|1997 Electricity Law||Law 54/1997 of 27 November 1997|
|2005-2010 Energy Plan or Energy Plan||The Renewable Energy Plan in Spain 2005-2010|
|2010 Press Release||Press release issued by the Government recording what the Claimants characterized as the July 2010 Agreement to refrain from making retrospective changes to the RD 661/2007 economic regime|
|2011 Resolution||Resolution by the Directorate General for Energy Policy and Mines in respect of the Andasol 3 Plant dated 2 February 2011|
|Achmea Judgment||Judgment of the European Court of Justice dated 6 March 2018, in Slovak Republic v. Achmea BV, Case No. C-284/16, ECLI:EU:C:2018:158|
|AES Summit v. Hungary award||Award rendered in AES Summit Generation Limited and AES Tisza Eromu Kft. v. The Republic of Hungary, ICSID Case No. ARB/07/23 dated 23 September 2010|
|Antin v. Spain award||Award 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 dated 15 June 2018|
|Arbitration Rules||ICSID Rules of Procedure for Arbitration Proceedings of 2006|
|Brattle First Quantum Report||First Brattle's Damages Expert Report dated 8 July 2016|
|Brattle First Regulatory Report||First Brattle's Regulatory Expert Report dated 8 July 2016|
|Brattle Second Quantum Report||Brattle's Rebuttal Damages Expert Report dated 21 March 2017|
|Brattle Second Regulatory Report||Brattle's Rebuttal Regulatory Expert Report dated 21 March 2017|
|Charanne v. Spain award||Award rendered in Charanne B. V. and Construction Investment S.A.R.L. v. The Kingdom of Spain, SCC Arbitration V 062/2012 dated 21 January 2016|
|CJEU or Court of Justice||Court of Justice of the European Union|
|Cl. Reply on Achmea||Claimants’ Responsive Submission on the Achmea Judgment dated 23 April 2018|
|CL-[#]||Claimants’ Legal Authority|
|Claimants’ Rejoinder||Claimants’ Rejoinder on Jurisdiction dated 3 July 2017|
|CNE||"Comisión Nacional de Energía", the Spanish National Energy Commission|
|CNMC||"Comisión Nacional de los Mercados y la Competencia", the National Markets and Competition Commission|
|Counter-Memorial||Respondent’s Counter-Memorial on the Merits and Memorial on Jurisdiction dated 4 October 2016|
|CPI||Consumer Price Index|
|CSP||Concentrated Solar Power|
|Dutch-Slovak BIT||Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Czech and Slovak Federative Republic of 1992|
|EC Decision||European Commission’s Decision on the Spanish State Aid Framework for Renewable Sources dated 10 November 2017|
|EC or Commission||European Commission|
|EC’s Application||European Commission’s Application for Leave to Intervene as a Non-Disputing Party dated 16 January 2017|
|EC's Communication||EC's Communication on the Protection of intra-EU Investment, COM (2018) 547/2 of July 2018|
|EC's Request for Reconsideration||EC's Request to Alter Procedural Order No. 3 submitted on 9 March 2017|
|Econ One First Report||First Econ One Research Inc. Expert Report dated 4 October 2016|
|Econ One Second Report||Second Econ One Research Inc. Expert Report dated 19 May 2017|
|ECT||Energy Charter Treaty signed in December 1994 and in force since 16 April 1998|
|FET||Fair and Equitable Treatment|
|Hearing||Hearing on Jurisdiction and the Merits held on 31 July - 5 August 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|
|IDAE||Instituto para la Diversification y Ahorro de la Energía|
|Institution Rules||ICSID's Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings|
|IRR||Internal Rate of Return|
|Isolux v. Spain award||Award rendered in Isolux Infrastructure Netherlands, B.V . v. Kingdom of Spain, Arbitration SCC V2013/153 dated 12 July 2016|
|June 2014 Order||Ministerial Order IET/1045/2014 of 16 June 2014|
|Marquesado||Marquesado Solar S.L.|
|Masdar v. Spain award||Award rendered in Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1 dated 16 May 2018|
|Memorial||Claimants’ Memorial on the Merits dated 8 July 2016|
|Ministry||Ministry of Industry, Tourism and Commerce|
|New Regime||New Regime put in place under RDL 9/2013 and Law 24/2013|
|Novenergia II v. Spain award||Final award rendered in Novenergia II - Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. Kingdom of Spain dated 15 February 2018|
|Occidental v. Ecuador award||Award rendered in Occidental Exploration and Production Company v. The Republic of Ecuador, LCIA Case No. UN3467 dated 1 July 2004|
|Ordinary Regime||Regime applicable to non-renewable energy producers|
|Plama v. Bulgaria award||Award rendered in Plama Consortium Limited v. The Republic of Bulgaria, ICSID Case No. ARB/03/24 dated 27 August 2008|
|PO1||Procedural Order No. 1 dated 16 March 2016, concerning procedural matters|
|PO3||Procedural Order No. 3 dated 2 March 2017, concerning the EC’s Application|
