.
In this regard, said principles do not prevent a dynamic innovation in the legal framework. It does neither prevent new provisions from being applied in the future to already existing situations that remain upon the entry into force of the new regulations" […]
"Application in the future of the new economic regime for production of electrical energy in the special regime to all facilities -including existing ones that already enjoyed the benefits of the previous regime for tariffs, premiums, incentives and complements... • Does not involve the suppression of acquired or patrimonialized entitlements."192 (Emphasis in Exhibit R-78.)
(i) General Information
AMS informed that the new law on renewables (Real Decreto 661/2007) Is very favourable to the market players and above all consolidates the financial and regulatory stability of the activity in Spain.
"[T]hese principles do not prevent the dynamic innovation of the regulatory frameworks, nor of new normative provisions which can be applied pro-future to situations initiated before it comes into force."194
"Modification of the compensation for generation by photovoltaic technology. During the year 2012, based on the technological evolution of the sector and the market, and the functioning of the compensatory regime, compensation for the generation of electric power by photovoltaic solar technology may be modified."195
Although Poyry now considers the appearance of a market-based mechanism (i.e. Green Certificates) to replace the tariff system very unlikely, the Government could, in the year 2010, and depending on the rate of success of the latest REP, change to a market-based system. In any case, in the event of a change from the current feed-in tariff mechanism to a market mechanism (possibly at the end of 2010), we would expect to see a transitory period essentially extending the feed-in tariff mechanism applicable to operating wind farms for a number of years.
"Breach of this principle of legal certainty and legitimate expectations: changing the economic regime retroactively.
In the opinion of the APPA, the provision in the Draft, which completely ignores the stable regime undertaken in [RD 436/2004], is unlawful since it breaches the principles of legal certainty, the non-retroactivity of laws and legitimate expectations. […]
In this sense, the message that the Government is transmitting to the [RE] sector in this respect, if it approves the Draft exactly as it has been put forward, is disastrous and devastating for the future investments. [...]
If the Government fails to do so [pass the RD project], it will no longer be credible in the future: any rational investor, [...] must bear in mind not only the costs and the foreseeable remuneration, but it also must consider the risk that such remuneration could be lowered".198
"The case law of the Supreme Court is conclusive: it justifies openly and resoundingly the retroactivity of the regulations that regulate or could regulate the economic system of the special regime, while the principles established in the Act are met, leading back in the final analysis to the so-called 'reasonable rates of return with reference to the cost of money in the capital market' [...] at least it guarantees certain profit levels that allow 'reasonable rates of return with reference to the cost of money in the capital market', by remaining within the letter of the law [Law 54/1997]. 'Reasonable rates of return' that the Supreme Court has set, as indicated by the IDAE, in an Internal Rate of Return of 7 percent.
[it is desirable] to reject any optimism [...], a certain modification of the premiums [...] below that 7 percent [...] could be perfectly 'validated' by the Court simply by maintaining that the 'reasonable character' of the rates of return in 2006 or 2007 might be the cited 7 percent, but that they do not have to coincide with that figure at the time the modification is made, so the other line of attack against the legal adjustment of retroactively modifying the tariffs and premiums would be frustrated."199
"For AEE, today the important thing is to ensure the door is not left open to changes in remuneration parameters at the halfway point, as is the case with the current wording of the decree. The "stable" nature of the twenty-year period proposed by the new Royal Decree for the allocation of remuneration is fictional if the premium amendments are retroactive as is contradictorily regulated now."201
"The new Decree removes the incentive to participate in the electricity market and annuls the non-retroactivity of this revision and of future revisions concerning premiums and remuneration supplements, thereby applying universally to all facilities regardless of when they are commissioned. The proposal also entails a high level of uncertainty with regard to the indices for the annual updating of all parameters".202
"It is true that the Supreme Court has declared, in relation to this type of retroactive modification, that it is not an "unchangeable right" that the economic regime remains unaltered [...] the jurisprudence has established limits [...] with regard to the retroactive modification of this remuneration framework, in particular "that the requirements of the Law on the Electrical Sector are observed with regard to the reasonable return of investments".203 (Emphasis and footnotes omitted.)
