RWE Innogy v. Spain

RWE Innogy GmbH and RWE Innogy Aersa S.A.U. v. Kingdom of Spain ICSID Case No. ARB/14/34
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Type of case:
Investor-State
Date of introduction:
16 Dec 2014
Status of the case:
Pending
Claimant's Country of Origin:
Germany
Respondent:
Spain
Institution:
ICSID (International Centre for Settlement of Investment Disputes)
Applicable Treaties:
The Energy Charter Treaty...
Source(s) of the information:
Reproduced with the permission of the International Centre for Settlement of Investment Disputes :
Link1 (EN) Official source

Documents of the case

Anna Joubin-Bret Appointed by the State
Judd L. Kessler Appointed by the investor
Samuel Wordsworth President

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

Decision on Jurisdiction, Liability, and Certain Issues of Quantum

Table of Defined Terms

Arbitration Rules ICSID Rules of Procedure for Arbitration Proceedings 2006
C-[#] The Claimants’ Exhibit
Cl. Mem. The Claimants’ Memorial on the Merits dated 26 February 2016
Cl. PHB The Claimants’ Post Hearing Brief dated 28 July 2017, as revised on 7 August 2017
Cl. Rej. The Claimants’ Rejoinder on Jurisdiction dated 2 March 2017
Cl. Reply The Claimants’ Reply on the Merits and Counter-Memorial on Jurisdiction dated 11 November 2016
CL-[#] The Claimants’ Legal Authority
Cl. Skeleton The Claimants’ Skeleton of the Case dated 24 April 2017
ECT Energy Charter Treaty, adopted in Lisbon on 17 December 1994
Hearing Hearing on the merits and jurisdiction held in Paris, France on 15-20 May 2017
ICSID Convention Convention on the Settlement of Investment Disputes Between States and Nationals of Other States dated 18 March 1965
ICSID or the Centre International Centre for Settlement of Investment Disputes
R-[#] The Respondent’s Exhibit
RE Renewable Energy
Resp. C-Mem. The Respondent’s Counter-Memorial on the Merits and Memorial on Jurisdiction dated 20 May 2016
Resp. PHB The Respondent’s Post Hearing Brief dated 14 July 2017
Resp. Rej. The Respondent’s Rejoinder on the Merits and Reply on Jurisdiction dated 19 January 2017
Resp. Skeleton The Respondent’s Skeleton of the Case dated 5 May 2017
RL-[#] The Respondent’s Legal Authority
RfA The Claimants’ Request for Arbitration dated 16 December 2014
Tr. Day [#] [Speaker(s)] [page:line] Transcript of the Hearing
Tribunal Arbitral Tribunal constituted on 4 November 2015

I. INTRODUCTION AND PARTIES

1.
This case concerns a dispute submitted to the International Centre for Settlement of Investment Disputes ("ICSID" or the "Centre") on the basis of the Energy Charter Treaty which entered into force on 16 April 1998 for Germany and the Kingdom of Spain (the "ECT or "Treaty") and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which entered into force on 14 October 1966 (the "ICSID Convention").
2.
The claimants are RWE Innogy GmbH ("RWE"), a company incorporated under the laws of Germany, and RWE Innogy Aersa S.A.U. ("RWE Innogy Aersa"), a company incorporated under the laws of the Kingdom of Spain (together, the "Claimants"). The respondent is the Kingdom of Spain ("Spain" or the "Respondent").
3.
The Claimants and the Respondent are collectively referred to as the "Parties." The Parties' representatives and their addresses are listed above on page (i).
4.
This dispute relates to measures implemented by the government of Spain modifying the regulatory and economic regime of renewable energy projects.

II. PROCEDURAL HISTORY

A. Registration of the Request for Arbitration

5.
On 19 December 2014, ICSID received a request for arbitration dated 16 December 2014 from RWE and RWE Innogy Aersa against Spain (the "Request"), together with Exhibits C-001 to C-0015.
6.
On 23 December 2014, the Secretary-General of ICSID registered the Request in accordance with Article 36(3) of the ICSID Convention and notified the Parties of the registration. In the Notice of Registration, the Secretary-General invited the Parties to proceed to constitute an arbitral tribunal as soon as possible in accordance with Rule 7(d) of ICSID's Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings.

B. Constitution of the Tribunal

7.
By letter of 23 March 2015, the Claimants, noting that the Parties had not been able to reach an agreement on the method for the appointment of the Tribunal within 60 days after the registration of the Request, informed the Secretary-General that they chose the formula provided for in Article 37(2)(b) of the ICSID Convention, according to which the Tribunal would consist of three arbitrators, one arbitrator appointed by each party and the third and presiding arbitrator, appointed by agreement of the Parties.
8.
On 3 June 2015, the Parties informed the Centre of their agreement on the method for appointing the presiding arbitrator. The President was to be appointed by agreement of the Parties. Absent an agreement, there would be a ballot procedure, and in the event that this resulted in no appointment, it was agreed that ICSID would then make the appointment.
9.
The Tribunal is composed of Mr Samuel Wordsworth QC, a national of the United Kingdom, President, appointed by the Secretary-General of ICSID pursuant to the Parties’ agreement; Mr Judd Kessler, a national of the United States, appointed by the Claimants; and Ms Anna Joubin-Bret, a national of France, appointed by the Respondent. Mr Kessler and Ms Joubin-Bret accepted their respective appointments on 3 April 2015 and 3 June 2015.
10.
On 4 November 2015, the Secretary-General, in accordance with Rule 6(1) of the ICSID Rules of Procedure for Arbitration Proceedings (the "Arbitration Rules"), notified the Parties that all three arbitrators had accepted their appointments and that the Tribunal was therefore deemed to have been constituted on that date. Ms Mercedes Cordido-Freytes de Kurowski, ICSID Legal Counsel, was designated to serve as Secretary of the Tribunal.

C. Written and Oral Phases of the Proceeding

11.
In accordance with ICSID Arbitration Rule 13(1), the Tribunal held a first session with the Parties on 14 December 2015 by teleconference. The Parties confirmed that the Tribunal was properly constituted and that no party had any objection to the appointment of any Member of the Tribunal.
12.
Following the first session, on 15 December 2015, the Tribunal issued Procedural Order No. 1 recording the agreement of the Parties on procedural matters and the decision of the Tribunal on disputed issues. Procedural Order No. 1 provides, inter alia, that the applicable Arbitration Rules would be those in effect from 10 April 2006, that the procedural languages would be English and Spanish, and that the place of proceeding would be the seat of the Centre in Washington, D.C. Procedural Order No. 1 also sets out the agreed timetable for the various phases of the proceeding.
13.
On 15 December 2015, the European Commission filed an Application for Leave to Intervene as Non-Disputing Party pursuant to ICSID Arbitration Rule 37(2) ("EC’s First Application").
14.
At the Tribunal’s invitation, on 8 January 2016, each party filed observations on the EC’s First Application of 15 December 2015. The Respondent filed together with its submission Legal Authorities RL-0001 to RL-0003.
15.
On 10 February 2016, the Tribunal issued Procedural Order No. 2 dismissing the EC’s First Application pursuant to ICSID Arbitration Rule 37(2). The Tribunal noted that the proceeding was still at a very early stage, the Respondent had not yet raised any jurisdictional objections. The Tribunal felt that it was ill-equipped at the time to assess whether the European Commission’s submission would assist it in the determination of an issue related to the proceeding by bringing a perspective, particular knowledge or insight that is different from that of the Parties.
16.
On 26 February 2016, the Claimants filed a Memorial on the Merits together with its supporting documentation ("Claimants’ Memorial" or "Cl. Mem."), including: witness statements of Mr Hans Bunting, Mr Ulrich Schafer, Mr Alan Henderson, and Mr Robert Navarro; the expert report of Compass Lexecon dated 24 February 2016, together with Exhibits CLEX-001 to CLEX-0147; Exhibits C-0016 to C-0212; and Legal Authorities CL-0001 to CL0094.
17.
On 7 April 2016, the Claimants notified the Tribunal that they were going through a corporate restructuring process.
18.
On 13 April 2016, the Tribunal invited the Respondent to comment on the Claimants’ letter of 7 April 2016.
19.
On 21 April 2016, the Respondent informed the Tribunal that it reserved its right to submit its comments about the Claimants’ restructuring process at the timely procedural step.
20.
By letter of 25 April 2016, the Claimants responded to the Respondent’s letter and requested the Tribunal to instruct the Respondent to refrain from making any untimely submissions. This was followed by the Respondent’s comments by letter of 29 April 2016.
21.
After consultation with the Parties, on 11 May 2016, the President of the Tribunal confirmed that the Hearing would be held at the World Bank Conference Centre in Paris, France from 15 May until 20 May 2017 (the "Hearing").
22.
On 20 May 2016, the Tribunal took note that the Respondent would comment on the Claimants’ corporate restructuring process in its Counter-Memorial on the Merits and Memorial on Jurisdiction. The Tribunal also allowed the Claimants to raise any objections to the Respondent’s comments if they saw fit, as long as reference was made to the Claimants’ letter of 24 March 2016.
23.
On the same date and in accordance with the procedural calendar, the Respondent filed a Counter-Memorial on the Merits and Memorial on Jurisdiction together with supporting documentation ("Respondent’s Counter-Memorial" or "Resp. C - Mem"), including: the witness statement of Mr Juan Ramón Ayuso; the expert report of BDO dated 20 May 2016; Exhibits R-0001 to R-0254; and Legal Authorities RL-0001 to RL-0067.
24.
On 20 June 2016, the Claimants submitted a copy of the agreement regarding the merger by absorption of RWE Innogy GmbH by RWE International SE.
25.
On 21 June 2016, the European Commission filed a Second Application for Leave to intervene as a Non-Disputing Party pursuant to ICSID Arbitration Rule 37(2) ("EC’sSecond Application").
26.
On 24 June 2016, the President of the Tribunal invited: (i) the Parties to provide any observations on the EC’s Second Application; and (ii) the Respondent to comment on the merger agreement provided by the Claimants on 20 June 2016.
27.
On 5 July 2016, each party filed their observations on the EC’s Second Application.
28.
On the same date, the Respondent filed its comments on the Claimants’ merger agreement provided on 20 June 2016.
29.
On 13 July 2016, the Tribunal issued Procedural Order No. 3 regarding the EC’s Second Application, making the following ruling:

"Ruling:

(i) Subject to (ii) below, the European Commission’s Application for Leave to Intervene as a Non-Disputing Party dated June 21, 2016 is accepted with respect to sub-paragraphs 27(i) and (ii) of the Application.

(ii) The deadline for filing of the European Commission’s written amicus curiae submission will be one month from the date of this Order. The submission will be limited to the matters of jurisdiction identified in the Application, and will be limited to 25 pages in length (following the same format as the Application). No permission is given to the European Commission to attend any hearing in these proceedings.

(iii) The Application is rejected with respect to its sub-paragraph 27(iii). Accordingly, the European Commission shall have no access to the documents filed in this case.

(iv) There be no order as to costs (either with respect to the determination of the Application or the subsequent consideration and determination of such written amicus curiae submission as is submitted in accordance with the above)."

30.
On 22 July 2016, following exchanges between the Parties, the Claimants filed the Parties’ Joint Document Production Application with their respective Redfern Schedules for the Tribunal to decide on production of documents. On 26 July 2016, the Respondent confirmed its agreement to the Joint Document Production Application submitted by the Claimants. Together with the Parties’ Joint Document Production Application, the Claimants filed two annexes, which they later identified as Exhibits C-0213 and C-0214.
31.
On 1 August 2016, the Claimants informed the Tribunal that the Claimants’ Redfern Schedule submitted on 22 July 2016 was incomplete, as a number of the requests had been inadvertently omitted. The Claimants filed a corrected version of the Joint Document Production Application of 22 July 2016, that replaced the one originally filed. On 2 August 2016, the Respondent confirmed its agreement to the text contained in the corrected version.
32.
On 11 August 2016, pursuant to ICSID Arbitration Rule 37(2), the European Commission filed a written amicus curiae submission in accordance with the Tribunal’s instruction on Procedural Order No. 3 ("EC’s amicus curiae submission").
33.
On 23 September 2016, the Tribunal issued Procedural Order No. 4 concerning the Parties’ Joint Document Production Application.
34.
On 29 September 2016, the Parties submitted an agreed amendment to the procedural calendar.
35.
On 30 September 2016, the Respondent filed a submission regarding the Spanish Council of Ministers’ discussions Minutes as outlined in Procedural Order No. 4. On 7 October 2016, the Claimants filed their objections in such regard.
36.
On 25 October 2016, the Tribunal issued Procedural Order No. 5 addressing the Claimants’ requests on production of documents regarding discussions of the Council of Ministers of Spain.
37.
On 3 November 2016, the Parties informed the Tribunal of their agreement to a one-week extension of the deadline for the filing of the Reply and the amended procedural calendar. On the same date, the Tribunal confirmed the revised procedural calendar, as agreed by the Parties: the Claimants' Reply on the Merits and Counter-Memorial on Jurisdiction would be filed on 11 November 2016; the Respondent's Rejoinder on the Merits and Reply on Jurisdiction on 13 January 2017, and the Claimants' Rejoinder on Jurisdiction on 24 February 2017.
38.
On 11 November 2016, the Claimants submitted a Reply on the Merits and Counter-Memorial on Jurisdiction ("Claimants’ Reply" or "Cl. Reply"), with supporting documents including: a second expert report of Compass Lexecon; Exhibits C-0215 to C-0332; Legal Authorities CL-0095 to CL-0160; and four appendixes: Appendix 1 -Table of Spanish Supreme Court Judgments, Appendix 2 - the Claimants' Consolidated Table of Defined Terms, Appendix 3 - The Claimants' Consolidated List of Factual Exhibits and Appendix 4 - The Claimants' List of Legal Authorities.
39.
On 24 November 2016, the Respondent filed a request dated 18 November 2016 for the Tribunal to decide on the admissibility of the Award rendered in Isolux Netherlands BV v Spain (SCC Arbitration V2013/153) ("Isolux award") as new evidence on the record, together with a request for the Tribunal to order the Parties and their counsel to keep the Isolux award strictly confidential. The Respondent also requested that both Parties be allowed to submit a brief submission regarding the Isolux award.
40.
On 28 November 2016, following an invitation from the Tribunal of 27 November 2016, the Claimants filed their observations to the Respondent's request of 24 November 2016. In their communication, the Claimants invited the Respondent to confirm whether Isolux Netherland BV had consented for the Isolux award to be included in the record of this proceeding.
41.
By communication of the same date, the Tribunal invited the Respondent to comment on the Claimants' communication and, in particular, to confirm whether Isolux Netherlands BV had consented for the Isolux award to be put on the record in this proceeding.
42.
The Parties' subsequent communications (the Respondent's communications of 29 November 2016, 15 and 22 December 2016, and the Claimants' communications of 5 and 16 December 2016) referred to the issue of confidentiality that had been raised with respect to the Isolux award.
43.
On 11 January 2017, the Parties informed the Tribunal of their agreement to extend the deadlines for the Parties’ Memorials and translations. On the same date, the Tribunal confirmed the extension of the deadlines for the remaining submissions and translations, as agreed by the Parties.
44.
On 19 January 2017, the Respondent filed a Rejoinder on the Merits and Reply on Jurisdiction together with its supporting documentation ("Respondent’s Rejoinder" or "Resp. Rej."), including: the second witness statement of Juan Ramon Ayuso; the second expert report of BDO, Exhibits R-0254 Bis to R-0336; and Legal Authorities RL-0068 to RL-0087.
45.
On 20 January 2017, the Respondent requested the Tribunal for leave to include under a footnote reference to a legal authority that was inadvertently omitted from its Rejoinder on the Merits and Reply on Jurisdiction of 19 January 2017.
46.
On 24 January 2017, the Tribunal authorised the Respondent to include a legal authority as a footnote reference, and to provide updated Spanish and English versions of its Rejoinder on the Merits and Reply on Jurisdiction.
47.
By letter of 2 February 2017, the Respondent requested leave from the Tribunal to file two additional documents which had become known to the Respondent after the submission of the Rejoinder of the Merits: (i) the Claimants’ Cuatrecasas Legal Report titled "changes to the legal framework applicable to solar thermal plants" as Exhibit R-337, and (ii) the European Commission’s Decision regarding the ECT, in a Czech State Aid procedure, which is publicly available in the European Commission website, as Exhibit R-0338. The Respondent also ratified its request to add to the record of the proceedings the Isolux award.
48.
On 3 February 2017, the Tribunal invited the Claimants to make any observations they might have on the Respondent’s request. The Tribunal also informed the Parties that it would decide on the Respondent’s request regarding the Isolux award, together with the Respondent’s request of 2 February 2017.
49.
On 9 February 2017, the Claimants filed observations to the Respondent’s request of 2 February 2017.
50.
On 13 February 2017, the Tribunal posed certain questions to the Parties concerning the issue of confidentiality raised with respect to the Isolux award, and fixed the deadlines for the Parties to submit their respective responses (the Respondent by 20 February 2017 and the Claimants by 27 February 2017).
51.
On 15 February 2017, at the request of the Respondent, to which the Claimants had no objections, the Tribunal extended the above deadlines to 27 February 2017 for the Respondent and 13 March 2017 for the Claimants.
52.
Pursuant to the revised schedule, the Parties filed their respective responses to the Tribunal’s questions concerning the confidentiality of the Isolux award.
53.
By letter of 24 February 2017, the Tribunal invited: (i) the Claimants to provide a "Memo on the fulfilment by Marquesado Solar SL of the conditions described in sections e) and f) of article 4 of Royal Decree 6/2009 of 30 April for the registering of the thermosolar plant promoted by it in the Registry for Pre-Assignation of Tariff" issued by CMS Albinana & Suarez de Lezo (the "Further CMS Note"), to which the Claimants had referred to in their letter of 9 February 2017, and (ii) the Respondent to produce the confidentiality order or agreement in the Isolux matter.
54.
On 27 February 2017, the Claimants produced the Further CMS Note referred to in the Claimants’ letter of 9 February 2017. On the same date, the Tribunal acknowledged receipt of the Claimants’ submission and invited the Respondent to file a brief submission, if it so wished, on the Further CMS Note.
55.
On 2 March 2017, the Respondent submitted a response to the Tribunal’s invitation of 24 February 2017, clarifying that there was no further confidential agreement between the Parties of the Isolux matter different than the one established in the Procedural Order No. 1 issued by the tribunal of the case.
56.
On 2 March 2017, the Claimants filed a Rejoinder on Jurisdiction ("Claimants’ Rejoinder" or "Cl. Rej."), including Exhibits C-0333 to C-0335, and three Appendixes: Appendix 1 - the Claimants' Consolidated List of Defined Terms, Appendix 2 - the Claimants' Consolidated List of Factual Exhibits and Appendix 3 - the Claimants' List of Legal Authorities.
57.
On 6 March 2017, the Respondent filed a submission regarding the Further CMS Note, in accordance with the Tribunal's directions of 24 February 2017.
58.
By letter of 8 March 2017, the Claimants requested the opportunity to file a pre-hearing skeleton brief, recalling that such a possibility was left open during the first session to be considered at a later stage. By communication of the same date, the Respondent objected to the Claimants' proposal, mainly for reasons of cost, and because in its view such additional pleadings were not reasonably justified.
59.
In preparation for the Hearing, by letter of 13 March 2017, the Tribunal (i) invited the Parties to prepare an agreed consolidated USB with the Parties' submissions; (ii) proposed dates for a Pre-Hearing Organisational Meeting provided under Section 19.1 of Procedural Order No. 1; (iii) provided a Draft Agenda for the Pre-Hearing Organisational Meeting, inviting the Parties to submit a joint proposal advising the Tribunal of any agreements on the agenda items, or of their respective positions; and (iv) after considering the position of the Parties on the question of skeleton arguments/outline submissions, the Tribunal invited the Parties to submit Skeleton Arguments/Outline Submissions of up to 20 pages long, as follows: (i) the Claimants by three weeks before the hearing (i.e., by Monday, 24 April 2017), and (ii) the Respondent by ten days prior to the hearing (i.e., by Friday, 5 May 2017).
60.
On 18 March 2017, the Tribunal confirmed that the Pre-Hearing Organisational Meeting would be held by telephone conference on Thursday, 30 March 2017.
61.
On 22 March 2017, the Tribunal issued Procedural Order No. 6 concerning the Respondent’s request filed on 24 November 2016 for authorisation to add the Isolux award to the record, making the following ruling:

(i) "Subject to (iii) below, the Respondent is not excluded from deploying before this Tribunal extracts from the Isolux award containing the reasoning of that tribunal, together with an English translation of the same.