|RAIPRE||Administrative Registry of Production Installations in the Special Regime (in Spanish)|
|RD 2818/1998||Royal Decree 2818/1998 issued by the Spanish Government on 23 December 1998|
|RD 413/2014||Royal Decree 413/2014 issued by the Spanish Government on 6 June 2014|
|RD 436/2004||Royal Decree 436/2004 issued by the Spanish Government on 12 March 2004|
|RD 661/2007||Royal Decree 661/2007 issued by the Spanish Government on 25 May 2007|
|RDL 2/2013||Royal Decree Law issued by the Spanish Government on 2 February 2013|
|RDL 6/2009||Royal Decree Law 6/2009 issued by the Spanish Government on 30 April 2009|
|RDL 7/2006||Royal Decree Law issued by the Spanish Government on 23 June 2006|
|RDL 9/2013||Royal Decree Law issued by the Spanish Government on 12 July 2013|
|RDLs||Royal Decree Laws|
|REIO||Regional Economic Integration Organization|
|Rejoinder||Respondent’s Rejoinder on the Merits and Reply on Jurisdiction dated 22 May 2017|
|Reply||Claimants’ Reply the Merits and CounterMemorial on Jurisdiction dated 21 March 2017|
|Request for Reconsideration||European Commission’s Request to Alter Procedural Order No. 3 dated 9 March 2017|
|Resp. Comments on Achmea||Respondent’s Comments on the Achmea Judgment dated 3 April 2018|
|Resp. PHB||Respondent’s Post Hearing Brief dated 12 October 2017|
|RfA||Request for Arbitration from Stadtwerke München GmbH, RWE Innogy GmbH, and others, against Spain dated 19 December 2014|
|RL-[#]||Respondent’s Legal Authority|
|Saluka v. Czech Republic award||Partial Award rendered in Saluka Investments B.V. v. The Czech Republic, UNCITRAL dated 17 March 2006|
|Special Payment||"Specific remuneration" for qualifying installations under the New Regime|
|Special Regime||Regime applicable to qualified producers using renewable energy|
|SWM||Stadtwerke München GmbH|
|Tecmed v. Mexico award||Award rendered in Técnicas Medioambientales Tecmed S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2 dated 29 May 2003|
|TFEU||Treaty on the Functioning of the European Union|
|TMR||Methodology for the approval or modification of the Average Reference Tariff|
|Transcript Day [#]/ [page number/lines]||Transcript of the Hearing|
|Tribunal||Arbitral Tribunal constituted on 16 December 2015|
|VCLT||Vienna Convention of the Law of Treaties|
Prof. Jeswald W. Salacuse President
Prof. Kaj Hobér Arbitrator
Prof. Zachary Douglas QC Arbitrator
Mr. Marco Tulio Montañés-Rumayor Secretary of the Tribunal
For the Claimants:
Mr. Jeffrey Sullivan Allen & Overy LLP
Ms. Marie Stoyanov Allen & Overy LLP
Mr. Antonio Vazquez-Guillén Allen & Overy LLP
Mr. Antonio Jiménez-Blanco Allen & Overy LLP
Ms. Virginia Allan Allen & Overy LLP
Mr. David Ingle Allen & Overy LLP
Mr. Alexandre Fichaux Allen & Overy LLP
Mr. Tomasz Hara Allen & Overy LLP
Ms. Stephanie Hawes3 Allen & Overy LLP
Ms. Agustina Álvarez Allen & Overy LLP
Mr. Gonzalo Jiménez-Blanco Allen & Overy LLP
Mr. Pablo Torres Allen & Overy LLP
Mr. Jérémie Toussaint Allen & Overy LLP
Mr. Bernhard Fackler Stadtwerke München GmbH (SWM)
Mr. Stefan Meichsner Stadtwerke München GmbH (SWM)
Mr. Reinhard Bellwinkel Ferrostaal Industrial Projects GmbH (Ferrostaal)
Ms. Deborah Wehle Ferrostaal Industrial Projects GmbH (Ferrostaal)
Ms. Jutta Dissen Innogy (RWE)
Mr. Gunnar Helberg Innogy (RWE)
Mr. Thomas Mertens RheinEnergie AG (RheinEnergie)
For the Respondent :
Ms. Amaia Rivas Kortazar Abogacía General del Estado
Mr. Antolín Fernández Antuña Abogacía General del Estado
Ms. Mónica Moraleda Saceda Abogacía General del Estado
Mr. Roberto Fernández Castilla Abogacía General del Estado
Ms. Patricia Froehlingsdorf Nicolas Abogacía General del Estado
Ms. Raquel Vázquez Meco IDAE
Court Reporters :
Mr. Paul Pelissier Spanish Court Reporter
Ms. Luciana Sosa Spanish Court Reporter
Mr. Trevor McGowan English Court Reporter
Mr. Jesus Getan Bornn English-Spanish interpreter
Mr. Marc Viscovi English-Spanish interpreter
Ms. Amalia Thaler - de Klemm English-Spanish interpreter
Ms. Barbara Conte English-German interpreter
Ms. Brigitte Schneider English-German interpreter
Ms. Karin Walker English-German interpreter
On behalf of the Claimants :
Mr. Hans Büntig Innogy (RWE)
Mr. Klaus Lesker Ferrostaal Industrial Projects GmbH (Ferrostaal)
Mr. Dieter Hassel RheinEnergie AG (RheinEnergie)
Mr. Christian Beltle Andasol 3 Kraftwerks GmbH (A3K)
Mr. Martin Riffeser Stadtwerke München GmbH (SWM)
Mr. Carlos Lapuerta The Brattle Group
Ms. Denisa Mackova The Brattle Group
Mr. Jose Antonio García The Brattle Group
Mr. John Stirzaker The Brattle Group
Mr. Richard Caldwell The Brattle Group
Mr. Santiago García Garrido Renovetec Ingenieria
On behalf of the Respondent :
Mr. Carlos Montoya Rasero IDAE
Mr. Daniel Lacalle Econ One Research Inc.