1. The PV Plants knew that the RE plants remuneration system would be modified for reasons of public interest. However, the PV Plants argued in their claim that RD 1565/2010 was not adopted due to reasons of general interest: "RD 661/2007 […] applied a retroactive measure to premiums for the wind sector and at the time, this was justified by the distortion of the market price. […] Faced with this distortion, and in the name of general interest as a result of the deviation of a free market price when this was variable, a retroactive measure was applied. "206
2. The PV Plants did not really know whether a regulatory measure would be admissible in the event of extraordinary or unforeseen situations: "This party does not know, nor is the subject of this Appeal whether or not the regulatory power can amend current legislation regarding the establishing of regulated tariffs that affects third party rights in relation to facilities already built. […] However, this is definitely not the case that we have here, where it is not possible, under any circumstances, to admit the existence of any unforeseeable or extraordinary factor."207 The proved exceptional fall of demand in 2009 was not considered by them as an extraordinary factor.208
3. The PV Plants knew the doctrine of the Constitutional Court applied by the Supreme Court when ruling on the possible modification of the remuneration systems of RE plants from 2005 to 2017: "With respect to the retroactivity of the regulations, Sentence 182/1997 of the Constitutional Court, of 28 October, in its Eleventh Legal Basis, is key to understanding its dimension, assumptions and limitations: improper medium retroactivity [prospective]"209
"[W]e need to bring up the fact that various Sentences of the High Court have been passed in relation to retroactivity and its possible admissibility, but it is worth pointing out that the existing ones, to date, have always been in relation to cases of the retroactivity of premiums, never in relation to regulated tariffs as in this case."210 (Emphasis omitted.)
"[D]epending on very varied factors of economic policy [...], the premiums and incentives for the production of electrical energy under the special regime may increase from one year to the next and may also decrease when these same considerations should so advise."211 (Emphasis omitted.)
"The Sentence determines that, apart from the fact that there is no damage, the Government may modify, in the exercising of its regulatory powers, a specific remuneration system, but providing this falls within the provisions of the Electricity Sector Act."212
"Private operators or agents who 'renounce' the market, […] were aware or should have been aware that said public regulatory framework, approved at a given time, in the same way as it was consistent with the conditions of the economic scenario in force at that time and with the electricity demand forecasts made at that time, could not subsequently be immune to any relevant modifications to basic economic data in the light of which it is logical for the public authorities to keep in step with the new circumstances. […] And this is all the more so in the event of situations involving a widespread economic crisis and, in the case of electrical energy, in view of the growth in the tariff deficit…"215 (Emphasis omitted.)
"The established economic administrative regime [...] relies on a series of implied assumptions, of which any diligent market operator - or any operator seeking high quality consultancy in advance - could not have failed to be aware. One of those implicit conditioning factors is that the measures for promotion (...) cannot be considered to be "perpetual" or unlimited over time. It is not reasonable to think that RD 661/2007 would guarantee the receipt of a regulated tariff for an unlimited period, in other words, without any time limit whatsoever."216
"The limitation of the regulated tariff or, in general terms, that of the remuneration regime […] was foreseeable in the light of the course of later circumstances, especially the economic and technical circumstances, that ensued after 2007".217
"The contract does not include the provision of the Services, when the cases detailed below arise […] Suspension of the operation of the Plant […] due to a legislative change."218
■ O&M contract for the PV Solar Farm "Villares", signed on 19 May 2009.221
■ O&M contract for the PV Solar Farm "Mora la Nova", signed on 19 May 2009.222
■ O&M contract for the PV Solar Farm "Almansa", signed on 31 May 2009.223
"The production facilities included in the special regime have the right to receive a certain remuneration for energy sold, but logically they only have the acquired right to receive said remuneration with respect to the energy already sold, but not regarding the energy they forecast selling in the future, which only constitutes an expectation."232
"In the precept, there is confusion between what in general theory of law is known as declaratory acts and constituent acts, repeating the same mistake made when the Pre-allocation Remuneration Registry was set up. What should provide entitlement to the Specific Remuneration Regime is the producers' fulfilment of the requirements established by Law to enjoy it, not being registered in the registry whose only role is not to provide producers with rights (to enjoy the specific remuneration regime), but to give publicity to those who have achieved it (precisely by fulfilling the legal requisites)."235
"[The Minister] has never met with or considered the sector regarding the regulatory changes […] adopting diverse measures to reduce the tariff deficit and to increase the administrative obstacles for clean energies.
The measures under the RDL, [...] will make the sector's development even more difficult, while, as in other sectors, it suffers from funding issues arising from the crisis".239
"APPA, ADAP, APREAN, EolicCat, GiWatt and the Cluster of Energy of Extremadura strongly criticize the decree and call on the government to develop its contents in the future Renewable Energy Law." (Emphasis added to Exhibit R-239.)