(ii) The Respondent shall inform the Tribunal within 7 days of the steps taken, if any, pursuant to the invitation to it at item No. 41 of the Redfern Schedule appended to PO No. 4.

(iii) The Parties shall seek to agree between themselves any specific confidentiality protections that they may consider appropriate with respect to the Isolux award and any decision or award that may eventually be made available to this Tribunal in accordance with (ii) above, and shall report back to the Tribunal in this respect within 14 days."

62.
On 28 March 2017, the Parties submitted a Joint Draft Agenda for the Pre-Hearing Organisational Meeting, including the Parties’ confidentiality agreement on the use of the Isolux award.
63.
On 28 and 29 March 2017, each of the Parties submitted a proposed schedule for the Hearing.
64.
On 30 March 2017, the Tribunal held a Pre-Hearing Organisational Meeting with the Parties by telephone conference.
65.
On 31 March 2017, the Tribunal issued Procedural Order No. 7 reflecting the agreements and decisions taken during the Pre-Hearing Organisational Meeting.
66.
On 6 April 2017, in accordance with Tribunal’s letter of 2 February 2017, the Respondent filed two new exhibits: (i) R-0337 - Memorandum on Changes to the legal framework applicable to solar thermal plants by Cuatrecasas, dated 27 January 2011, and (ii) R-0338 - State Aid SA.40171 (2015/NN) - Czech Republic Promotion of electricity production from renewable energy sources, dated 28 November 2016.
67.
On 18 April 2017, the Claimants filed their comments on the Respondent’s Exhibits R-0337 and R-0338, and on 26 April 2017, the Respondent sent a message in such regard.
68.
On 19 April 2017, the Claimants filed a request for the Tribunal to decide on the admissibility of five exhibits as new evidence. On 25 April 2017, the Respondent filed observations on the Claimants’ request. By letter of 25 April 2017, the Tribunal took note that the Respondent had no objection to the filing by the Claimants of two of the exhibits: Exhibit C-0339 - Order ETU/130/2017 dated 17 February 2017, and Exhibit C-0340 - CNMC Report on the draft order dated 12 January 2017. As a result, the Tribunal decided to admit those two documents into the record as the Claimants’ Exhibits C-0339 and C-0340.
69.
On 24 April 2017, the Claimants filed a Skeleton Brief, as did the Respondent on 5 May 2017.
70.
On 27 April 2017, the Claimants filed a response to the Respondent’s observations of 25 April 2017 on the Claimants’ request for admissibility of new evidence of 19 April 2017.
71.
By letter of 28 April 2017, the Tribunal authorised the Claimants to add into the record:

Exhibit C-0336 (Iberdrola Presentation "Renewable Energies in Spain: New Regulation (RD 661-2007)" dated 29 May 2007); Exhibit C-0337 (Iberdrola’s Presentation "Renewable Energies in Spain: New Regulation (RD 661-2007)" dated 22 October 2009); and Exhibit C-0338 (Iberdrola Renovables, S.A. and Subsidiaries Audit Report, Consolidated Financial Statements and Consolidated Management Report for the year ended December 31, 2010 dated 22 February 2011). The Tribunal also authorised the Respondent to add into the record: Iberdrola’s presentation called "Renewable Energies: New Regulation", dated 17 March 2004. This presentation was filed by the Respondent on 10 May 2017 as Exhibit R-0339.

72.
On 8 May 2017, the Claimants filed a request for the Tribunal to decide on the admissibility of the award rendered in EISER Infrastructure Limited and Energía Solar Luxembourg S.a r.l. v Kingdom of Spain (ICSID Case No. ARB/13/36) (the "Eiser award") as new evidence on the record. On 9 May 2017, the Respondent stated that it did not have objections to the Claimants' request. Accordingly, with the Tribunal's authorisation, on 10 May 2017, the Claimants filed the Eiser award in its English and Spanish versions as CL-0170.
73.
On 10 May 2017, with the Claimants' agreement and the Tribunal's authorisation, the Respondent filed a Supreme Court Judgment of 12 April 2012 as Exhibit R-0144, to replace another Judgment that had been mistakenly filed as Exhibit R-0144.
74.
A hearing on the merits and jurisdiction was held at the World Bank Conference Centre in Paris, France from 15 May to 19 May 2017 (the "Hearing"). The following persons were present at the Hearing:

Tribunal :
Mr Samuel Wordsworth QC President
Ms Anna Joubin-Bret Arbitrator
Mr Judd L. Kessler Arbitrator

ICSID Secretariat :
Ms Mercedes Cordido-Freytes de Kurowski Secretary of the Tribunal

For the Claimants :
Counsel:
Mr Antonio Vazquez-Guillen Allen & Overy LLP
Mr Jeffrey Sullivan Allen & Overy LLP
Mr Antonio Jimenez-Blanco Allen & Overy LLP
Ms Marie Stoyanov Allen & Overy LLP
Ms Virginia Allan Allen & Overy LLP
Mr David Ingle Allen & Overy LLP
Mr Tomasz Hara Allen & Overy LLP
Ms Stephanie Hawes Allen & Overy LLP
Mr Gonzalo Jimenez-Blanco Allen & Overy LLP

Parties:
Mr Jutta Dissen Innogy (RWE)
Mr Gunnar Helberg Innogy (RWE)

For the Respondent:
Counsel:
Mr Diego Santacruz Ministry of Justice
Mr Francisco Javier Torres Ministry of Justice
Ms Elena Oñoro Ministry of Justice
Mr Antolín Fernández Ministry of Justice
Ms Patricia Frohlingsdorf Ministry of Justice

Parties:
Ms Carmen López IDEA
Ms Carmen María Roa IDEA

Court Reporter(s) :
Ms Claire Hill English-Language Court Reporter (The Court Reporter Ltd)
Mr Leandro Iezzi Spanish-Language Court Reporter (DR-Steno)
Ms Luciana Sosa Spanish-Language Court Reporter (DR-Steno)

Interpreters:
Mr Jesús Getan Bornn English-Spanish Interpreter
Ms Amalia Thaler de Klemm English-Spanish Interpreter
Ms Roxana Dazin English-Spanish Interpreter

75.
During the Hearing, the following persons were examined:

On behalf of the Claimants:
Witnesses:
Mr Hans Bünting Innogy (RWE)
Mr Robert Navarro Innogy (RWE)
Mr Alan Henderson Innogy (RWE)

Experts:
Mr Pablo Spiller Compass Lexecon
Mr Antón García Compass Lexecon
Mr Alan Rozenberg Compass Lexecon
Mr Rui Pratinha Compass Lexecon

On behalf of the Respondent :
Witness:
Mr Juan Ayuso
IDEA

Experts:
Mr David Mitchell BDO
Mr Gervase Macgregor BDO
Ms Susan Blower BDO
Mr Eduardo Pérez BDO
Mr Javier Espel BDO
Mr Manuel Vargas BDO

76.
By letter of 26 May 2017, the Tribunal (i) took note of the Parties’ agreement regarding the further proceeding, as informed by the Parties during the last day of the Hearing, and amended by the Parties’ emails of 26 May 2017; and (ii) posed a number of questions to the Parties to be addressed in their Post-Hearing Briefs.
77.
On 7 July 2017, the Parties filed the Final Transcripts of the Hearing, incorporating the corrections agreed by the Parties.
78.
By letter of 11 July 2017, the Claimants requested leave to submit two additional documents into the record: (i) Transcript of the Spanish Parliamentary Session No. 13 on Energy, Tourism and Digital Agenda dated 28 June 2017 (as Exhibit C-0343); and (ii) Article in Cinco Días: "Nadal wants to cut renewables premium by half" dated 26 June 2017 (as Exhibit C-0344).
79.
By letter of 12 July 2017, the Respondent filed observations in such regard.
80.
By communication of 13 July 2017, the Tribunal informed the Parties that unless either party raised any objection by 14 July 2017, the Tribunal had decided (i) to extend the deadline for the filing of the Parties’ simultaneous Post-Hearing Briefs by two (2) weeks; (ii) to authorise the Claimants to incorporate the Additional Documents into the record as Exhibits C-0343 and C-0344); (iii) to invite the Respondent to submit any responsive documents within ten days; and (iv) that the Parties could comment as they saw fit on the new documents in their Post-Hearing Briefs.
81.
The Parties filed simultaneous Post-Hearing Briefs on 28 July 2017, including answers to the questions posed by the Tribunal on 26 May 2017. The Respondent filed with its Post-Hearing Brief Exhibits R-0345 to R-0353.
82.
By letter of 30 July 2017, the Claimants requested the Tribunal to (i) strike Exhibits R-0345 to R-0353 from the record; (ii) strike paragraphs 174 and 182 from the Respondent’s Post-Hearing Brief where the Respondent referred to those new exhibits; and (iii) direct Spain to file a revised Post-Hearing Brief not containing paragraphs 174 and 182 and otherwise left unchanged for the exclusion of evidence. On 31 July 2017, the Respondent filed observations on the Claimants’ request for the exclusion of the new evidence.
83.
On 31 July 2017, the Tribunal, considering that no prejudice would be caused to the Claimants so long as they had the opportunity to respond to the new documents, admitted them into the record, and invited the Claimants to comment on exhibits R-0345 through R-0353. The Claimants were also encouraged to include any such comments in a revised version of their Post-Hearing Brief. On 7 August 2017, the Claimants thus filed a revised Post-Hearing Brief.
84.
On 23 November 2017, the Respondent filed a request for the Tribunal to decide on the admissibility of a Decision from the European Commission regarding the Spanish State Aid Framework for Renewable Sources (the "EC Decision on State Aid") into the record, and to allow the Parties to file a short submission regarding the implications of the EC Decision on the issues discussed in this proceeding. On 30 November 2017, the Claimants filed observations on this request.
85.
On 30 November 2017, following the resignation of Arbitrator Anna Joubin-Bret, the Secretary-General notified the Parties of the vacancy on the Tribunal and the proceeding was suspended pursuant to ICSID Arbitration Rule 10(2). On 12 January 2018, Ms Anna Joubin-Bret accepted her reappointment as arbitrator by the Respondent in accordance with ICSID Arbitration Rule 11(1).
86.
On 14 January 2018, the Tribunal decided to allow the introduction of the EC Decision on State Aid onto the record on the basis that its relevance and weight would be assessed by the Tribunal together with all the materials submitted. Subsequently, on 19 January 2018, the Respondent filed as its Legal Authority RL-0089 the European Commission’s Decision on the State Aid SA.40348 (20151NN) proceeding regarding Spain’s Support for Electricity Generation from Renewable Energy Sources, Cogeneration and Waste, together with a submission as to its relevance and importance. On 26 January 2018, the Claimants filed their Reply to Respondent’s Comments on the European Commission’s Decision SA.40348 (2015/NN).
87.
On 2 March 2018, the Claimants filed a request for the Tribunal to decide on the admissibility of the final award rendered in Novenergia II - Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v Kingdom of Spain (SCC Arbitration (2015/063)), dated 15 February 2018 (the "Novenergia award") as an additional legal authority into the record. The Claimants further requested that the Tribunal allow the Parties to file brief comments on the relevance of the Novenergia award in the event that the document was admitted into the record.
88.
Following the Tribunal’s invitation, the Respondent filed observations on 9 March 2018 on the Claimants’ request of 2 March 2018, concerning the admissibility of new documents. With regard to the Novenergia award, the Respondent requested leave from the Tribunal to file the clarifications, corrections and/or complements of that award and the further Judgment rendered by the competent Swedish Jurisdictional Court in the appeal filed against the Novenergia award. The Respondent further requested authorisation from the Tribunal to file into the record: (i) the award rendered in the Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v Italian Republic (ICSID Case No. ARB/14/3), dated 27 December 2018 (the "Blusun award"); (ii) the Final award rendered in the Mr Jurgen Wirtgen, Mr Stefan Wirtgen, Mrs Gisela Wirtgen, JSW Solar (zwei) GmbH & Co. KG v The Czech Republic, dated 11 October 2017 (the "Wirtgen award"); and (iii) the Final Judgment issued by the Court of Justice of the European Union (the "CJEU"), in Case C-284/16, Slowakische Republik v Achmea BV (the "Achmea Judgment").
89.
Following the Tribunal’s invitation, the Claimants filed a response on 13 March 2018 to the Respondent’s observations and further request of 9 March 2018, concerning the admissibility of new documents.
90.
On 15 March 2018, the Tribunal decided to allow the introduction into the record of (i) the Novenergia award, together with, so far as they were in existence as of that date, any clarifications, corrections and/or supplements to the Novenergia award and the Judgment in the appeal filed against the Novenergia award; (ii) the Wirtgen award ; and (iii) the Achmea Judgment. The Tribunal invited the Parties to submit comments on their relevance. The Respondent's application to introduce into the record the Blusun award was denied because it was already on the record.
91.
On 22 March 2018, the Claimants requested leave from the Tribunal to file the Novenergia award without having to wait for the Respondent's further documents.
92.
By email of 22 March 2018, the Respondent informed the Tribunal that an Application for Clarification, Amendment and Correction of calculation errors of the Novenergia award was filed on 14 March 2018, but that no Resolution had been issued yet. The Respondent submitted with its communication: (i) the Respondent's Comments on the Achmea Judgment together with four annexes, including the Blusum award; (ii) the Wirtgen award and the Dissenting Opinion, both as RL-89; and (iii) the Achmea Judgment, as RL-90.
93.
On 23 March 2018, the Claimants filed a request for the exclusion of the new legal authorities attached as annexes to the Respondent's comments to the Achmea Judgment submitted on 22 March 2018. This was followed by the Respondent's observations of the same date.
94.
On 28 March 2018, the Claimants filed comments on the Wirtgen award and the Achmea Judgment. On 2 April 2018, the Claimants filed the Novenergia award, together with their comments on its relevance. On 11 April 2018, the Claimants filed a revised submission on the Achmea Judgment incorporating their observations on Annexes 2-4 to the Respondent's submission on the Achmea Judgment.
95.
On 16 May 2018, the European Commission offered to update the EC's amicus curiae submission of 11 August 2016 in light of the Achmea Judgment, and set out its view on the consequences of that judgment for pending arbitration cases based on the ECT (the "EC’s Communication"). On 31 May 2018, the Tribunal invited each Party to file its observations on the EC’s Communication.
96.
On 29 May 2018, the Claimants requested leave (i) to introduce the award dated May 16, 2018 rendered in Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain (ICSID Case No. ARB/14/1) (the "Masdar award") as an additional authority to the record; and (ii) to allow the Parties to file simultaneous submissions on its relevance. On 30 May 2018, the Tribunal invited the Respondent to comment on the Claimants’ request and, by letter of 5 June 2018, as revised by letter of 6 June 2018, the Respondent filed its observations.
97.
On 6 June 2018, the Tribunal decided to allow the Claimants to introduce the Masdar award as an additional authority, and the Parties to submit consecutive comments on its relevance. The Tribunal emphasised (i) that it would not be assisted by any attempt to relitigate issues that were before the Masdar tribunal, and (ii) that the Masdar award might (or might not) be of assistance to the Tribunal because of the persuasive (or otherwise) nature of the reasoning on issues of law, and not because of the facts, given that the facts in the present case are unique (just as those of the Masdar case).
98.
On 7 June 2018, each Party filed observations on the EC’s Communication.
99.
On 13 June 2018, the Claimants filed the Masdar award as CL-0191, together with their comments thereon. The Respondent’s comments followed on 20 June 2018.
100.
On 22 June 2018, the Tribunal accepted the European Commission’s invitation of 16 May 2018 to update the EC’s amicus curiae submission dated 11 August 2016.
101.
On 13 July 2018, the European Commission filed its updated amicus curiae submission (the "EC’s Updated Submission"), together with annexes 1 to 6.
102.
On the same date, the Tribunal informed the Parties that, upon receipt of the EC’s Updated Submission, the Respondent would be able to submit comments of up to three pages within the following seven days, and then the Claimants likewise within a further seven days.
103.
On 24 July 2018, the Respondent informed the Tribunal that it had not been able to submit its comments by the deadline, because of a hearing in another case, and requested leave to submit its comments on 25 July 2018. On the same date, the Claimants informed the Tribunal that although the deadline for the Respondent’s comments had expired, they had no objections to the Respondent’s request.
104.
Also, on 24 July 2018, the Secretary of the Tribunal informed the Parties, that the Respondent’s request had been granted, with its comments due on 25 July 2018. The Claimants would be afforded a similar extension of the deadline, if they so wished, in which case their comments on the EC’s Updated Submission would be due by 6 August 2018. Accordingly, the Respondent filed its comments on 25 July 2018, and the Claimants theirs on 6 August 2018.
105.
On 10 August 2018, the Claimants requested leave (i) to introduce the award dated 15 June 2018 rendered in Antin Infrastructure Services Luxembourg S.a.r.l and Antin Energia Termosolar B.V. v Kingdom of Spain (ICSID Case No. ARB/13/31) (the "Antin award") as an additional authority to the record; and (ii) to allow the Parties to file simultaneous submissions on its relevance. On 17 August 2018, the Respondent filed observations on the Claimants’ request of 10 August 2018, regarding the Antin award. On 20 August 2018, the Tribunal allowed the Claimants to introduce the Antin award as an additional authority, and the Parties to submit consecutive comments on its relevance. Thus, on 27 August 2018, the Claimants filed this award as CL-0192, together with their comments thereon. The Respondent’s comments followed on 3 September 2018.
106.
On 12 September 2018, the Claimants requested leave (i) to introduce the "Decision on the Achmea Issue" dated 31 August 2018 issued in Vattenfall AB and others v Federal Republic of Germany (ICSID Case No. ARB/12/12) (the Vattenfall Decision) as an additional authority to the record; and (ii) to allow the Parties to file simultaneous submissions on its relevance.
107.
On 21 September 2018, the Respondent expressed that it did not have objections and, on 23 September 2018, the Tribunal authorised (i) Claimants to introduce the Vattenfall Decision as an authority, as agreed by the Parties, and (ii) the Parties to submit consecutive comments on its relevance.1 Thus on 2 October 2018, the Claimants filed this Decision as CL-0193, together with their comments thereon. The Respondent's comments followed on 9 October 2018.
108.
On 25 January 2019, the Respondent requested authorisation from the Tribunal to submit to the record the "Declaration of the Representatives of the Governments of the Member States, of 15 January 2015 on the legal consequences of the judgment of the Court of Justice in Achmea and on Investment Protection in the European Union" (the "Declaration of 15 January 2019").
109.
On the same date the Parties informed the Tribunal of their agreement to file simultaneous submissions on costs on 8 February 2019.2
110.
On 30 January 2019, the Claimants opposed the Respondent's request of 25 January 2019, noting that in the event that the Tribunal was minded to allow the Respondent to introduce the Declaration, the Claimants requested leave to introduce as additional authorities to the record: (i) the "Declaration of the Representatives of the Governments of the Member States, of 16 January 2019, on the enforcement of the Judgment of the Court of Justice in Achmea and on investment protection in the European Union" signed by the Representatives of the Governments of Finland, Luxembourg, Malta, Slovenia and Sweden (the "Five Member States’ Declaration"); and (ii) the "Declaration of the Representative of the Government of Hungary, of 16 January 2019, on the legal consequences of the Judgment of the Court of Justice in Achmea and on investment protection in the European Union", signed by Hungary ("Hungary’s Declaration").
111.
On 1 February 2019, the Tribunal authorised the submission (i) by Respondent of the Declaration; and (ii) by Claimants of the additional Declarations identified in Claimants’ letter of 30 January 2019, and fixed the deadlines for the Parties to submit comments on their relevance. Accordingly, on 5 February 2019, the Respondent filed the Declaration and the Claimants in turn introduced the Five Member State’s Declaration and Hungary’s Declaration. In accordance with the Tribunal’s directions, the Respondent filed its comments on 12 February 2019, and so did the Claimants on 19 February 2019.3
112.
On 26 February 2019, each Party filed a Submission on Costs.4
113.
On 11 April 2019, the Respondent filed a request for leave from the Tribunal to submit the Decision on Responsibility and on the Principles of Quantum rendered in the RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.a.r.l v Kingdom of Spain (ICSID Case No. ARB/13/30) (the "RREEF Decision"), on 30 November 2018, jointly with the Partially Dissenting Opinion. On 22 April 2019, the Claimants filed observations on the Respondent’s request of 11 April 2019. On 25 April 2019, the Tribunal allowed the Respondent to introduce the Decision and Partial Dissent, and the Parties to submit consecutive comments.
114.
On 3 May 2019, the Respondent filed the RREEF Decision and the RREEF Partial Dissent as RL-099EN and RL-100EN, respectively, together with their comments thereon. The Claimants comments followed on 10 May 2019.
115.
On 9 August 2019, the Claimants requested the Tribunal (i) to confirm that it had sufficient availability to work expeditiously to issue the Award; (ii) to declare the proceeding closed in accordance with Rule 38(1) of the ICSID Arbitration Rules; and (iii) to provide clarity as to when it intends to render its Award.
116.
On 13 August 2019, the Tribunal provided the following update to the Parties: "Since its letter of 3 October 2018, the Tribunal has met for deliberations in person, and has additionally held multiple teleconferences and kept regular contact by email, almost on a weekly basis. The Tribunal has concluded its deliberations and has very recently completed its final draft, albeit that time must be allowed for final edits, translation, and proofreading, a process which may push delivery into the early autumn (...)".

III. THE PARTIES’ CLAIMS AND REQUESTS FOR RELIEF

A. The Claimants’ claims

117.
The Claimants submit that Spain has violated Article 10(1) of the ECT, and that the Claimants are entitled to relief accordingly. In particular, it is alleged that:

i) "Spain has breached its obligation to accord, at all times, FET to the Claimants’ investments. This is because:

a. Spain’s measures have violated the Claimants' reasonable and legitimate expectations at the time the relevant investment decisions were made;

b. Spain has failed to provide a stable and predictable regulatory framework;

c. Spain’s implementation of the New Regime was not transparent, and the New Regime does not provide certainty as to the economic and regulatory regime that will apply to the Claimants’ investments in Spain from now on;

d. Spain’s actions are profoundly unreasonable, as Spain’s justifications behind the measures (the Tariff Deficit and overcapacity of the RE infrastructure) are the result of Spain's own regulatory decisions; and

e. Spain’s actions are disproportionate, as there is no reasonable relationship between the burden imposed on the Claimants' investments and the stated goal of addressing the Tariff Deficit. Spain's measures had a disproportionate impact on RWE's investments - significantly reducing the fair market value of the Claimants' investments and causing damages in an amount superior to EUR 275 million - and were adopted notwithstanding Spain's alternative options to adopt less harmful measures with respect to ECT-protected investments.

ii) Spain caused substantial impairment of the Claimants' investments through unreasonable measures; and

iii) Spain's wrongful measures depart from the obligations it entered into with respect to the Claimants' investments, in breach of the umbrella clause under Article 10(1) of the ECT (the Umbrella Clause). Those obligations, specifically to "grandfather" the Claimants' already-existing installations, i.e., not to subject them to future tariff reviews, were endorsed in RD 436/2004, and RD 661/2007, as well as in the July 2010 Agreement and RD 1614/2010, regarding the 'guaranteed' application of the RD 661 economic regime going forward."5

B. The Claimants’ Requests for Relief

118.
The Claimants included in their Request for Arbitration ("RfA") the following Request for Relief:

(i) "declaring that Spain has violated Articles 10 and 13 of the ECT, as well as its obligations under the applicable rules and principles of international law;

(ii) requiring that Spain make full reparation to the Claimants for the injury or loss to their investments arising out of Spain's violations of the ECT and international law, by way of: (1) full restitution to the Claimants by reinstating the legal and regulatory framework in place before the issuance of, including but not limited to, Law 15/2012, RDL 2/2013, RDL 9/2013, Law 24/2013, RD 413/2014 and the Ministerial Order; or (2) full compensation to the Claimants for all losses suffered by them as a result of Spain's violations of the ECT and international law, in an amount to be determined in the course of these proceedings, including interest on all amounts awarded at a reasonable rate;

(iii) directing Spain to pay all costs incurred in connection with these arbitration proceedings, including the costs of the arbitrators and ICSID, as well as the legal and other expenses incurred by the Claimants, including but not limited to the fees of their legal counsel, experts and consultants and those of the Claimants’ own employees, on a full indemnity basis, plus interest thereon at a reasonable rate;

(iv) directing Spain to pay post-award interest, compounded monthly, on the amounts awarded until full payment thereof; and

(v) any other relief the Arbitral Tribunal may deem appropriate in the circumstances."6

119.
In the Claimants’ Memorial on the Merits dated 26 February 2016, they requested the following Request for Relief:

(i) "DECLARING that Spain has breached Article 10(1) of the ECT; and

(ii) ORDERING that Spain:

a. provide full restitution to the Claimants by re-establishing the situation which existed prior to Spain's breaches of the ECT, together with compensation for all losses suffered before restitution; or

b. pay the Claimants compensation for all losses suffered as a result of Spain's breaches of the ECT; and

in any event:

a. pay the Claimants pre-award interest at a rate of 7.61% compounded monthly; and

b. pay the Claimants post-award interest, at a rate of 7.61% compounded monthly from the date of the award until full payment thereof; and

c. pay the Claimants the costs of this arbitration on a full-indemnity basis, including all expenses that the Claimants have incurred or will incur in respect of the fees and expenses of the arbitrators, ICSID, legal counsel, experts and consultants; and

d. any other relief that the Tribunal may deem just and proper."7

120.
The Claimants reserved their rights to amend or supplement their Memorial on the Merits and to request such additional, alternative or different relief as may be appropriate.8
121.
In the Claimants’ Reply on the Merits and Counter-Memorial on Jurisdiction dated 11 November 2016, they included the following Request for Relief:

"The Claimants repeat the relief set out at paragraph 580 of the Memorial and also ask the Tribunal to dismiss all of Spain’s jurisdictional objections. In addition to the reservation of rights contained at paragraph 581 of the Memorial, the Claimants also reserve their right to address any discrepancies that the Claimants subsequently discover between the English and the Spanish versions of Spain’s Counter-Memorial, the Claimants having relied on the English translation."9

122.
In the Claimants’ Rejoinder on Jurisdiction dated 2 March 2017, the Claimants included the following Request for Relief:

"Insofar as Spain’s jurisdictional Objections are concerned (and in addition to the relief set out at paragraph 580 of the Claimants’ Memorial and paragraph 736 of the Claimants’ Reply), the Claimants hereby request the Tribunal to:

• dismiss both of Spain’s jurisdictional Objections; and

• order that Spain bear the Claimants’ costs associated with these jurisdictional Objections."10

C. The Respondent’s Position

123.
In the Respondent’s Counter-Memorial on the Merits and Memorial on Jurisdiction dated 20 May 2016, the Respondent requested the Tribunal to:

a) "Declare its lack of jurisdiction over the claims of the Claimants or, if applicable, the inadmissibility of said claims.

b) Secondarily, in the event that the Arbitral Tribunal decides that it has jurisdiction to hear this dispute, to dismiss all the claims of the Claimants regarding the Merits, as the Kingdom of Spain has not breached the ECT in any way, pursuant to section III herein, with regard to the Merits.

c) Secondarily, to dismiss all the Claimant's claims for damages as the Claimant has no right to compensation, in accordance with section V herein; and

d) Order the Claimant to pay all costs and expenses derived from this arbitration, including ICSID administrative expenses, arbitrators' fees, and the fees of the legal representatives of the Kingdom of Spain, their experts and advisors, as well as any other cost or expense that has been incurred, all of this including a reasonable rate of interest from the date on which these costs are incurred until the date of their actual payment."11

124.
The Respondent reserved the right to supplement, modify or complement its Counter-Memorial on the Merits and Memorial on Jurisdiction and present any and all additional arguments that might be necessary in accordance with the ICSID Convention, the ICSID Rules of Arbitration, procedural orders and the directives of the Arbitral Tribunal in order to respond to all allegations made by the Claimants in regard to this matter.12
125.
In its Rejoinder on the Merits and Reply on Jurisdiction dated 19 January 2017, the Respondent asked the Tribunal to:

a) "Declare its lacks of jurisdiction to hear the claims of the Claimants, or if applicable their inadmissibility, in accordance with what is set forth in section III of this Document, referring to Jurisdictional Objections;

b) Secondarily, for the case that the Arbitral Tribunal decides that it has jurisdiction to hear this dispute, that it dismiss all the claims of the Claimants on the merits because the Kingdom of Spain has not breached in any way the ECT, in accordance with what is stated in paragraphs (A) and (B) of section IV of this Document, on the substance of the matter;

c) Secondarily, to dismiss all the Claimants' claims for damages as said claims are not entitled to compensation, in accordance with section V of this Document; and

d) Sentence the Claimants to pay all costs and expenses derived from this arbitration, including ICSID administrative expenses, arbitrators' fees, and the fees of the legal representatives of the Kingdom of Spain, their experts and advisors, as well as any other cost or expense that has been incurred, all of this including a reasonable rate of interest from the date on which these costs are incurred and the date of their actual payment."13

126.
The Respondent again reserved the right to supplement, modify or complement its Rejoinder on the Merits and Reply on Jurisdiction and present any and all additional arguments that may be necessary in accordance with the ICSID Convention, the ICSID rules of arbitration, procedural orders and the directives of the Arbitral Tribunal in order to respond to all allegations made by the Claimants with regard to this matter.14

IV. LEGAL AND FACTUAL BACKGROUND

127.
The following section of the Award sets out an overview of the legal and factual background to the dispute, referring in turn to (A) the most important elements of the electricity generation regime into which the Claimants invested, (B) the actual investments of the Claimants, (C) the disputed measures, and (D) the Spanish court decisions on which emphasis has been placed by the Respondent.

A. The Special regime : legal and economic framework

128.
From the mid-1990s, Spain has sought to develop its renewable energy ("RE") generation sector.

(1) The 1997 Electricity Law (Law 54/1997)15

129.
On 27 November 1997, Spain adopted Law 54/1997 on the Electric Power Sector ("Law 54/1997"). According to its Preamble, the basic purpose of Law 54/1997 was "to regulate the electricity sector with the traditional, three-fold goal of guaranteeing the supply of electrical power, its quality and the provision of such supply at the lowest cost possible."
130.
The financial regime for activities regulated by Law 54/1997 was established by its Title III, including Article 15 "Remuneration of activities" which provided as follows:

"1. The activities involved in the supply of electric power shall be remunerated economically in the manner provided by this Act, as charged to the rates and prices paid.

2. To determine the rates and prices that consumers must pay, the remuneration of activities shall be stipulated in regulations with objective, transparent and non-discriminatory criteria that act as an incentive to improve the effectiveness of management, the economic and technical efficiency of said activities and the quality of the electricity supply."16

131.
Law 54/1997 distinguished in its Title IV between the "Ordinary regime" for electricity generation (Chapter I of Title IV) and the "Special regime" (Chapter II of Title IV), which applied to installations generating no more than 50 MW and in particular to "non-consumable renewable energies" (Article 27(1)). Pursuant to Article 27(2) of this Law, generation under the special regime was to be "governed by specific provisions and, in cases not provided for in these special provisions, by the general regulations on electricity generation where applicable."17
132.
Article 28(1) then established a requirement of prior administrative authorisation for inter alia the construction and operation of installations under the special regime, whilst a series of rights and obligations for such installations was established by Article 30. In particular, Article 30(4) provided:

"4. 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:

a) The installations referred to in letter a) of point 1 in article 27.

b) Hydroelectric power stations whose installed capacity is equal to or less than 10 MW and all other installations referred to by letter b) of point 1 in article 27.

For the purposes of this Act, neither solid urban waste nor hazardous waste shall be considered biomass.

c) Hydroelectric plants of between 10 and 50 MW, the installations referred to in letter c) of point 1 of article 27 as well as the installations mentioned in the second paragraph of point 1 in article 27.

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."18

133.
According to the Respondent, this provision established the principle of "reasonable return", which it portrays as the stable basis of the remunerative regime with respect to the production of energy from renewable sources.19 It portrays this as a key, overarching concept, that (i) requires a balance between the cost of the premiums for consumers and profitability for the investor, (ii) has a dynamic character, (iii) represents a guarantee for the investor, and (iv) imposes on the regulator an obligation of a result.20 The Claimants contend that the reference to "reasonable return" in Law 54/1997 is undetermined and unquantified, and thus has no meaning on its own, except when implemented through regulations establishing the tariff to which qualifying RE installations are entitled, which is what RD 2818/1998 did by implementing the Special Regime FIT ("feed-in" tariff system: "FIT").21
134.
Law 54/1997 also provided (in its Sixteenth transitory provision) that: "In order for renewable energy sources to cover at least 12% of Spain's total energy demand by the year 2010, a plan shall be drawn up to promote renewable energies and whose objectives shall be taken into account in the setting of premiums."

(2) Royal Decree 2818/199822("RD 2818/1998") and the Plan for Renewable Energy Promotion 2000-2010 ( "2000 PER")23

135.
RD 2818/98 was subsequently promulgated to "[t]he regulatory development, as regards the special plan of Law 54/1997... in relation to the requirements and procedures to adhere to the special plan, to the registration procedures in the corresponding Record ...",24 establishing a regime of incentives for installations under the special regime. According to the Preamble of RD 2818/98, "for the facilities based on renewable energies and waste, the incentive established has no time limit as the environmental benefits need to be internalised, and because of their special characteristics and technological level, their higher costs do not allow them to compete in the free market."25
136.
The incentives established by RD 2818/98 were in the form of a premium to be paid on top of the market price for power generated or alternatively a fixed tariff for each kWh of electricity sold, in lieu of the market price (Articles 26 and 28).26 Pursuant to Article 32, there was to be a review every four years "taking into account changes in the price of electric energy in the market, the share of these facilities in the coverage of demand and their impact on the technical management of the system."27
137.
According to the Claimants, the incentives established by RD 2818/98 were to apply during the whole useful life of RE plants,28 whilst the (i) FIT mechanism, (ii) encouragement of and reward for efficiency in production, (iii) choice between Premium and Regulated Tariff, and (iv) availability of the FIT for the life of the installation were to remain common features of the Spanish RE regulatory framework throughout the entire period that RWE made its investments in Spain.29 According to the Respondent, the remuneration framework was designed to meet the legal principle of reasonable return, did not include the "grandfathering" of the subsidies, while factors relating to the economic sustainability of the electricity system or the reasonableness of the profitability received could make it possible at any time to make reforms other than those provided for in RD 2818/1998.30
138.
The RD 2818/1998 regime was in force when the Claimants first invested in the Spanish wind and hydro sectors.31 Under this regime, nine of the Claimants’ plants began operating.32
139.
On December 1999, Spain approved the 2000 PER for the promotion of RE, establishing a series of targets per area that would enable renewable energy sources to meet at least 12% of Spain’s primary energy demand by 20 1 0.33 The Claimants submit that the plan acknowledged that one of the key elements for its success was the recognition that, for investors, financial resources were dependent upon the principles of profitability, opportunity and stability.34
140.
According to the Respondent, the 2000 PER indicated that it was not necessary to increase the remuneration for wind and hydroelectric technologies to reach the target. The plan established the methodology for determining the remunerative regime of the RE which consisted of:

"defining, within each technology and according to the state of the art existing from time to time, different standard facilities. Once these standard facilities had been determined, different standards were established in each one of them (investment cost, operation cost, useful life of the plant, hours of rewarded production, market price) that allowed such plant to reach, in a given period of time (useful life), a reasonable return according to the cost of money in the capital market."35

(3) Royal Decree 436/2004 and Further Implementing Regulations, including Royal Decree No. 661/2007

a. Royal Decree 436/2004 ("RD 436/2004")36

141.
On 27 December 2002, RD 1432/2002 was adopted, establishing the methodology for the approval or modification of the average or reference tariff (the "tarifa media de referenda": "TMR").
142.
On 12 March 2004, the Spanish Government enacted RD 436/2004, which repealed RD 2818/1998.37
143.
As part of the backdrop to this new regulation, on 27 September 2001, the European Union (the "EU") issued Directive 2001/77/EC ("2001 Renewables Directive") which mandated the Member States of the EU to take certain actions to meet the objectives of the Kyoto Protocol. According to the Claimants, the 2001 Renewables Directive recognised the need to provide government-backed economic incentives for RE power generation projects, including through FITs.38 The Respondent accepts that the 2001 Renewables Directive recognised the need to give public aid to RE, although it emphasises that this would be as set by States within the obligations imposed by Articles 87 and 88 of the Treaty on State Aid. According to the Respondent, in 2014 the Court of Justice of the European Union ("ECJ") recognised as State aid the amounts that end users pay to private companies producing energy.39
144.
As explained in the Preamble to RD 436/2004, the plant operator would have a choice to sell energy produced in return for remuneration in the form of a regulated tariff, i.e. a single, flat rate defined as a percentage of the TMR fixed in accordance with RD 1432/2002, or to sell directly in the market, in which case the operator would receive the market price plus an incentive and a premium if the specific plant was entitled to receive one (as also calculated by reference to the TMR, although specified on a case-by-case basis taking into account the criteria mentioned in Article 30(4) of Law 54/1997). The Preamble continued:

"Whichever remuneration mechanism is chosen, the Royal Decree guarantees operators of special regime installations fair remuneration for their investments and an equally fair allocation to electricity consumers of the costs that can be attributed to the electricity system although incentives are offered for market participation because this is deemed to be the way to minimise administrative intervention in the setting of electricity prices as well as to better, and more efficiently allocate the system costs especially with respect to deviation (differences) management and the provision of ancillary services."