"A clear and disastrous example can be seen in Royal Decree 1578, which regulates activity relating to solar photovoltaic technology and has caused the sector to grind to a halt, leading to factory closures and investment relocation. The new RDL may have the same impact on other renewable technologies and even affect wind energy, the most developed."242
"The government will establish the amount of the regulated tariffs, premiums and complements, therefore assessing, in all cases, the operating and maintenance costs and the investments costs incurred by the owners of a facility in order to obtain reasonable rates of return in reference to the cost of money in capital market. As a fee for the remuneration of capital, an annual percentage equal to the mean of the preceding year for the remuneration of 10-years Treasury bonds will be used, increased by 300 basis points."244
"For the preceding purposes, the government will estimate the investment costs associated with the various classes of facilities, differentiated by technology and size, such that they reflect the usual values that said investments actually reach."245
"Technical parameters and investment costs incurred will be considered in determining remuneration with a view to providing a reasonable rate of return referenced to the cost of money on the capital market in accordance with the provisions of the Electricity Sector Act."247
"It is true that the Supreme Court has declared, in relation to this type of retroactive modification, that it is not an 'unchangeable right' that the economic regime remains unaltered and that 'of the prescriptive content of [Law 54/1997], […] the petrification or freezing of the remuneration regime of the owners of electricity installations under the special regime or the unchangeability of this regime is not apparent', thus recognising a relatively broad margin to the 'ius variandi' of the Administration in a regulated sector involving general interests [provided that it respects] the reasonable return of investments".250 (Emphasis and footnotes omitted.)
"The compensation values of [RD 661/2007] were calculated in order to obtain reasonable profitability rates and using as hypothetical starting point the average operating hours for facilities in these three technologies. These operating hours can be found in the [REP 2005-2010] for all technologies.
Subsequently, in the actual operation of the system, it has been shown that there are more operating hours at the facilities than initially planned in some cases. There are diverse reasons for this – technical improvement, over-installations, etc. In any case, this means that for these facilities the compensation obtained is more than reasonable."251
■ The subsidies for RE as a cost of the SES and therefore related to its economic sustainability.
■ The priority of access and dispatch for RE.
■ The characteristics of a reasonable return: its proportionality and dynamism, and continues to be assessed by reference to the price of money on the capital market.
■ The concept of efficiency pursued by the SES since 1997, which involves supplying electricity to the Spanish consumer at the lowest possible cost.
■ The methodology always used by the SES to determine the reasonable return (defining Standard Facilities and Common Standards) has been maintained and improved.
■ The guarantee of a reasonable return for RE plants to be obtained. The return provided by the Spanish remuneration model is better than the discount rate (opportunity cost) of the sector and, specifically, better than the discount rate (opportunity cost) of the Claimants.
|TECHNOLOGY||Estimated premiums received 1998-2013 (millions of €)||Estimated premiums yet to be received from 2014 to the end of the useful life (millions of €)||Estimated total premiums received throughout the useful life (millions of€)|
|BIOMASS AND BIOGAS||2,003||6,685||8,688|
|TREATMENT OF WASTE||2,626||4,220||6,846|
|WASTE AND BLACK LIQUOR||1,827||1,708||3,535|
|TOTAL RENEWABLES, CO-GENERATION AND||56,294||150,565||206,859|
■ The production and the power guarantee for ordinary production plants of the mainland and island electricity systems. A regulation of 2006 set the remuneration of this regulated activity at the Spanish bond at 10 years plus 300 base points. RDL 20/2012 lowered the spread to 200 base points.267
■ Transport activity. A regulation from 2008268 set the remuneration of this regulated activity at the Spanish bond at 10 years plus 375 base points. RDL 9/2013 lowered the spread to 200 base points.
■ Distribution activity. RDL 9/2013269 set the remuneration of this regulated activity at the Spanish bond at 10 years plus 200 basis points.
"[T]he basic purpose of this Act is to regulate the electricity sector with the traditional, three-fold goal of guaranteeing the supply of electric power, its quality and the provision of such supply at the lowest possible cost."271
"The analysis tries to balance the application of resources so that ROI levels make it attractive relative to other alternatives in an equivalent sector, in terms of profitability, risk and liquidity, and always attempting to optimise available public resources".272
(a) Recognising and reconstructing a financial operating structure, therefore includes identifying the standard investment costs (CAPEX) and the operating and maintenance costs (OPEX), in accordance with the actions of a "diligent investor". Standard facilities;
(b) Set a balanced and appropriate return target in terms of reasonable rate of return on a standard facility.
"Parameter A [the investment, operating and maintenance costs of each technology] has a significant weighting in establishing the amount of the regulated tariff for sale to distributors. This way, any plant in Spain in the regime, provided it is equal to or better than the standard (the standardised plant) for its group, will obtain reasonable return".278
■ The Claimant invested EUR 159.5 million in the construction of the plants.279
■ These PV Plants will recover a standard investment cost of EUR 173.4 million.280