145.
Article 1(a) further defined the purpose of the Decree as to "update, systematise and consolidate the regulatory provisions issued to develop and implement the legislation on the legal regime for electric power production in the special regime covered by" Law 54/1997. The economic regime outlined in the Preamble was provided for in Articles 22-23. Article 22 established that operators had a choice between a fixed tariff and payment of a payment above the wholesale market price per kWh of energy produced, while pursuant to Article 23, the regulated tariff and the premium were to be calculated by reference to set percentages of the TMR, fixed each year in accordance with Article 2 of RD 1432/2002.
146.
Pursuant to Article 40(1) of RD 436/2004, "in view of the findings of the monitoring reports on the degree of performance of the renewable energies promotion Plan", the tariffs and premiums as defined in the Decree were to be revised in 2006, and then every four years. However, as established by Article 40(2) and (3), such revisions were not to have any backdated effect:

"2. The tariffs, premiums, incentives and supplements resulting from any of the revisions provided for in this section shall come into force on January 1st of the second year subsequent to the year that the revision has been carried out.

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 in the paragraph above and shall not have a backdated effect on any previous tariffs and premiums."40

147.
Article 34(5) also provided specifically in relation to wind energy:

"Notwithstanding the provisions of article 40, whenever group b.2 [installations that solely use wind power as primary energy] reaches 13,000 MW of installed capacity the figures for the tariffs, incentives and premiums stated in this article shall undergo revision."41

148.
RD 436/2004 also established a transitional scheme. Pursuant to the Second Transitory Provision: "Electric power production installations covered under Royal Decree 2818/1998, dated December 23rd, which on the entry into force of this Royal Decree have full registration in the Administrative Register of special regime production installations attached to the Ministry of Economy, shall have a transitional period available to them until January 1st 2007." Pursuant to this provision, it was also permitted to opt for such installations to be covered by RD 436/2004 right away.
149.
The Claimants contend that RD 436/2004 guaranteed the economic conditions that it contained for the entire life of a plant, and also established a stability commitment, according to which future changes to the RE tariffs would not apply to installations that had already achieved start-up unless of equivalent or better economic terms.42 Relying on the report of 14 February 2007 of Spain's National Energy Commission ("CNE"),43 the Claimants say that Article 40.3 of RD 436/2004 "introduced an explicit grandfathering guarantee",44 and they also contend that Spain's internal documents confirm that the greater stability provided for by RD 436/2004 was specifically to incentivise investment.45
150.
The Respondent submits that RD 436/2004 was linked to the 2000 PER and responded to the same methodology for determining the remunerative regime of the RE established in the 2000 PER, i.e. the subsidies granted were calculated through a methodology aimed at granting a standard facility a reasonable return over a given period of time.46 It contends that the wording of Article 40.3 of RD 436/2004 is confined and does not extend to all possible revisions to the remunerative regime.47 The Respondent also says that RD 436/2004 linked the evolution of the subsidies in the collection to the evolution of the TMR, which potentially endangered the economic sustainability of the Spanish Electricity System ("SES") in addition to producing situations of over-remuneration.48

b. The 2005-2010 Plan for Renewable Energy ("2005 PER")49

151.
In August 2005, Spain published a Renewable Energies Plan for 2005-2010 (the "2005 PER"), maintaining the 12% target for energy from renewable sources that had been set in the Plan for 2000-2010.50
152.
The 2005 PER noted that satisfactory progress had been made with respect to wind energy, but that small-scale hydroelectric energy generation had grown more slowly than envisaged. Certain areas, including solar, were identified as growing at well below the desired rates. A new target was set for the wind energy sector in the form of an increase in output of 12,000 MW over the period 2005-2010 (which would mean ending the decade with a total installed potential of 20,155 MW).51 It was also stated with respect to wind energy that it was "essential that the current legislative framework be retained without substantial changes over the period 2005-2010 (Law 54/1997 on the Electricity Sector and Methodology for Revision of Tariffs established in Royal Decree 436/2004 on the Special System)."52
153.
The 2005 PER included a detailed section on the funding of the Plan. In introducing this section, reference was made to a stable regulatory framework, and it was explained that the funding requirements were established on the basis of an assumed 7% return (after tax) for a standard facility.53
154.
The Claimants submit that the 2005 PER laid the groundwork for further improvements to the Special Regime, and recognised that the legal framework of wind energy must be maintained without substantial changes between 2005-2010.54 They say that the stability of the framework was recognised as the decisive factor.55
155.
The Respondent claims that the 2005 PER is essential to understanding the remuneration scheme set in RD 661/2007, and that the plan "followed the traditional methodology and established its profitability targets for the plants in a given period of time (lifetime) based on the calculation of the costs of the standard facilities for the various technologies and revenue forecasts, according to the prevailing macroeconomic circumstances."56 The Respondent contends that the remuneration scheme set the different parameters required for each standard facility to reach a return on the project close to 7% on equity throughout its lifetime.57

c. Royal Decree Law 7/2006 ("RDL 7/2006")58

156.
On 23 June 2006, the Spanish Government adopted Royal Decree Law 7/2006 which, through its Article 1, de-linked the calculation of tariffs and premiums from the TMR (as the method of calculation under RD 436/2004 was having an unforeseen upwards impact on the rates of tariffs and premiums) and froze the tariffs. This was intended as an urgent and temporary measure, with the intention being that new regulations be developed for the establishment of tariffs and premiums. Industry associations (including the APPA and AEE of which the Second Claimant is an active member) reacted with extreme hostility.59
157.
The Claimants submit that RDL 7/2006 provided further incentives: (i) froze the consumer tariff paid by electricity consumers for the purposes of determining the FIT for RE installations,60 and (ii) conferred on qualifying RE installations priority of access to the transmission and distribution network.61 This was done to enhance the economic regime for RE to comply with the EU's policy.62
158.
According to the Respondent, RDL 7/2006 was adopted to correct the negative effects that RD 436/2004 had on the sustainability of the SES caused by the ties of the RE subsidies to the TMR.63 Thus, RDL 7/2006 froze the subsidies of the Special Regime until a new remuneration model was developed, as well as de-linking the calculation of tariffs and premiums from the TMR.64 The Claimants accept this point as to de-linking.65

d. Royal Decree No. 661/2007 of 25 May 2007 ("RD 661/2007")66

159.
New draft regulations were published in November 2006, and these were reviewed by the CNE in a report of 14 February 2007, following adverse reaction to the draft from industry bodies such as the APPA and the AEE.67 The CNE listed out a number of "fundamental criteria" that it considered must influence the legal and economic regulation of electricity production, including:

"(b) Minimize regulatory uncertainty. The NEC [National Energy Commission] understands that transparency and predictability in the future of economic incentives reduce regulatory uncertainty, incentivising investments in new capacity and minimizing the cost of financing, thus reducing the final cost to the consumer. The regulation must offer sufficient guarantees to ensure that the economic incentives are stable and predictable throughout the service life of the facility. In each case, regulation must provide both transparent annual adjustment mechanisms, associated to robust trend indexes (such as the average or reference tariff, the CPI, ten-year bonds, etc.) and regular reviews that only affect new facilities (e.g. every four years) with regard to investment costs, which could also affect the reduction of operating costs at existing facilities."68

160.
The CNE also stated, however, that it did not regard legal certainty or the protection of legitimate expectations as meaning that legislation would be immune to reform:

"As shown both in the scientific doctrine and case law, in a social and democratic State of Law the principles of legal certainty and protection of legitimate expectations cannot be built on insurmountable obstacles to the innovation of a body of law, nor can they be used as instruments to petrify current Law at any moment. In other words, the principle of legal certainty is not by definition as anti-evolutionary or conservative principle; it does not mean that legislation is resistant or immune to reform. In this sense, these principles do not impede dynamic innovation.... Thus the principles only require that regulatory innovation—especially if sudden, unpredictable or unexpected—be carried out with certain guarantees and caution (sufficient transition periods for adaptation and, where applicable, compensatory measures) that cushion, moderate and minimise as far as possible the defrauding [sic] of expectations generated by previous regulations."69

161.
The new regulation, RD 661/2007, was adopted on 25 May 2007 and came into force on 1 June 2007. It is of central importance to the Claimants’ case in these proceedings.70 The Claimants say that they made the following investments on the basis of the RD 661/2007 regime: Project Ulysses, investing €363.5m (the Urvasco acquisition); Project Aldea, investing €12m; and Project Dia, investing €48m.71 Further, consistent with the provisions of RD 661/2007, the Claimants contend that they spent €6.8m upgrading various wind plants (Grisel, Acampo, Armijo, Muel, Balsa, Labrados, and Zaragoza).72
162.
In its Preamble, RD 661/2007 explained that the "modification of the economic and legal framework which regulates the special regime existing to date has become necessary for various reasons." These reasons were stated to be:

"First of all, the growth seen in the special regime over recent years tied to the experience accumulated during the application of Royal Decree 2818/1998, of 23 December and Royal Decree 436/2004, of 12 March, has shown the need to regulate certain technical aspects in order to contribute to the growth of those technologies, while maintaining the security of the electrical system and ensuring the quality of supply, and minimising the restrictions on the production of electricity generated in this manner. In view of the behaviour of the prices in the market, where certain variables which were not considered in the cited compensation system for the special regime have, over recent times, acquired greater importance, the economic circumstances established by Royal Decree 436/2004, of 12 March, make it necessary to modify the compensation system and de-link it from the Mean Electricity Tariff, or Reference Tariff, which has been used to date. Finally, it is necessary to include the changes in the legislation deriving from European law, and from Royal Decree-Law 7/2006...."73

163.
The Preamble further explained:

"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, although incentives are provided to playing a part in this market since it is considered that in this manner lower government intervention will be achieved in the setting of prices, together with better, more efficient, attribution of the costs of the system, particularly in respect of the handling of diversions and the provisions of supplementary services.

To this effect, a system which is analogous to that provided in Royal Decree 436/2004, of 12 March, is maintained, in which the owner of the facility may opt to sell their energy at a regulated tariff, which will be the same for all scheduling periods, or alternatively to sell this energy directly on the daily market, the term market, or through a bilateral contract, in this case receiving the price negotiated in the market plus a premium...."74

164.
The Claimants submit that the Government introduced RD 661/2007 with the aim of achieving the EU objectives concerning RE production and the 2005-2010 PER.75 By contrast, the Respondent argues that RD 661/2007 was adopted to ensure the economic sustainability of the SES, which could be affected by a system of subsidies linked to the TMR.76
165.
Pursuant to Article 9.1 of RD 661/2007, and in line with previous legislation (e.g. Article 21.4 of Law 54/1997, Article 9 of RD 2818/1998, and Article 9.1 of RD 436/2004), facilities under the special regime were subject to compulsory registration in the Registro Administrativo de Instalaciones de Producción en Régimen Especial (the "RAIPRE"):

"In order to ensure appropriate monitoring of the special regime and in particular in order to ensure the management and control of the receipt of the regulated tariffs, the premiums and supplements, both in respect of the categories, groups, and sub-groups, the installed power, and where applicable the date of entry into service, and in respect of the evolution of the electrical energy produced, the energy sold to the grid, the primary energy employed, the useful heat produced, and the primary energy saving achieved, facilities for the production of electrical energy under the special regime shall be subject to compulsory registration in Section Two of the Public Authority Register of facilities for the production of electrical energy indicated in Article 21.4 of Law 54/1997, which is a part of the Ministry of Industry, Tourism, and Trade. Section Two of the Public Authority Register indicated above shall hereinafter be known as the Public Authority Register for production facilities under the Special Regime."77

166.
Chapter III of RD 661/2007 (Articles 16-23) was concerned with the rights and duties of facilities under the special regime. Article 17 established certain key rights, with Article 17.1 providing as follows:

"Without prejudice to the provisions of Article 30.2 of Law 54/1997, of 27 November, the proprietors of production facilities under the special regime shall enjoy the following rights:

a) To connect their generating unit or units in parallel to the grid of the distribution or transport company.

b) Transfer to the system their net production of electrical energy or energy sold, by way of the distribution or transport company upon condition that it is technically possible for it to be absorbed by the grid.

c) Receive, for the total or partial sale of their net electrical energy generated under any of the options appearing in Article 24.1, the compensation provided in the economic regime set out by this Royal Decree. The right to receive the regulated tariff, or if appropriate the premium, shall be subject to final registration of the facility in the Register of production facilities under the special regime of the General Directorate of Energy Policy and Mines, prior to the final date set out in Article 22.

d) To sell all or part of their net production by way of direct lines.

e) To enjoy priority in access and connection to the electricity grid under the terms and conditions set out in Annex XI of this Royal Decree, or in such regulations as may supersede them."78

167.
Chapter IV (Articles 24-51) then established the new economic regime. Pursuant to Article 24.1, producers under the special regime benefited from an option to choose between sale of energy on the basis of a fixed tariff or by reference to the market price plus, where appropriate, a Premium (subject to a cap and to a floor). Detailed provisions then followed for calculation of the Fixed Tariff and the Premium, including with specific respect to wind energy and hydroelectric power (Articles 36, 38 and 40). The Premium option for wind and hydro technologies was subject to (i) an upper limit or "cap" of 8.4944 € cent/kWh, and (ii) a lower threshold or "floor" of 7.1275 € cent/kWh. According to the Claimants, the fact that the lower Premium price was very close to the Fixed Tariff of 7.3228 € cent/kWh, made the Premium option more attractive.79
168.
Article 22 established the "Period of maintenance of the regulated tariffs and premiums", providing in this respect that:

"1. As soon as 85% of the power target for any Group or Sub-Group as established in Articles 35 to 42 of the present Royal Decree has been reached, the maximum period during which such facilities as have been registered in the Public Authority Register of production facilities under the special regime prior to the date of the termination of such period shall have the right to a premium or if applicable the regulated tariff established in the present Royal Decree for such Group or Sub-Group, which shall be no less than twelve months, shall be established by Resolution of the General Secretariat for Energy...."

169.
Article 44 provided for "Updating and review of tariffs, premiums, and supplements." Article 44.3, and in particular its final paragraph, are of great importance in the way the claim has been put, providing that:

"During the year 2010, on sight of the results of the monitoring reports on the degree of fulfilment 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 special regime in covering the demand and its impact upon 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."80

170.
RD 661/2007 also contained detailed transitional provisions, enabling those facilities operating under RD 436/2004 to elect to continue receiving premiums under that regime until 31 December 2012 (see Transitory Provision One). It is common ground that most wind energy producers took the benefit of these provisions and remained under the old tariff regime. The Claimants’ plants opted for the application of RD 436/2004 until 31 December 2012, and the application of RD 661/2007 thereafter.81
171.
Pursuant to the Fifth Transitory Provision of RD 661/2007, older wind farms had to upgrade their technology to qualify for the application of RD 661/2007.82 The Claimants’ case is that, in reliance on the provisions of RD 661/2007 to the effect that the tariffs would apply during the whole operational life of the plant and that any future reviews would not affect those plants that had already complied with all registration and other requirements and achieved start-up, the Claimants invested funds to carry out those upgrades.83
172.
In light of the above provisions, the Claimants submit that RD 661/2007 provided for a FIT mechanism (Fixed Tariff or Premium), incentives based on production to encourage and reward efficiency, long-term tariff guarantee (entitlement expressly granted for the life of the installation), and the promise of "grandfathering" existing installations in the event of future tariff reviews.84
173.
The Respondent says that the provisions of RD 661/2007 must be analysed in harmony with the principles of Law 54/1997 and keeping in mind that RD 661/2007 maintained the link of the subsidies with the prior methodology, as well as with the base economic parameters embodied in the 2005-2010 PER.85 It refutes the argument that, due to a "grandfathering" commitment, the Claimants’ investments made between April 2001 and December 2012 became entitled to the RD 661/2007 regime during the lifetime of all the plants.86
174.
The adoption of RD 661/2007 was accompanied by a press release from Spain’s Ministry of Industry, Tourism and Commerce entitled "The Government prioritises profitability and stability in the new Royal Decree on renewable energy and combined heat and power." This three-page document set out the basic lines of the Royal Decree. In the opening paragraph, the Ministry stated as follows (in relevant part):

"The purpose of this Royal Decree is to improve the compensation for those technologies that are less mature, such as biomass and solar thermal, in order to be able to reach the objectives of the Renewable Energy Plan 2005-2010, as well as the objectives imposed on Spain by the EC. By developing these technologies, renewable energy in Spain will cover 12% of energy consumption in 2010. The new regulation guarantees a return of 7% for wind farms and hydro-electric facilities that opt to transfer their production to distributors and between 5% and 9% if they participate in the electricity production market.... Tariffs will be revised every 4 years, taking into account the fulfilment of the objectives set out. This will make it possible to adjust the tariffs based on the new costs and the degree of fulfilment of the objectives. Future adjustments to said tariffs will not affect installations which are already in operation. This guarantees legal certainty for the electricity producer and stability for the sector, favouring development. The new legislation will not be retroactive. Facilities functioning by 1 January 2008 may keep to the previous legislation in the fixed tariff option during their entire lifespan. When they participate in the market, they may keep to their regulation prior to 31 December 2012. The emission of 6.3 million tonnes of C02 per year will be avoided by achieving the objectives set out for combined heat and power for 2010."87

175.
It was also reiterated at page 2 of the press release:

"Renewable energy Returns With regards to returns, the new regulation guarantees an average return of 7% for wind farms and hydro-electric facilities that opt to transfer their production to distributors and returns between 5% and 9% if they participate in the electricity production market."88

176.
The Claimants submit that the Spanish Government, led by the Ministry and the State Company for the Promotion and Attraction of Foreign Investment ("InvestinSpain"),89 also launched a domestic and international campaign to attract foreign investments in the Spanish RE sector, highlighting the economic conditions and long-term tariff of RD 661/2007.90 The Claimants referred in particular to presentations in 2007 in Graz, Austria91 and in Germany in 2008 on "Opportunities in Renewable Energy in Spain."92 Reference was also made to two presentations made by the CNE in February 2009.93 While the Claimants do not contend that they relied on what was said at specific presentations, they do rely on such presentations as evidence of how Spain itself understood the Special Regime that it has established.94

e. Royal Decree Law 6/2009 ("RDL 6/2009")95 and the Pre-Assignment Register

177.
On 30 April 2009, Spain adopted Royal Decree Law 6/2009. Royal Decree-Laws have the same value as a law and may be issued by the Spanish Government in cases of extraordinary and urgent need.96
178.
As recorded in its Preamble, RDL 6/2009 was adopted against the backdrop of the international financial crisis of 2008 and what was portrayed as an increasingly unsustainable electricity tariff deficit in Spain:

"The growing tariff deficit, that is to say, the difference between revenue from the regulated tariffs that are set by the Administration and that consumers pay for their regulated supply and from the access tariffs that are set in the liberalised market and the real costs associated with these tariffs, is causing serious problems which, in the current context of international financial crisis, is having a profound effect on the system and placing at risk not only the financial situation of the companies that make up the Electricity Industry, but also the very sustainability of the system. This imbalance is unsustainable and has serious consequences, as it undermines the security and the capacity to fund the investments needed for the supply of electricity at the levels of quality and security that Spanish society requires."97

179.
With specific reference to facilities under the special regime, the Preamble explained that:

"... due to the growing impact on the tariff deficit, mechanisms are established with respect to the remunerative system of special regime facilities. The trend that these technologies are following could place system sustainability at risk in the short term, both from the economic point of view due to its impact on the electricity tariff and from the technical point of view, also compromising the economic viability of already completed facilities whose operation depends on the suitable balance between manageable and non-manageable generation. Therefore there is a need to adopt an urgent measure that serves to guarantee the necessary legal security of those who have made investments, and lays down the bases for establishing new economic regimes that encourage compliance with the intended objectives: the achievement of certain power objectives from technology at a reasonable cost for the consumer and the technological evolution thereof, which makes possible a gradual reduction in their cost and consequently their concurrence with conventional technologies."98

180.
Pursuant to its Article 1, RDL 6/2009 sought to eliminate the tariff deficit by 1 January 2013, amending the additional provisions to Law 54/1997 so as to provide that: "As of 1 January 2013, access fees shall be sufficient to satisfy the entire costs of the regulated activities without the possibility of any ex ante deficit appearing."99 Article 4 of RDL 6/2009 also introduced a new requirement of registration in the Remuneration Preassignment Registry as a necessary condition to being awarded the right to the economic regime established in RD 661/2007, enabling the Government to stagger the entry into operation of new installations.100
181.
Industry associations including the APPA strongly criticised this RD.101 Both parties agree that there was a tariff deficit in the SES and that the main goal of RDL 6/2009 was to eliminate this. According to the Claimants, by 2009 the tariff deficit was in excess of EUR 20 billion.102 The Claimants say that the tariff deficit was caused by the Respondent’s failure to comply with Law 54/1997 and ensure that end-user tariffs for electricity are at levels sufficient to cover the actual costs of the SES, including the costs of the Special Regime.103 The Respondent say that imbalance in the SES was largely due to the sharp reduction in the demand for electricity caused by the economic crisis.104

f. Further developments in the Special Regime 2009-2010

182.
On April 23, 2009, the EU adopted Directive 2009/28/EC (the "2009 Renewables Directive"),105 fixing 2020 as the date by when the EU would seek to obtain 20% of its total energy consumption requirements from RE sources (the "2020 Target").106 In accordance with the 2009 Renewables Directive, on 30 June 2010, Spain adopted a National Action Plan for Renewable Energy ("NAPRE") to meet the targets of the directive.107 With respect to "Future developments in support schemes for electricity generation from renewable energies", this Plan stated that: "Electrical energy production under the special procedure is founded on three basic principles, namely legal certainty, feasibility and regulatory stability."108
183.
The Respondent contends that, during 2010, there was an exceptional reduction in electricity demand, which among other factors, led to the need for reform in the Electricity Sector.109
184.
On 2 July 2010, Spain's Ministry of Industry, Tourism, and Trade issued a press release announcing that it had reached "an agreement with the solar thermal and wind power sectors to revise their rate structures" (the "July 2010 "agreement"").110 This referred to a cap on the number of hours that would benefit from the tariffs of RD 661/2007, and a reduction of the Premium until 2013. However, the incentives and rates of RD 661/2007 were otherwise to be maintained.111 The press release announced that:

"The agreements include short-term measures, which will allow the impact on the price of electricity to be reduced, as well as long-term measures, which will guarantee stability and certainty to both sectors for its future development.

The premium for wind provided by RD 661/2007 will be reduced by 35% until 2013....

It is agreed to limit the number of hours with above-market remuneration rights for wind power and solar thermal plants, taking into account the different technologies and the provisions of the Renewable Energies Plan 2005-2010 for the calculation of the profitability of the facilities....

With this measure, which does not jeopardise the profitability of the existing facilities, it will be guaranteed that the production of renewable energy above the expected amounts will benefit consumers and not jeopardise the financial sustainability of the system.

This pact furthermore assumes the reinforcement of the visibility and stability of the regulation of these technologies in the future, guaranteeing the current incentives and rates of RD 661/2007 for the facilities in operation (and for those included in the pre-registration) starting in 2013.

…

The Ministry of Industry, Tourism and Trade will immediately start the proceedings that allow the content of the agreements to transfer into regulation."112

185.
Shortly before the July 2010 "agreement", representatives of the First Claimant (including Mr Henderson and Mr Navarro) had met with representatives of the Government. As to this meeting, Mr Henderson said:

"They [the Spanish Government representatives] believed that Article 44.3 gave them the right to change the premium but not the fixed tariff, that was their interpretation of it, so the fixed tariff they couldn't touch, but the premium yes. And their proposal to the sector was that in return for these temporary adjustments, as I say, to reduce the premium component for a limited period, and also the operating hours, with some caps on operating hours, they would guarantee to the sector, and they did guarantee to the sector in the July 2010 agreement and subsequent legislation, that they would never again touch the parameters applicable to 661 and to our assets."113

186.
On 19 November 2010, Spain issued Royal Decree 1565/2010 ("RD 1565/2010")114 which introduced certain technical and economic measures for the wind energy sector. This was followed on 7 December 2010 by issue of Royal Decree 1614/2010 ("RD 1614/2010").115
187.
In its Preamble, RD 1614/2010 recorded that with "the growth in wind, solar thermoelectric and photovoltaic technologies, the objectives for 2010 for installed power having been equalled and indeed exceeded", and that the support regime "must adapt, while ensuring the legal security of investments and the principle of fair return...." A limit on the number of hours entitled to remuneration at the fixed tariff or to a premium was established by Article 2(4).116 Article 5 of RD 1614/2010 also provided that reviews under Article 44(3) of RD 661/2007 would not apply to installations that had obtained the definitive registration in the RAIPRE on or before 7 May 2009,117 nor to any installations that at the time of entry into force of RDL 6/2009 met the requirements for registration in the Pre-Assignment Register, and were effectively registered in the RAIPRE on or before 31 December 2013.118
188.
Article 5(3) thus reiterated the final sentence of Article 44(3) of RD 661/2007 with specific respect to facilities registered definitively in the RAIPRE as of 7 May 2009 and those that had met the requirements for registration in the Remuneration Pre-assignment Registry (see Article 4 of RDL 6/2009).119
189.
The final legislative act establishing the framework into which the Claimants were making their various investments is Royal Decree Law 14/2010, adopted on 23 December 2010 ("RDL 14/2010").120 This RDL required producers under the ordinary regime (traditional electric power plants) and under the special regime to pay an access fee for the use of transmission and distribution networks and affected the RE producers’ profit.121 According to the Respondent, this demonstrates that RD 1614/2010 was not intended to freeze the economic regime established in RD 661/2007.122 The Claimants contend that these cuts were only for PV installations, so the wind and hydro sector did not suffer.123 The Tribunal notes, however, that the introduction of the access fee under RDL 14/2010 was of general application, whereas certain provisions of this RDL were confined to the PV sector i.e. certain limits on operating hours.

B. The Claimants’ Investments in Spain

190.
Between April 2001 and December 2011, the Claimants bought and developed in Spain (i) four hydroelectric plants (Cepeda and La Mora in Ávila, Chomba in Asturias, and Villalgordo in Albacete) with a total installed production capacity of approximately 12.20 MW and (ii) 16 wind farms (Grisel, Acampo-Armijo, Muel, Bosque Alto, Plana de María, Río Gallego, Lanternoso, Los Labrados, Plana de la Balsa, Plana de Zaragoza, Bancal, Siglos, Juno, Luna, Urano and Aldehuelas) with a total installed production capacity of approximately 446.75 MW.124 The Claimants say that they invested more than EUR 577 million in these plants between 2001 and 2011.125
191.
As follows from the details below, the investments were acquired in three broad tranches: first, in a series of transactions in 2001 to early 2004 totalling in excess of EUR 45 million, in particular with respect to the acquisition of 100% of the share capital of Agrupació Energías Renovables, S.A.U. (Aersa) (the "Aersa Acquisition");126 second, on 6 June 2008, the Claimants acquired a 100% interest in Urvasco Energía, S.A. (Urvasco) for EUR 363.5 million (the "Urvasco Acquisition");127 third, in a series of transactions from December 2008 up until December 2012, the Claimants increased their shareholding interests in the various plants in which they already had an interest through their prior acquisitions.
192.
The Claimants’ first investments were made through the First Claimant’s predecessor company, Harpen AG (Harpen).128
193.
In April 2001, Harpen acquired the Grisel wind farm for EUR 3,500.129 In June 2001, Harpen and PEG entered into an agreement with BBB Umwelttechnik Erneuerbare Energien GmbH (BBB) and Germania Windpark GmbH & Co. (GWP), in which PEG acquired from BBB all authorisations, permits and licences of the Grisel plant for EUR 3.5 million.130
194.
In May 2002, Harpen acquired 100% of the share capital of Agrupació Energías Renovables S.A.U. (Aersa) for EUR 42 million. Harpen thus acquired interests in the following wind farms: Acampo Armijo (100%); Muel (77.67%); Puena de la Balsa (81%); Los Labrados (81%); Plana de Zaragoza (81%); Aldehuelas (20.81%). Also through the Aersa acquisition, Harpen acquired a 100% interest in the hydroelectric plants Chomba del Plagano, Cepeda and La Mora, and a 60% interest in the hydroelectric plant Villalgordo.131
195.
As at the time of the Aersa Acquisiton, RWE Aersa owned 90% of Prodenergías-2, S.L. ("Prodenergías 2"),132 which owned 46.26%133 of each Parque Eólico La Luna ("Luna"), Parque Eólico Juno ("Juno") and Parque Eólico Urano ("Urano") through the company Danta de Energías, S.A. The percentage interest was increased to 50% on 1 April 2004 due to a capital increase in Dante, with the result that the Claimants had a 45% in Luna, Juno and Urano as of that date.134
196.
A draft due diligence report was produced by Price Waterhouse Coopers in April 2002 with respect to the Aersa acquisition, although this focused on the individual plants as opposed to the details of the Spanish regulatory regime.135 In July 2002, Ilex Energy Consulting (Ilex) prepared for the Claimants a report entitled "Projecting Wholesale Electricity Prices in Spain."136 This report drew attention to RD 2818/1998, which it described as "encourag[ing] new investments in co-generation and renewable energies by placing them under a Special Regime and subsidising electricity purchases from renewable energy generators with a capacity of less than 50MW."137 Under the section "Future of the Special regime", a "main risk" was identified as "the possibility of partial or total elimination of the Special regime subsidies", although it was added that "we consider it unlikely that support for renewable energy would disappear completely."138
197.
On 30 December 2003, a further 21.97% interest in Aldehuelas was acquired for EUR 586,363.139
198.
It follows that the Claimants invested in excess of EUR 49.5 million under the regulatory regime put in place by RD 2818/1998 and prior to the adoption of RD 436/2004. A further 1.77% interest in this plant was acquired on 1 April 2004 for around EUR 40,000, i.e. a few days after RD 436/2004 was adopted.140
199.
In October 2004, Ilex prepared for the Claimants a further report, entitled "Wind Power Price Projections for Spain", having been retained by Harpen "to examine the background to, and project the prospects for, wind power in Spain for the period to 2022."141 In this report, Ilex stated in the Executive Summary that:

"The future for renewable generation will depend on the form and level of any support mechanism. The Special Regime mechanism is subject to periodic review, and there have been discussions about introducing a market-based mechanism in accordance with the latest EU directive on renewable generation. However, given the success of the current mechanism,. it is likely that the current tariff/premium methodology will continue, at least until 2010.

Given the uncertainty surrounding the Special Regime and the future policy and support mechanism for the development of renewable energy to meet the set targets, it is difficult to accurately project potential additional revenue to wind generators. However, there is a commitment by the Spanish Government to continue support in some form, whether it is through subsidies set annually and funded by the regulated tariffs, or through market-based mechanisms."142

200.
In July 2007, Ilex (now called Pöyry) prepared a report for RWE Power AG, "Current and Future State of Wind Energy in Spain and Portugal."143 This report post-dates RD 661/2007 (25 May 2007) but pre-dates the Claimants' acquisition of Urvasco (6 June 2008, see further below). It is noted that the Claimants' witnesses did not read this report, and it has not been established that it was relied on in the acquisition of Urvasco.144
201.
In its Executive Summary, Pöyry identified under its first heading "Recent market events in Spain" various matters including "ongoing problems with the tariff deficit" and "changes in legislation to cap revenue to Special Regime generators." It also stated that "given recent high Pool prices, Special Regime generators, in particular windfarms, have been making supra-normal profits. As a result of these excessive profits the government has intervened in order to cap profits by modifying RD 436/2004 (the main special regime legislation for the period 2004-2007) and publishing RD 661/2007 to replace it" It continued:

"Due to these major changes by the Government, Pöyry believes the Spanish market will continue to be dominated by the government, with it actively managing the market to try and maintain a cap on generator profits. What seems increasingly probable is that the government is unlikely to opt for direct intervention in the Pool. Rather it appears to prefer intervention outside the Pool (as RD 1634/2006 and lTC 400/2007 legislation to cap generators profits and total system cost). Thus the government is more likely to intervene to tax companies for windfall profits, or cap revenues (RD 661/2007), than it is to directly intervene in the wholesale market and cap prices."145

202.
In the ensuing "Summary of legislation for renewables in Spain", Pöyry set out the basic elements of RD 661/2007, stating inter alia :

"The Spanish Government, through Royal Decree (RD) 661/2007, encourages new investments in co-generation and renewable energies by placing them under a Special Regime, and subsidising electricity purchases from renewable energy generators. Under RD 661/2007, these subsidies (environmental premiums) are guaranteed during the operating lifetime of the plant. RD 661/2007 supplants the previous legislation governing the special regime market, RD 436/2004.

The main conclusion for the industry from the implementation of RD 661/2007 is that although the potential income to be received has been capped so have the potential losses. In our opinion the revised remuneration for wind generators will not cause any real lasting damage to the Spanish wind industry - a concern that had been raised after the publication of the first draft in November 2006."146

203.
Pöyry’s forecast was, in its summary form, as follows:

"The Spanish wind farms remuneration has changed with the recent introduction of RD 661/2007. It provides a new measure to control revenues wind farms by imposing a cap and a floor (also referred to as a ‘collar’). This way the Spanish Government limits the return wind assets will obtain. Pöyry estimates that the expected IRR (Internal Rate of Return, post-tax nominal) ungeared for wind farms at market prices would be in the range of 5% to 7.5% (see Pöyry’s DCF model in Annex E). The IRR range implies a decrease in expected IRR compared to those that result from RD 436/2004 scheme which allowed higher returns. Existing wind farms opting for the transitory period will have an IRR ungeared in the range of 5.5% to 8%. We estimate that the impact RD 661/2007 for the existing assets is, therefore, limited."147

204.
In the section on regulatory/political risks, Pöyry explained that: "2006 saw a significant increase in Government intervention in the energy market in Spain. The ever-increasing tariff deficit caused by low hydro and ever increasing Brent prices forced the Government to take drastic measures. Towards the end of 2005, the Government announced that it intended to analyse the Special regime remuneration (specifically wind), since it was viewed as profiting from the high SMP [pool] price as well as the increasing TMR."148 As it had in the 2004 report, Pöyry also considered the possibility of introduction of a market-based mechanism to replace the tariff system, but it considered this very unlikely. The report stated that: "Tn 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 windfarms for a number of years."149
205.
Approximately one year following issue of the 2007 Pöyry report, on 6 June 2008, RWE Aersa acquired a 100% interest in Urvasco Energía, S.A. (Urvasco) for EUR 363.5 million.150 As a result, RWE Aersa acquired 100% of: (i) Parque Eólico Bancal, S.L., which held the Bancal wind farm; (ii) Parque Eólico Los Siglos, S.L., which held the Los Siglos wind farm; (iii) Guijosa Eólica, S.A., which held the Lanternoso wind farm; (iv) Parque Eólico Río Gallego, S.L., which held the Río Gallego wind farm; (v) Parque Eólico Bosque Alto, S.A., which held the Bosque Alto wind farm; and (vi) Explotaciones Eólicas Plana de María, S.L., which held the Plana María wind farm.151 The Claimants consider that they paid a high price for these assets, which was justified because they were able to afford the price under the regime in place.152
206.
On 23 December 2008, the Second Claimant acquired a further 23.75% interest in Aldehuelas for EUR 12 million.153
207.
On 7 May 2009, a few days after the adoption of Royal Decree Law 6/2009, the Second Claimant acquired a further 49.23% interest in La Luna, Juno and Urano for EUR 48 million.154 Also, in the second half of 2009, upgrades to fourteen plants were made in accordance with the Fifth Transitory Provision of RD 661/2007, in the amount of EUR 6.8 million.155
208.
In a series of transactions in October-December 2010, i.e. in the months after the Ministerial press release of 2 July 2010 concerning the "agreement with the solar thermal and wind power sectors to revise their rate structures", the Claimants acquired further interests in Plana de la Balsa (a further 13.7% for EUR 1.2 million156), Los Labrados (a further 13.98% for EUR 1.65 million157), Plana de Zaragoza (a further 19% for EUR 2,725 million158), and Muel (a further 17.32% for EUR 1.7 million).159
209.
Further significant investments were made by the Claimants in 2011 (subsequent to the adoption of RD 1614/2010 and RDL 14/2010). In February 2011, the Second Claimant acquired a further interest in Muel through the acquisition of Promotura Acurado SA (approximately 5% for EUR 4.6 million),160 and also bought the remaining 10% interest in Prodenergias 2, thereby increasing its interest in Plana de la Balsa and Los Labrados to 100%.161 On 2 December 2011, RWE Aersa acquired a further 47.50% of the share capital of Aldehuelas for EUR 25,540,000,162 increasing its interest in the Aldehuelas wind farm to 95%.163 Finally, on 1 December 2012, the Claimants acquired a ‘golden share' with respect to the Muel plant (for EUR 50,000).164
210.
The Respondent does not make any challenge to the Claimants' ownership of the investments in Spain. However, it does emphasise that the investments were acquired over a period of more than 12 years, and it criticises the Claimants for giving the impression that the only regulations in the Spanish Regulatory Framework that any investor had to take into account were RD 661/2007 and RD 1614/2010.165 The Respondent also says that the Claimants failed to carry out any due diligence subsequent to July 2007.166 The issue of due diligence, as with the evidence on actual reliance on the applicable regulations, is considered in section VI below.

C. Spain’s Measures and the New Regime

211.
According to the Claimants, from December 2012 until June 2014, Spain adopted a series of measures (the Disputed Measures) which seriously undermined the RD 661/2007 economic regime and amounted to the reneging of the promises that had induced the making of the Claimants' investments.167
212.
The Respondent says in contrast that the measures adopted to reform the Electricity Sector had been announced publicly,168 were reasonable and proportionate, and affected all subjects of the SES. The Respondent says that the measures affected in particular consumers whose electricity bills had increased disproportionately between 2003 and 2012,169 and that the Disputed Measures were adopted in a context of international crisis that produced severe effects on the demand for electricity and capital market yields.170 In the Respondent’s view, the reforms maintained the essential elements of the support system for renewable energies.171

a. The CNE report of 7 March 2012; the MOU of 20 July 2012

213.
On 27 January 2012, the Spanish Government asked the CNE to prepare a report on the regulatory adjustment measures that could be adopted in the energy sectors, including in terms of addressing the development of the tariff deficit in the electrical sector. The CNE issued a report on 7 March 2012.172 According to the CNE, the deficit between revenues and costs of the electrical system was unsustainable, the system debt having grown to €21,812 M.173 It stated that "the urgent adoption of regulatory solutions is needed, in the electrical and natural gas sectors."174
214.
The CNE proposed a number of possible "urgent and necessary" short and medium term measures, some of which were radical in nature i.e. financing the cost of the special regime through CO2 auctions and a tax on the sale of petrol and gas, some of which envisaged relatively minor reductions to the current remuneration to RE generators (such as reductions to the annual increase in accordance with the CPI, reductions impacting solar thermoelectric plants pre-registered but not yet finally registered in the RAIPRE, and restrictions on use of fossil fuels in generation of renewable energy to 5%), some of which envisaged an increase in access tolls.175 The CNE did not propose the replacement of the Special Regime fixed tariff / premium put in place by RD 661/2007.
215.
Three months later, on 25 June 2012, the Spanish Government requested external financial assistance from the EU in the context of the ongoing restructuring and recapitalisation of the Spanish banking sector. This led, on 20 July 2012, to conclusion of a Memorandum of Understanding with the EU on "Financial Sector Policy Conditionality." This MOU recorded how the global financial and economic crisis had exposed weaknesses in the growth pattern of the Spanish economy, how Spanish banks had largely lost access to wholesale funding markets on affordable terms, and set out a roadmap for the restructuring and recapitalisation of Spanish banks. Further, at paragraph 31 of the MOU it was stated:

"31. Regarding structural reforms, the Spanish authorities are committed to implement the country-specific recommendations in the context of the European Semester. These reforms aim at correcting macroeconomic imbalances, as identified in the in-depth review under the Macroeconomic Imbalance Procedure (MIP). In particular, these recommendations invite Spain to:... 6) complete the electricity and gas interconnections with neighbouring countries, and address the electricity tariff deficit in a comprehensive way."176

b. Law 15/2012

216.
Law 15/2012 of 27 December 2012 ("Law 15/2012"),177 which came into force on 1 January 2013,178 imposed (i) a 7% levy on all income obtained by all generators, renewable or otherwise, and (ii) a 22% levy on the use of mainland waters (reduced to 2.2 % for hydro plants with an installed capacity of less than 50 MW). According to the Claimants, this was not a ‘tax measure’ but rather a disguised tariff cut.179 The Respondent states that the economic impact of the taxes on RE producers is neutralised because they are one of the costs remunerated to RE producers under the payment regime applicable to them.180

c. RDL 2/2013, RDL 9/2013 and Law 44/2013

217.
Spain issued Royal Decree Law 2/2013 on 1 February 2013 ("RDL 2/2013").181 This adopted further "Urgent Measures within the Electricity System and the Financial Sector", pursuant to which: (i) the value of the Premium was reduced to nil; and (ii) the inflation adjustments that were envisaged under RD 661/2007 for the FIT were reduced, removing key components of the CPI, because it replaces the CPI with the Consumer Price Index at constant taxes excluding unprocessed food and energy products ("CPI-IP").182 In the Preamble to RDL 2/2013, these measures were explained as being a response to new increases in the tariff deficit, it being said that this was to a great extent "due to a greater increase in the cost of the special regime on account of an increase in operating hours which was greater than expected, to an increase in remuneration values due to their being indexed to the Brent price, and to a decrease in revenue from fees due to a very marked fall in demand which was consolidated during this tax year."183
218.
On 12 July 2013, the Spanish Government adopted Royal Decree Law 9/2013 ("RDL 9/2013")184 the principal measure of which the Claimants complain in this case. According to the Preamble of RDL 9/2013, the electricity sector debt had become unsustainable, and urgent and immediately-applicable measures were needed. The Preamble described the urgent measures that had previously been taken by Spain, gave an explanation as to why these had not proved sufficient, and then described the new measures and their legal basis as follows:

"First of all, the Government is empowered to approve a new legal and economic regime for existing electricity production installations using renewable, co-generation and waste energy sources. In this way article 30.4 of Law 54/1997, of 27 November, concerning the Electricity Sector, is modified to introduce the concrete principles on which this regime will be based, in order to establish the scope of activity of the Government in developing remuneration regimes for these installations. This shall be based on receiving the revenue deriving from market participation, with an additional remuneration which, were it to prove necessary, covers those investment costs that an efficient and well-run company cannot recover from the market. In this way, in line with Community jurisprudence, an efficient and well-run company shall be understood to be one that has the necessary resources to carry out its activity, whose costs are those of a company that is efficient in its activity, and taking into account the corresponding revenue and a reasonable return for carrying out its functions. The objective is to guarantee that the high costs of an inefficient company are not used as a benchmark.

…

Furthermore, in Law 54/1997 of 27 November, the concept of reasonable return is embodied and regulated, and is established, in line with jurisprudence and doctrine that has been laid down in recent years, in a project profitability that will depend, before tax, on the average yield from ten-year Government Bonds on the secondary market, by applying the appropriate differential."

219.
Pursuant to Article 1 of RDL 9/2013, Article 30.4 of Law 54/1997 was radically amended so as to read as follows (in relevant part):

"Additionally, subj ect to the terms that the Council of Ministers might adopt pursuant to Royal Decrees, in relation to the remuneration for the generation of electricity calculated according to market price, installations may receive a specific remuneration [the Special Payment] composed of an amount per unit of installed capacity. Such amount shall cover, as appropriate, the investment costs of a standard installation that cannot be recovered through the sale of energy, as well as an amount for the operation of the installation to cover, as the case may be, the difference between exploitation costs and the revenues obtained from the participation of such a standard installation in the market.

…

This remuneration regime shall not exceed the minimum required level to cover the costs that are necessary for installations to compete on an equal footing with the rest of the technologies in the market in order to allow those installations to obtain a reasonable return, by reference to the standard installation, as the case may be. Notwithstanding the above, exceptionally the remuneration regime might also include an incentive to investments and timely execution of an installation, if this was going to result in a significant cost reduction for the Spanish islands or the extra-peninsular territories' electricity systems.

Such reasonable return will be based on, before taxes, the average returns in the secondary market of the State's ten-year bonds plus the adequate differential.

The parameters of the remuneration regime can be revised every six years."

220.
Pursuant to this RDL’s First Additional Provision, the adequate differential referred to in the revised Article 30(4) was fixed at 300 base points.
221.
On 4 September 2013, a report was produced by CNE185 in which the impact of the new methodology was described inter alia as follows (emphasis in original):

"The new methodology incorporates periodic revisions of the specific payment in order to ensure that so-called reasonable rates of return are obtained, avoiding underpayments and also overpayments; however, the methodology also presents great uncertainties for its application to the approximately 60,000 existing installations, since its application depends on a series of standard parameters that will be defined in the development order of the royal decree."

222.
On 26 December 2013, Spain introduced a new Electricity Law, Law 24/2013 ("Law 24/2013"), repealing Law 54/1997 save with regard to certain limited provisions.186 The new Law confirmed and developed the principles set out in RDL 9/2013, with Article 30(4) of Law 54/1997 as amended by RDL 9/2013 becoming Article 14(7) of Law 24/2013. Pursuant to its Article 26(2), RE producers were accorded priority of dispatch where market economic conditions are equal, and priority of access and connection to the grid.187
223.
Law 24/2013 did not however define what the precise economic regime would be going forward, or the precise amount of the Special Payment. This transitory period lasted for 11 months.188
224.
Spain then enacted Royal Decree 413/2014 of 6 June 2014 ("RD 413/2014")189 and Ministerial Order IET/1045/2014 of 16 June 2014 ("June 2014 Order")190, which established the parameters for the Standard Installation, i.e. an important factor in calculation of remuneration under RDL 9/2013.191
225.
As a result of the new Law and the new regulations, RE producers obtain the pool price for electricity sold in the open market, plus a Special Payment.192 This Special Payment:

a) is limited to the regulatory useful life of 20 years (for wind) or 25 years (for hydro as opposed to the previous regime which guaranteed the incentives for the whole useful life.193

b) is composed of two elements: i) a remuneration per MW of installed capacity; and ii) a remuneration per MW hour ("MWh") of electricity produced, seeking to cover the operating costs that cannot be met by market prices;194 and is determined by reference to a standard installation (the "Standard Installation") and capped by the concept of "reasonable return", defined as a rate of return of 300 basis points above the average yield on Spanish ten-year government bonds, set at 7,398%;195

c) is subject to revision every six years;

d) takes into account the amounts received under the RDL 661/2007 regime in assessing whether a plant has achieved a reasonable return during the regulatory life,196 i.e. if a plant has obtained in the past a return higher than the capped rate, that plant will receive a lower Special Payment (or none at all) to compensate for the excess and reach the target of a 7,398% return.197

226.
It follows that although certain of the benefits accorded to RE producers by RD 661/2007 have remained in place, the structure of remuneration was radically altered by RDL 9/2013, Law 24/2013 and the further regulations of June 2014.

d. The impact of Spain’s measures on the Claimants’ investments

227.
As identified above, the Claimants acquired Investments in Spain through acquisitions and improvements costing in excess of EUR 513 million. The Claimants’ RE plants are now substantially less profitable than they were prior to the adoption of the Disputed Measures.
228.
According to the Claimants, the Disputed Measures have "wiped out 56% of the fair market value of RWE's investments", reducing the fair market value by EUR 267.7 million.198 Their position is also that the equity value of RWE Aersa has been reduced to zero (taking into account inter-company debt).199
229.
According to the Respondent, the Claimants’ plants have received or will receive a reasonable return. Its case is that:

a) Certain plants have already been exceptionally profitable and hence are no longer entitled to a subsidy. Thus, the rates of return are stated as: with respect to Muel, 11.2%; Acampo Armijo, 18.6%; Bosque Alto, 10.1%; Los Labrados, 11.4%; Plana María, 10.1%; Plana Zaragoza, 13.7%; Río Gallego phase I, 10.8% and phase II, 16.1%; Aldehuelas, 19.2%. It is said that, overall, "the Claimants recover their investment costs and, taking operating costs into account, will obtain a total consolidated rate of return of 10.6% before tax or 8.2% after tax."200

b) Pursuant to the Claimants’ ‘But-for scenario’, the average rate of return would be 14.5% for the Claimants’ wind farms and 7.1% for the Claimants’ hydro plants. The Respondent says that these return rates are disproportionate in relation to the risk profile of the investments.201

230.
The Claimants have put forward, through Compass Lexecon, various rates of return figures, including figures based on standard plants corresponding to the Claimants’ plants.202

a) According to Compass Lexecon, the expected rate of return achieved by the standard plants corresponding to each of the Claimants’ plants is 5.7% after tax as a result of Spain’s measures ("the actual scenario"), as opposed to 9% after tax under their "but-for scenario."203

b) A comparison is made by Compass Lexecon to the percentage figures to the rates of return referred to in the CNE Report 3/2007, on the basis that these were what the CNE had considered to be reasonable. The Tribunal notes, however, that the rates of return contained in the CNE report concerned (i) CNE's calculation of average rates of return under the then draft RD, i.e. 8.2% (wind) and 9.7% (hydro) for both the fixed tariff and premium options, and (ii) CNE's proposed rates of return for plants coming into operation after 1 January 2008, being the same for the fixed tariff option, but 9.9% (wind) and 11.2% (hydro) for the premium option.204 Given that none of the Claimants' plants came into operation after 1 January 2008, the Tribunal does not consider the CNE proposed rates (9.9% (wind) and 11.2% (hydro)) to be relevant.205 It is also not clear to the Tribunal whether these CNE figures were pre- or post-tax.

e. European Commission State Aid Procedures

231.
Respondent submits that, following the European Court of Justice ("ECJ") preliminary ruling C-275/13 (the ELCOGAS case),206 in which a definition on the concept of state aid was given, Spain was obliged to notify the European Commission ("EC") of the support measures provided for RE relating to this arbitration.207 Respondent informed the European Commission of the measures adopted through the June 2014 Order and the European Commission opened an investigation procedure No. SA.40348 2014/N.208 It is the Respondent's position that, under Article 108 of the Treaty on the Functioning of the European Union ("TFEU"), the EC has the exclusive competence to declare the compatibility of an aid with EU law. The Respondent also notes that the ECJ is the only body competent to review the EC's decision.209
232.
According to the Claimants, the State aid issues are irrelevant to the resolution of this arbitration for the following reasons:

a) The EC investigation concerns the June 2014 Order, so the New Regime is what is under investigation, not the Special Regime on which the Claimants relied to invest.210

b) There is no evidence that the Disputed Measures were motivated by State aid concerns, as the preambles do not mention State aid.211

c) Neither the Community Guidelines on State Aid for Environmental Protection and Energy 20142020, Number 2014/C200/0170 (the "2014 Guidelines"), nor the guidelines approved by the Communication from the European Commission 2008/C82/0171 (the "2008 Guidelines"), mentioned by Respondent, required Spain to adopt the Disputed Measures.212

d) It is a principle of EU State aid law that beneficiaries of support schemes should be allowed to rely upon a stable legal framework. The 2014 Guidelines provide that a reduction in renewable incentives should apply prospectively to new RE installations.213

233.
On 10 November 2017, the EC made its the Decision on the State Aid SA.40348 (20151NN) proceeding regarding Spain’s Support for Electricity Generation from Renewable Energy Sources, Cogeneration and Waste.214 In light of this Decision, the Parties developed their respective positions on the State aid issue, as considered further in Section V (Jurisdiction) below.

D. The Supreme Court Judgments

234.
The Respondent has put before the Tribunal multiple judgments of the Spanish Supreme Court, and it contends that since 2005 a consistent case-law on the remuneration scheme for RE has been established.215 It refers to the Judgment of 15 December 2005, involving a challenge to RD 436/2004, in which 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 [...]."216 In the years following this Judgment - in particular in 2006, 2007, 2009, 2012, 2013 and 2016217 - the Supreme Court issued further judgments which, according to the Respondent, confirmed that:

a) There was no right to an economic system remaining unaltered;

b) The only limit to be respected by the Government in regulatory modifications was the provision to SR facilities of a reasonable return with reference to the cost of money on the capital market;

c) The integration of SR facilities into the SES implied that companies had to assume a certain regulatory risk.218

235.
In judgments of 1 June and 12 July 2016, the Supreme Court considered and rejected various challenges to RD 413/2014 and Order IET/1045/2014. In rejecting the arguments put before it on legitimate expectations and legal certainty, the Supreme Court stated that "no provisions of RD 661/2007... guaranteed that the regulated tariffs could not be changed"219 According to the Supreme Court, its jurisprudence "has been constant over the years on indicating that, in the interpretation and application of the rules ordering the legal and economic system for electricity generation based on renewable energy sources, such regulations guarantee reasonable return on their investments to the owners of these facilities, but do not acknowledge an unmodifiable right to them regarding the unalterability of the remuneration framework approved by the owner of the regulatory powers."220
236.
The Claimants rej ect the relevance of the various judgments on the basis that they are not analogous, i.e. they did not relate to incentives that were part of the guaranteed RE regime, and/or they post-date the period when the Claimants made their investments.221 The Parties' competing positions as to the Supreme Court judgments are considered in Section VI (Liability) to which the Tribunal turns following its consideration of the jurisdictional issues below.

V. jurisdiction

A. Jurisdictional Objections

237.
The Respondent has raised two jurisdictional objections:

(i) Lack of jurisdiction of the Tribunal ratione personae to rule on the dispute raised by the Claimants due to the absence of investors protected under the ECT: the Claimants are not from the area of another Contracting Party as Germany and Spain are Member States of the European Union, and the ECT does not apply to disputes relating to intra-EU disputes;222

(ii) Lack of jurisdiction of the Tribunal to hear an alleged breach by Spain of obligations derived from Article 10(1) ECT through the introduction of taxation measures by Law 15/2012: Spain has not consented to submit this matter to arbitration given that, pursuant to Article 21 ECT, Article 10(1) ECT does not generate obligations regarding taxation measures of the Contracting Parties.223

238.
Article 41(1) of the ICSID Convention provides that: "The Tribunal shall be the judge of its own competence." Article 25 of the ICSID Convention provides:

(1) "The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally. (...)"

239.
Article 26 ECT, which concerns the "Settlement of disputes between an Investor and a Contracting Party", 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 cannot 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, party to the dispute;

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

(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....

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

(a) (i) The International Centre for the Settlement of Investment Disputes, established pursuant to the Convention on the Settlement of Investment Dispute between States and Nationals of other States opened for signature at Washington, 18 March 1965, (hereinafter referred to as the "ICSID Convention"), if the Contracting Party of the Investor and the Contracting Party, party to the dispute, both parties to the ICSID Convention;...

5) (a) The consent given in paragraph (3) together with the written consent of the Investor given pursuant to paragraph (4) shall be considered to satisfy the requirement for:

(i) written consent of the parties to a dispute purposes of Chapter II of the ICSID Convention...

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."

B. The Claimants’ Corporate Restructuring

240.
In its Counter-Memorial on the Merits and Memorial on Jurisdiction of 20 May 2016, the Respondent reserved its right to supplement or modify its claims and arguments, and to formulate additional jurisdictional objections where appropriate in view of the supporting documentation concerning the corporate restructuring by which RWE International SE had allegedly succeeded RWE Innogy GmbH.224 However, in its Rejoinder on the Merits and Reply on Jurisdiction of 19 January 2017, the Respondent confirmed that it raised no jurisdictional objection related to the Claimants' corporate restructuring.225

C. The Intra-EU Objection

(1) The Parties’ Positions

241.
The Tribunal has considered not only the positions of the Parties as summarised below, but also the numerous detailed arguments made in their written submissions and authorities submitted. To the extent that these arguments are not referred to expressly, they have been subsumed into the Tribunal's analysis, and the same applies so far as concerns the submissions received from the EC.

a. The Respondent’s Position

242.
The Respondent submits that the Arbitral Tribunal lacks jurisdiction ratione personae to hear the present intra-EU dispute brought by alleged investors from Germany against the Kingdom of Spain due to the absence of a protected investor under the ECT. The Claimants are not investors protected under the ECT from the area of another Contracting Party, as required by Article 26 ECT in order to be able to resort to arbitration.226 Both Germany, the Claimants' State for the purposes of this arbitration, and Spain are and were, at the time of ratification of the ECT, EU Member States, whilst the EU is also a Contracting Party to the ECT.227 Hence, the Claimants fail to comply with the requirement of Article 26(1) ECT which states that to access arbitration the dispute must be "between a Contracting Party and an Investor of another Contracting Party."228
243.
According to the Respondent, the requirement in Article 26(1) ECT that the dispute occur between "a Contracting Party" and an "Investor of another Contracting Party" "implies the exclusion of this article from any case where an investor of an EU State has a dispute with an EU State, in relation to an investment in said State" (respectively, an "intra-EU dispute" and an "intra-EU investment").229
244.
The Respondent’s case is that because both Spain and Germany were already members of the EU at the time of their ratification of the ECT, "they were unable to contract obligations between themselves within the framework of the Internal Energy Market harmonized by the EU."230 The Claimants’ investments were made within the framework of the internal market in electricity of the EU. The Respondent submits that the EU system confers particular protection upon the EU-national investor, which is preferential to the protection conferred by the ECT, and which must prevail over any other international treaty. It is said that "EU Law forbids the existence of any dispute settlement mechanism other than that established by its Treaties, which may interfere with the bases of the Internal Market."231
245.
According to the Respondent, the above is reflected in the literal interpretation, context and purpose of the ECT: (i) the literal interpretation of the ECT provides that between EU Member States, the EU system prevails;232 (ii) Article 26 ECT prevents arbitration between an intra-EU investor and an EU Member State;233and (iii) the purpose of the ECT confirms this interpretation.234
246.
Thus, the Respondent contends that the special regime for intra-EU disputes follows from the literal interpretation of the wording of the ECT with respect to Regional Economic Integration Organizations ("REIOs"), the EU being the only REIO that is Party to the ECT. According to the Respondent, Article 1(3) ECT, which defines REIO as "an organization 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" acknowledges the special nature of the EU and the transfer of competence. The Respondent also cites Articles 1(10), 16, 25 and 36(7) ECT as further illustration of the special status of the EU and the supremacy of the treaties governing the EU over the ECT.235
247.
The Respondent particularly emphasises Article 26(6) ECT, which provides that a tribunal established under Article 26 "shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law" and which, it is said, means treating EU law and applicable international law on equal terms when it comes to resolving the dispute.236
248.
The Respondent relies on Electrabel v Hungary where the tribunal concluded "that Article 307 EC precludes inconsistent pre-existing treaty rights of EU Member States and their own nationals against other EU Member States; and it follows, if the ECT and EU law remain incompatible notwithstanding all efforts at harmonization, that EU law would prevail over the ECT's substantive protections and that the ECT could not apply inconsistently with EU law to such a national's claim against an EU Member State."237
249.
According to the Respondent, submission of an intra-EU dispute to arbitration under Article 26 ECT would be contrary to Article 344 TFEU which precludes Member States from submitting "a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein" Such dispute would in turn require an arbitral tribunal to rule on the rights of EU investors within the EU’s internal market, matters over which only the ECJ is competent, and in this respect it relies in support on Legal Opinion 1/91 regarding the "Agreement to Create a European Economic Area."238
250.
The Respondent relies on the purpose of the ECT and cites the objective of the ECT established in Article 2 as "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 Charter" and further intended to "promote East-West industrial cooperation through the establishment of legal safeguards in areas such as investment, transit and trade." The Respondent also relies on the writings of Bruno Poulain239 and Professor Jan Kleinheisterkamp.240 The Respondent says that, according to Professor Kleinheisterkamp, the issue is not the selection and application of the "most favourable regulation", but the fact that between EU Member States and their citizens, EU Law puts aside the application of any other regulation by dint of the principle of supremacy.241 It is said that both the Respondent and the EC have taken the position that arbitration under the ECT is not a suitable means to review the legality of government measures that are governed by EU law and that affecting the fundamentals of the EU by means of the ECT would be incompatible with EU law, which cannot have been the intention of the Contracting Parties. Moreover, the rules and principles of the EU are rules and principles of international law, and must be applied with the same hierarchy as the ECT.242
251.
The Respondent also refers to the impact on the result of this arbitration of the EC evaluation of the measures supporting Renewable Energies and cogeneration in Spain (procedure SA.40348 2014/N). Reference is made to the Order of 22 October 2014 of the Court of Justice of the European Union ("CJEU") regarding preliminary ruling C-275/13 (the ELCOGAS case) where it was said with respect to Spain:

"Article 107.1 TFEU must be interpreted as meaning that the sums awarded to a private electricity producer that are financed by all the end users of electricity within the national territory and distributed among the companies in the electricity sector by a public organisation according to predetermined legal criteria, constitute aid granted by the State or through State resources."243

252.
It is contended that Member States are required to bear in mind the EC Guidelines on State aid, and it is said that the existence of this procedure is particularly relevant in the light of the decisions of the EC of 26 May 2014 and 30 March 2015, ordering Romania to suspend payment of the award in Micula v Romania, and then deciding that such payment breached the EU State aid rules and had to be returned by the beneficiary companies.244 The Respondent has also relied subsequently on the EC’s Decision of 10 November 2017 on the State Aid SA.40348 (20151NN) proceeding regarding Spain’s Support for Electricity Generation from Renewable Energy Sources, Cogeneration and Waste.245
253.
In its Reply on Preliminary Objections, the Respondent drew the Tribunal’s attention to pending cases before the ECJ and the then forthcoming decision in Achmea (considered further below). The Respondent also insisted on the principle of primacy of EU law and its recognition in the ECT, as said to be stated in Article 25(1) of the ECT:

"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 national treatment, to another Contracting Party which is not a party to the EIA, any preferential treatment applicable between the parties to that EIA as a result of their being parties thereto."

254.
According to the Respondent, under this principle, it is the laws of the EU and not the ECT which must be applied to resolve this dispute, as it is EU law that has always applied to the investments of the Claimants. In addition, the dispute affects essential elements of EU law such as State aid, free movement of capital and freedom of establishment, that the Tribunal does not have the power to rule on, this power being reserved to the EU’s own judicial system and ultimately to the CJEU.246
255.
The Respondent rejects or distinguishes the arbitral awards cited by the Claimants, including on the basis that such concern disputes based on intra-EU BITs, or obligations contracted by given States before acceding to the EU, or fail to analyse the argument based on the principle of primacy. By contrast, in addition to Electrabel, the Respondent has referred the Tribunal to:

a) Blusun v Italy, where the tribunal considered that it must apply EU Law "as part of international law or as part of the law of Italy. The Tribunal evidently cannot exercise the special jurisdictional powers vested in the European courts, but it can and where relevant should apply European law as such"247

b) Jurgen Wirtgen et al. v Czech Republic which, it is said, supported the reasoning and conclusions of the Electrabel, concluding that that the applicable international law in addition to the Treaty encompasses EU law.248

256.
The Respondent also challenges the Claimants’ interpretation of the ECT, saying that it would lead to an ineffective interpretation which does not recognise that the EU Member States could not be linked to each other under Part III of the ECT and because the ECT itself recognises in Article 25 the principle of primacy of EU law. Furthermore, by advocating the inapplicability of the TFEU dispute settlement mechanism to the dispute at hand, the Claimants ignore the fact that the Tribunal would have to rule on essential pillars of EU law and that Spain cannot be submitted to any other system than the EU judicial system in relation to this matter.249
257.
According to the Respondent, this first jurisdictional objection affects the entirety of the dispute raised by the Claimants.250

b. The Claimants’ Position

258.
The Claimants say that every single investment-treaty arbitral tribunal that has considered the issue has concluded that the intra-EU nature of the dispute does not preclude jurisdiction.251 They say that there is no basis for distinguishing between States that were not Member States of the EU at the time they ratified the ECT and States that were (such as Spain and Germany), contending that the awards in Charanne v Spain, PV Investors v Spain, and RREEF v Spain have confirmed that Article 26 ECT applies amongst ‘old' Member States. It is said that there is no support for the argument that Article 26 ECT applies to an intra-EU dispute so long as either the home or host State was not an EU Member State at the time the ECT was ratified, but that it does not apply to intra-EU disputes if both of the relevant States were EU Member States at that time.252 It is also said that there are numerous ECT cases involving disputes between EU Member States and EU investors where no intra-EU Objection was even raised by the respondent State, such as AES Summit Generation Limited v Hungary, Electrabel v Hungary or Micula v Romania.253
259.
The Claimants refute the Respondent’s reliance on Opinion 1/91 on intra-EU disputes, saying that the Respondent ignores the fact that "the CJEU has stressed that an international dispute-settlement mechanism set forth by an international treaty to which the EU is a party is compatible with EU law, and that the decisions of the court with jurisdiction to decide disputes under that treaty will be binding on the CJEU."254 Spain’s reliance on the EC’s intervention in the enforcement of the award in Micula v Romania to support the intra-EU Objection is said to be misleading and only serves to highlight the frivolous nature of the objection.255
260.
The Claimants also reject the Respondent’s argument that the text of the ECT indicates that Investors from an EU Member State may not bring a claim against another EU Member State under Article 26 ECT. The Claimants say that: (i) a good faith interpretation of the ordinary meaning of Article 26 shows that there is no intra-EU exception to the Contracting Parties’ unconditional consent to arbitration; (ii) the ordinary meaning of the terms of Article 26 of the ECT is clear and the Tribunal has jurisdiction to hear the present dispute as Article 26 applies to disputes between any Contracting Party of the ECT and an Investor of any other Contracting Party; (iii) the phrase "in the Area of the former [Contracting Party]" in Article 26(1) ECT refers to the particular dispute initiated by the Investor; (iv) the relevant "Area" is that of the Contracting Party "that is party to the dispute." The relevant "Area" in this case is the territory of Spain (not of the EU); and (v) that there are no valid grounds to contend that an intra-EU dispute brought under Article 26 would contravene Article 344 TFEU as it applies only to disputes between EU Member States "regarding the interpretation of EU law" and does not prohibit Member States from submitting disputes that are not related to EU law to other fora.256
261.
According to the Claimants, the fact that the ECT expressly recognises the existence of the REIO under Articles 25, 1(2), 1 (3) and 1(10) does not impact on the rights of Investors under Article 26: it does not set any limitation to disputes, but merely clarifies the possibility to bring a claim against the REIO itself (Article 1(10) defining the REIO area) or Article 25 limiting more favourable treatment via the MFN provision).
262.
Regarding the argument that the relevant "Area" is the territory of the REIO as opposed to the territory of the Contracting State, the Claimants rely on the findings in PV Investors v Kingdom of Spain,257 where it was held that: "While it is true that the second sentence of Article 1(10) of the ECT defines Area with respect to a REIO as ‘the Areas of the member states of such Organization', the first sentence of Article 1(10) of the ECT defines Area with respect to a state that is a Contracting Party as the territory under the state's sovereignty. Therefore, the Area under consideration in Article 26(1) is that of the Contracting Party that is party to the dispute. The Claimants say that the Charanne Tribunal258 made the same finding, and they submit that the connection between the term Area and the REIO are relevant when a dispute is brought against the REIO, which is a possibility as the EU is a signatory to the ECT.
263.
The Claimants also say that the Respondent’s objection would require the Tribunal to speculate as to what might have been the private and unexpressed intentions of the EU and its Member States when they took part in the conclusion of the ECT. The Claimants submit that the meaning of Article 26 is clear and unambiguous, so there is no justification for the Tribunal to resort to supplementary means of interpretation, whereas the Respondent seeks to take into account the subjective intention of the parties.259
264.
The Claimants also refute the argument that the provisions of the ECT contradict EU law and that the EU internal market protections are superior to those contained in the ECT. Protection under EU law is different from the protection provided in the ECT to investors and investments. Protection under EU law is primarily focused on ensuring access to the market of another Member State.260 Additionally, EU law does not provide for an investor to bring claims in international arbitration proceedings for violation of any illegal governmental action taken against foreign investment. Therefore, the ECT grants investors rights that are additional to any other rights provided by the internal market and there is no inconsistency between EU law and the ECT. This was made very clear by, among others, the tribunals in Electrabel and Eastern Sugar.261 Further, even if it were found that EU law and the ECT cover the same subject matter, Article 16 of the ECT provides that the provisions more favourable to the investor shall apply.262
265.
Finally, the Claimants submit that the ECT does not contain an explicit or implied disconnection clause that would allow the Tribunal to disregard its provisions in an intra-EU dispute. It is said that the EU has experience in disconnection clauses, but that there is no such disconnection clause in the ECT whereby the provisions of the ECT could not apply to the EU Member States' inter se relationship.263
266.
The Claimants conclude by asking the Tribunal to rule that the Claimants have an unconditional right to bring a claim against Spain in arbitral proceedings under Article 26 and to recognise that it has jurisdiction over the Claimants' claims.264

(2) The European Commission’s Amicus Curiae Submission

267.
On 11 August 2016, pursuant to ICSID Arbitration Rule 37(2), the EC filed a written amicus curiae submission, stating its position that the Tribunal does not have jurisdiction under Article 26 ECT. The EC says that the applicable investment protection law to intra-EU investments is EU Law, in particular the rules of free movement of capital and freedom of establishment. Pursuant to Article 3(2) of the TFEU, EU Member States are barred from concluding agreements between themselves that may affect or alter the scope of EU Law. Therefore, it follows that the EU Member States lack the competence to conclude bilateral or multilateral agreements concerning protection of investments.265
268.
Neither Spain nor Germany, who were Member States of the European Communities when they ratified the ETC, had the competence to enter into inter se obligations concerning the protection of intra-EU investments. That competence laid with the European Communities (currently, with the EU and EURATOM).266 Thus, the EC submits that those EU Member States that were members of the European Communities when they entered into the ECT did not create any inter se obligations between Member States, but only between third countries and the competent subject of international law, i.e. either the EU or its Member States. However, the EC contends that even if the ECT did create certain obligations between the EU Member States in the areas where they retained competence, the Tribunal would still lack jurisdiction because the substantive competence for protection of intra-EU disputes and the jurisdictional competence for those disputes have been transferred to the EU by the Member States. The EC also submits that if the ECT is interpreted as having created inter se obligations, including in the protection of intra-EU investments, those obligations would have been superseded by the ratification of other treaties that postdate the ECT, like the Lisbon Treaty.267
269.
The EC contends that the appropriate forum is the competent national court or tribunal which is the "juge du droit commun du droit de l’Union" In this forum, the Claimants could have asked the judge to decide whether the ECT, which is part of EU Law, applies to their dispute, and this question could have been referred to the ECJ.268
270.
The EC insists on the essential characteristics of EU law and in particular its primacy over the laws of the Member States and the direct effect of a series of provisions which are applicable to nationals and to EU Member States. These characteristics set EU law apart from other treaties. The EC affirms that it has both internal and external competence over Foreign Direct Investment matters, and thereby to conclude investment agreements,269 whereas, energy matters are a shared competence. This prevents EU Member States from agreeing investment protection rules inter se, outside of the Union legal order. The EC also finds support in the applicable principle of international law for the determination of the extent of international obligations and international liability of Member States: "Liability follows competence."270
271.
Alternatively, should the Tribunal find that it has jurisdiction, the EC invites the Tribunal to stay the proceeding until the EC has issued its decision regarding the Respondent’s State aid under the Special Regime.271

(3) The Achmea Judgment

272.
On 6 March 2018, the Court of Justice of the European Union ("ECJ") issued its Judgment in Slowakische Republik (Slovak Republic) v Achmea BV (Case C-284/26) (the "Achmea Judgment"), submitted by the Respondent as Authority RL-90.
273.
At the origin of the Achmea Judgment is an award rendered against the Slovak Republic on 7 December 2012 by reference to the 1991 bilateral investment treaty concluded between The Netherlands and the Czech and Slovak Federative Republic. The Slovak Republic sought to set aside the award before the German courts, arguing inter alia that there was no valid consent to arbitration because the provision on which the jurisdiction of the arbitral tribunal was based violated Union law, and in particular Article 267 and 344 of the TFEU as well as the general principle of EU law of autonomy. When the matter came before the German Bundesgerichtshof, it suspended proceedings and made a request for a preliminary ruling to the ECJ.
274.
The questions put to the ECJ by the German Bundesgerichtshof were as follows:

"(1) Does Article 344 TFEU preclude the application of a provision in a bilateral investment protection agreement between Member States of the European Union (a so-called intra-EU BIT) under which an investor of a Contracting State, in the event of a dispute concerning investments in the other Contracting State, may bring proceedings against the latter State before an arbitral tribunal where the investment protection agreement was concluded before one of the Contracting States acceded to the European Union but the arbitral proceedings are not to be brought until after that date?

If Question 1 is to be answered in the negative:

(2) Does Article 267 TFEU preclude the application of such a provision?

If Questions 1 and 2 are to be answered in the negative:

(3) Does the first paragraph of Article 18 TFEU preclude the application of such a provision under the circumstances described in Question 1?"

275.
The ECJ gave an affirmative answer to both Questions 1 and 2 and decided that there was hence no need to answer Question 3. The Court ruled as follows:

"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 investment 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."

a. The Respondent’s Position on the Achmea Judgment

276.
On 22 March 2018, the Respondent filed written comments on the Achmea Judgment. It contended that the Judgment was not "something new" but rather stemmed from a long tradition in EU law,272 namely:

a) In order to ensure that the specific characteristics and the autonomy of the EU legal order are preserved, the EU Treaties have established a judicial system intended to ensure consistency and uniformity in the interpretation of EU law;

b) In that context, in accordance with Article 19 TEU, it is for the national courts and tribunals and the Court of Justice to ensure the full application of EU law in all Member States and to ensure judicial protection of the rights of individuals under that law;

c) In particular, the judicial system as thus conceived has as its keystone the preliminary ruling procedure provided for in Article 267 TFEU which, by setting up a dialogue between one court and another, specifically between the CJEU and the courts and tribunals of the Member States, has the object of securing uniform interpretation of EU law, thereby serving to ensure its consistency, its full effect and its autonomy as well as, ultimately, the particular nature of the law established by the Treaties;

d) Given the nature and characteristics of EU law, that law must be regarded both as forming part of the law in force in every Member State and as deriving from an international agreement between the Member States.273

277.
With respect to the application of these principles, the Respondent notes that the ECJ found:

a) The arbitral tribunal was not part of the judicial system and could not be classified as a court or tribunal of a Member State within the meaning of Article 267 TFEU;

b) Investment arbitrations are different from commercial arbitration proceedings.

While the latter originate in the freely expressed wishes of the parties, the former derive from a treaty by which Member States agree to remove from the jurisdiction of their own courts (and hence from the system of judicial remedies which the second subparagraph of Article 19(1) TEU requires them to establish in the fields covered by EU law) disputes which may concern the application or interpretation of EU law.

c) The States parties to the BIT had thus established a mechanism for settling disputes between an investor and a Member State which could prevent those disputes from being resolved in a manner that ensured the full effectiveness of EU law, even though they might concern the interpretation or application of EU law.274

278.
The Respondent submits that this reasoning applies equally so far as concerns the ECT "since the ECT arbitration clause, as interpreted by the Claimants, remove the dispute between an EU investor and EU member State from the jurisdiction of their own courts and therefore prevent those disputes from being resolved in a manner that ensures the full effectiveness of EU law." Moreover, it relies on three additional reasons as follows:

a) EU law would be especially relevant for this dispute, insofar as the claim concerns a tariff scheme that the EC has qualified as State aid. In this respect, on 19 January 2018, the Respondent had already submitted its Comments on the EC's Decision of 10 November 2017 on the State Aid SA.40348 (20151NN) proceeding regarding Spain's Support for Electricity Generation from Renewable Energy Sources, Cogeneration and Waste.275

b) Article 6(1) ECT establishes a binding rule for the Contracting Parties which affects to EU Rules on competition: "Each Contracting Party shall work to alleviate market distortions." Article 6(1) ECT is not subject to a claim according to Article 26(1). ECT not only allows, but also obliges EU Member States to act according to applicable EU rules on competition, and their acts are outside the scope of the investors’ claims, as they are autonomous and primary rules. Any investor should have been aware of Article 6(1) ECT when investing under ECT provisions.

c) In accordance with Article 10(8) ECT "any dispute concerning subsidies... shall be reserved for the supplementary treaty described in paragraph 4."276

279.
The Respondent contends that the application of EU law is inevitable, and also that under Article 26(6) ECT the Tribunal is bound to apply EU law, at least as international law binding both Parties.277

b. The Claimants’ Position on the Achmea Judgment

280.
On 28 March 2018, the Claimants provided their observations on the Achmea Judgment. Their position is that the Achmea Judgment is not relevant to the present arbitration because:

a) "the judgment makes it clear that it applies only to a treaty where the EU is not itself a Contracting Party, which is not the case of the ECT;

b) there can be no incompatibility between the ECT (a treaty to which the EU is a Contracting Party) and EU law. As the RREEF tribunal correctly determined, should there ever be an inconsistency, the ECT would prevail;

c) the ECT is binding on the EU and provides for arbitration of disputes concerning violations of the ECT as a result of EU measures that EU institutions might adopt. In other words, if a treaty claim can be brought against the EU under the ECT, and that is by definition not incompatible with EU law, it follows that the investor-State arbitration mechanism under the ECT is also not incompatible with EU law; and

d) unlike the Netherlands-Slovakia BIT, the ECT provides that investor-State disputes shall be decided in accordance with this Treaty (the ECT) and public international law, not the law of the host State (and EU law)."278

281.
As to the first of these points, the Claimants highlight that in the Achmea Judgment the ECJ stated that the "competence of the EU in the field of international relations and its capacity to conclude international agreements necessarily entail the power to submit to the decisions of a court which is created or designated by such agreements as regards the interpretation and application of their provisions...."279
282.
As to the second point, the Claimants refer to the Electrabel case and the conclusion there that "it would have made no sense for the European Union to promote and subscribe to the ECT if that had meant entering into obligations inconsistent with EU law", and also refer to Article 216(2) TFEU which provides that: "Agreements concluded by the [EU] are binding on the institutions of the [EU] and on its Member States."280
283.
As to the third point, the Claimants contend that the ECT, through Article 26, expressly grants the investor a right of action, through international arbitration, against the offending Contracting Party, including the EU. It follows that this cannot, by definition, be contrary to EU law, and hence the investor-State arbitration mechanism under the ECT (to which the EU is party) cannot be deemed incompatible with EU law.
284.
As to the final point, the Claimants say that the investor-State arbitration mechanism under Article 26 ECT is not open to claims for breaches of EU law by a Contracting Party and, moreover, the Tribunal is not being called upon to apply EU law in any shape or form as the claims are based on the ECT and customary international law, not EU law, as was also confirmed in RREEF, Eiser and Novenergia.281
285.
The Claimants also say that there are a number of shortcomings in the Achmea Judgment, including in the untenable distinction drawn between commercial arbitration (said by the ECJ to originate in the freely expressed wishes of the parties) and investment arbitration (said to derive from a Treaty by which Member States agree to remove from the jurisdiction of their own courts disputes which may concern the interpretation or application of EU law).282
286.
Finally, the Claimants are dismissive of the further matters introduced by the Respondent in its submission. They say that Article 6(1) is being raised by the Respondent for the first time, 10 months after the close of the hearing, and that Article 10(8) has no relevance to Achmea. As to the Respondent's assertion that the claim concerns compensation derived from a tariff scheme that the EC has qualified as State aid, the Claimants say that the EC expressly confirmed that it did not address the remuneration under RD 661/2007 and its compatibility with the EU rules on State aid.283 This is the position that had already been set out by the Claimants in their submission of 26 January 2018, Claimants' Reply to Respondent's Comments on the EC's Decision SA.40348 (20151NN).284

(4) The European Commission’s Updated Amicus Curiae Submission

287.
On 13 July 2018, the EC filed (with permission) an update of its written submission in the light of the Judgment in Achmea.285 The starting point for the EC's consideration is that EU law forms part of the public international law order, and of the "rules and principles of international law" pursuant to Article 26(6) ECT, for the purposes of this proceeding. The EC also explains that the ECT is part of EU law because the EU is Party to it.286
288.
The EC says that the key steps of the reasoning in the Achmea Judgment apply so far as concerns the ECT: EU law is applicable to the dispute; an investment treaty tribunal within Article 26 ECT is not a national court or tribunal within Article 267 TFEU; there is no complete review of an award by a national court or a tribunal of a Member State. This conclusion is not undermined by paragraph 57 of the Achmea Judgment concerning treaties to which the EU is a party, including because the autonomy of EU law and its legal order is not respected by Article 26 ECT.287
289.
The EC’s position is that the Achmea Judgment applies to all pending investment arbitration cases, and the award in the Masdar case is criticised for treating the Judgment as confined to bilateral treaties. It is hence stated that EU law precludes the interpretation of Article 26 of the ECT put forward by the Claimants in this case.288
290.
According to the EC:

"the ECT does not apply at all in the inter se relationship between EU Member States. Rather, the ECT created international obligations only between third countries and the competent subject of international law of the area of Union law. Second, and in the alternative, the Commission takes the view that even if the ECT did create certain inter se obligations between the EU Member States, quod non, those obligations would not comprise the provisions of the ECT on investment protection (Chapter III) and dispute settlement (Article 26 ECT) as both the substantive competence for protection of investments by EU investors in other EU Member States, including in the field of energy, and the jurisdictional competence for those disputes have been transferred to the Union. In consequence, Spain (and the Union) has made an offer for arbitration only to investors from Contracting Parties that are not Member States."289

291.
The EC also contends that, under Article 30(4)(a) of the Vienna Convention on the Law of Treaties (the "VCLT" or "Vienna Convention"),290 the ECT only applies to the extent that its provisions are compatible with those of later treaties. The provisions of the ECT on dispute settlement (Article 26 ECT), when applied between two Member States, are not compatible with EU law as it results from later treaties. Hence, pursuant to Article 30(4)(a) VCLT, such provisions are not applicable. The EC’s position is that this conclusion is not undermined by Article 16 ECT, inter alia because it is overridden by the general principle of primacy and Article 351 TFEU (a contrario).291
292.
The EC says that, should this Tribunal have any doubts as to the position, it should refer the matter to the ECJ through a juge d’appui.292
293.
The EC also addresses the issue of State aid. Its position is that the measures contested by the Claimants constitute State aid in the sense of Article 107(1) TFEU, and that Spain has notified the disputed measures to the Commission on the basis of Article 108(3) TFEU. It is said that the EC had set out in its decision that "investors could not entertain any legitimate expectations that the initial support scheme would remain unchanged, not least because that initial support scheme (which was replaced and superseded by the amended support scheme) constituted unlawful State aid (it had not been notified to and approved by the European Commission)."293

a. The Respondent’s Position on the EC’s Updated Submission

294.
On 25 July 2018, the Respondent filed written comments on the EC’s Updated Submission. It saw the EC’s interpretation of the Achmea Judgment as confirming that the Tribunal "lacks jurisdiction to hear the present intra-EU dispute that not only concerns the fundamental freedoms of the EU but also a key institution of EU Law: State Aid." The Respondent drew the Tribunal’s attention to a communication from the EC to the European Parliament and Council regarding "Protection of intra-EU investment" published on 20 July 2018, and also to a statement of the German Federal Government to the German Parliament dated 30 April 2018 to the effect that the admissibility of arbitral proceedings under the ECT must be newly assessed in the light of the Achmea Judgment, and stating that: "The Federal Government thus believes that the legal principle from the Achmea judgment by the CJEU is also claimed for the validity of the Energy Charter Treaty."294

b. The Claimants’ Position on the EC’s Updated Submission

295.
On 6 August 2018, the Claimants filed their written comments on the EC's Updated Submission. The Claimants take issue with the points made by the EC and, in making the argument that nothing in the Achmea Judgment can invalidate Article 26 ECT, contend inter alia that "Germany's opinion on the ECT is clearly not authoritative of the objective meaning of the ECT (not least since it is also a respondent to ECT claims)." They also contend that should there be a conflict between the ECT and the EU Treaties (quod non), then the ECT prevails, including by virtue of Article 16 ECT, while as to Article 30(4)(a) VCLT, the ECT and the EU Treaties cover different subject matters and the ECT is lex posterior with respect to the EU Treaties. They also say that the EU treaties also confirm that the ECT prevails as Article 216(2) TFEU provides that agreements concluded by the EU are binding on institutions of the EU and on its Member States, and they say that Article 351 TFEU is of no application since the ECT was entered into after accession to the EU Treaties. The Claimants also reject the suggestion that the Tribunal refer the issue to the ECJ via a juge d'appui, and reiterate that the EC Decision on State aid has no relevance to the jurisdiction and the merits of the present case.295

(5) The Declarations of 15-16 January 2019

296.
On 15 January 2019, a Declaration was made by twenty-two EU Member States entitled "Declaration of the Representatives of the Governments of the Member States on the legal consequences of the judgment of the Court of Justice in Achmea and on Investment Protection in the European Union" ("the Declaration of 15 January 2019"). This Declaration refers to the ruling of the ECJ in the Achmea Judgment, stating:

"Member States are bound to draw all necessary consequences from that judgment pursuant to their obligations under Union law.

Union law takes precedence over bilateral investment treaties concluded between Member States. As a consequence, all investor-State arbitration clauses contained in bilateral investment treaties concluded between Member States are contrary to Union law and thus inapplicable. They do not produce effects including as regards provisions that provide for extended protection of investments made prior to termination for a further period of time (so called sunset or grandfathering clauses). An arbitral tribunal established on the basis of investor-State arbitration clauses lacks jurisdiction, due to a lack of a valid offer to arbitrate by the Member State party to the underlying bilateral investment Treaty.

Furthermore, international agreements concluded by the Union, including the Energy Charter Treaty, are an integral part of the EU legal order and must therefore be compatible with the Treaties. Arbitral tribunals have interpreted the Energy Charter Treaty as also containing an investor-State arbitration clause applicable between Member States. Interpreted in such a manner, that clause would be incompatible with the Treaties and thus would have to be disapplied."

297.
Pursuant to the Declaration of 15 January 2019, the signatory Member States then declare inter alia that:

"1. By the present declaration, Member States inform investment arbitration tribunals about the legal consequences of the Achmea judgment, as set out in this declaration, in all pending intra-EU investment arbitration proceedings brought either under bilateral investment treaties concluded between Member States or under the Energy Charter Treaty.

2. In cooperation with a defending Member State, the Member State, in which an investor that has brought such an action is established, will take the necessary measures to inform the investment arbitration tribunals concerned of those consequences. Similarly, defending Member States will request the courts, including in any third country, which are to decide in proceedings relating to an intra-EU investment arbitration award, to set these awards aside or not to enforce them due to a lack of valid consent."

298.
On 25 January 2019, the Respondent sought permission for admission of the Declaration of 15 January 2019 onto the record of this arbitration. The Claimants objected to this request on 30 January 2019 stating however that, if the Tribunal were minded to admit the Declaration of 15 January 2019, two further Declarations of 16 January 2019 should be admitted, namely the Declaration of Finland, Luxembourg, Malta, Slovenia and Sweden ("the Declaration of Five Member States") and the Declaration of Hungary ("Hungary’s Declaration").
299.
According to the Declaration of Five Member States, the Achmea Judgment is silent on the subject of the arbitration provision in the ECT. It is also noted that various tribunals have decided that such provision is applicable as between EU Member States, and that this interpretation is currently contested before a national court in a Member State (in the Novenergia II case). It is then said:

"Against this background, the Member States underline the importance of allowing for due process and consider that it would be inappropriate, in the absence of a specific judgment on this matter, to express views as regards the compatibility with Union law of the intra-EU application of the Energy Charter Treaty."

300.
It is said in Hungary’s Declaration that -

"... in Hungary’s view, the Achmea judgment concerns only the intra-EU bilateral investment treaties. The Achmea judgment is silent on the investor-state arbitration clause in the Energy Charter Treaty ("ECT") and it does not concern any pending or prospective arbitration proceedings initiated under the ECT.

Against this background, Hungary underlines the importance of allowing for due process and considers that it is inappropriate for a Member State to express its view as regards the compatibility with Union law of the intra-EU application of the ECT. The ongoing and future applicability of the ECT in intra-EU relations requires further discussion and individual agreement amongst the Member States."

301.
The Tribunal decided that all three Declarations should be admitted onto the record, and invited brief submissions from the Parties.

a. The Respondent’s Position on the 2019 Declarations

302.
On 12 February 2019, the Respondent filed its written comments. The Respondent’s position is that:

"... by means of the Declaration [of 15 January 2019] the signatory Member States inform the arbitral investment community that an arbitral tribunal established on the basis of investor-State arbitration clauses such as Article 26 of the ECT lacks jurisdiction when the dispute is intra-EU. Such lack of jurisdiction is due to the fact that the Member States never interpreted Article 26 of the ECT as a valid offer to arbitrate between EU Members because such consent to arbitration would be opposed to EU law. The Kingdom of Spain considers that the Declaration holds paramount relevance to this case because it is a definite and distinct demonstration of the will of the States that signed the ECT as to how Article 26 of the ECT should be interpreted in relation to EU Law."296

303.
The Respondent says that the Tribunal can and should interpret the ECT in harmony with EU law, and that the primacy of EU law prevents the ECT from incorporating an offer to arbitrate intra-EU disputes. It also contends that the Declaration of 15 January constitutes a "subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions" for the purposes of Article 31(3)(a) VCLT or, if not, at least subsequent "practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation" within Article 31(3)(b) VCLT.297
304.
The Respondent also says that if the Tribunal is not convinced that a harmonious interpretation of Article 26 with EU law is possible, then EU law prevails as lex posterior consistent with Articles 30(3) and (5) VCLT or by way of a special conflicts rule through the primacy of EU law that applies regardless of the VCLT (which rule is in turn lex posterior).298 As to the Declaration of the Five Member States, the Respondent says that this does not express a view opposed to the Declaration of 15 January 2019, and it emphasises that the latter has been signed both by Germany and itself, stating:

"Any theoretical discussion about the legal characterization of the Declaration cannot change the nature and the binding nature of the commitments it encloses for both Spain and Germany. In order to comply with EU Law and respect its international commitments as expressed in the Declaration, Spain has no option but to respectfully insist on the objection to the jurisdiction of this Arbitral Tribunal. The fact that both the host State and the Respondent State have signed the Declaration makes it ever more clear, that Article 26 of the ECT does not comprise an intra-EU arbitration clause."299

305.
Finally, the Respondent suggests that the Tribunal request Germany to submit a communication to the Tribunal regarding the legal consequences of the Achmea Judgment for these proceedings.300

b. The Claimants’ Position on the 2019 Declarations

306.
On 19 February 2019, the Claimants filed their written comments on the 2019 Declarations. Their position is that the Declaration of 15 January 2019 distinguishes between bilateral investment treaties and the ECT, and contend that "there is no agreement among EU Member States (including between the 22 signatories to the Declaration) regarding the consequences of Achmea for the ECT or whether EU law has precedence over the ECT."301 Thus the Claimants emphasise that, as follows from the different approaches in the different declarations, "Member States do not agree on the compatibility of the ECT with EU law. Therefore, contrary to Spain's suggestion, the EU Member States' original intention cannot have been to exclude the intra-EU application of Article 26 of the ECT."302
307.
The Claimants also challenge the Respondent's invocation of Article 31(3)(a) and (b) VCLT, contending that the Declaration of 15 January 2019 does not establish an agreement for the purposes of either provision, characterising it as a political statement that does not set out how the ECT is to be interpreted. Further, it is said that it is clearly not the case that all parties to the ECT have been involved in any interpretation, and also that "on any view, the Declaration can have no bearing on the Tribunal's jurisdiction since it postdates the commencement of the present proceeding. It is an accepted principle of international law that jurisdiction is determined by reference to the date on which the proceedings are instituted."303
308.
In addition to addressing briefly the Respondent’s arguments that EU law prevails, including by rejecting the argument that EU law is lex posterior, the Claimants state that Germany should not be allowed to intervene. It is said that Germany’s view on the legal consequences of the Achmea Judgment is not relevant for this arbitration, and that "Germany's intervention in this proceeding is not contemplated by the ICSID Convention nor the ECT, and it would be incompatible with the objective of depoliticising investor-State disputes"304

(6) The Tribunal’s Analysis

309.
The Tribunal has reviewed the Parties’ arguments with extreme care, and likewise the position of the EC in its two submissions. It has also studied the positions of the EU Member States as expressed in the three Declarations of 15-16 January 2019.

a. The law applicable to the intra-EU objection

310.
The jurisdiction of the Tribunal derives from Article 25 of the ICSID Convention and Article 26 ECT. No particular issues arise under Article 25 of the ICSID Convention save for the question of whether there is indeed consent to arbitration under Article 26 ECT. It follows from the fact that this is an ICSID arbitration that the Tribunal is not concerned with the application of a curial law (unlike in the Achmea case, for example), which might bring into play EU law as a matter of that curial law.
311.
Article 26 ECT, and all other provisions of the ECT, are to be interpreted and applied in accordance with the VCLT, to which both Spain and Germany are parties.