Mr. Jordan Heim Econ One Research Inc.
Mr. Ivan Lopez Econ One Research Inc.
Mr. Juan Riveros Econ One Research Inc.
Mr. Jorge Servert Sta-Solar
At the time that this case was progressing, various other arbitral cases and European Union ("EU") processes relating to Spain's renewable energy regulations and policies were also in course in other, separate fora. As these other cases reached a conclusion subsequent to the end of the Hearing, the Parties in this case sought to introduce evidence of such results into the record of this case. In fact, they did so on eight separate occasions, relying on Section 16.3 of PO1, which provides:
"16.3. Neither party shall be permitted to submit additional or responsive documents after the filing of its respective last written submission, unless the Tribunal determines that exceptional circumstances exist based on a reasoned written request (that shall not include the content of the document) followed by observations from the other party."
(4) Royal Decree 436/2004
Toward this end, on 12 March 2004, the Spanish Government issued Royal Decree 436/2004 ("RD 436/2004"), "...establishing the methodology for the updating and systematisation of the legal and economic regime for electric power production in the special regime."23 The Preamble and Article 1 of the Royal Decree stated its objective as follows:
"The purpose of this Royal Decree is to unify the legislation developing and implementing the 1997 Electricity [Law] with respect to electricity production under the special regime, and in particular concerning the economic arrangements for those installations. The intention is, therefore, to continue down the path first taken by Royal Decree 2818/1998...on the generation of electricity by facilities supplied by renewable energy resources or sources, waste or cogeneration. This time, however, there is the added advantage of being able to take advantage of the stability bestowed on the whole system at large by Royal Decree 1432/2002, dated December 27th, establishing the methodology for the approval or modification of the average or reference tariff, to provide those who have decided or will decide in the near future to opt for the special regime with a durable, objective and transparent framework."24
In order to determine the cost of achieving its implementation targets, the 2005-2010 Energy Plan applied the following methodology:
"Taking the proposed energy objectives as a starting point, financing requirements were determined for each technology on the basis of their financial performance, defining several standard projects for the calculation of model.
These standard projects have been characterized by technical parameters relative to their size, equivalent operating hours, unit costs, implementation periods, service life, operation costs and maintenance and sales costs for the final energy unit. Likewise, some assumptions for funding have been applied, as well as a series of measures and financial aid, designed according to the requirements of each technology."31
While the 2005-2010 Energy Plan acknowledged that the premiums offered by RD 436/2004 had stimulated new projects,32 it envisioned a total expenditure for the development of all types of energy during the stated five-year period of approximately 23 billion EUR, of which 4.7 billion EUR or 20% would be provided by developers and 18.2 billion EUR or 77% would be financed from debt financing. It stated:
"It is therefore essential to place the various technologies in a position where they are sufficiently profitable to be attractive to investors and to facilitate access to bank loans. It is in this context, for the reasons already cited, that public aid is required as it represents an essential factor in stimulating the growth of the various renewable energy sectors."33
The principal type of public aid identified as necessary for the generation of electricity from renewable sources was the payment of a premium by the state electricity system to purchase this type of electricity. The Energy Plan noted however that:
"In the case of the premiums paid for electricity generated from renewable sources, although these are obviously the outcome of a public decision within the competencies of national government, the cost of this measure falls on electricity consumers through the electricity tariff."34
On 23 June 2006, the Spanish Government issued Royal Decree Law 7/2006 ("RDL 7/2006") "adopting urgent measures in the energy sector."36 As highlighted in its Preamble, this Royal Decree Law was enacted to address inefficiencies in the remuneration system governed by RD 436/2004 caused mainly as a result of the link between the premiums to the TMR. This was explained in the report that preceded the adoption of this Royal Decree Law as follows:
"Furthermore, in order to avoid increasing the remuneration for these facilities in the current regulatory framework, it is necessary to urgently exclude from the application of the reviews the prices, premiums, incentives and tariffs stipulated in Royal Decree 436/2004 of 12 March, before the first review of the tariff is carried out in July 2006, until the review of the remuneration regime has been realized."37
The purposes of RD 661/2007 were, as stated in its first article as follows:
"to establish a legal and financial framework for the business of the production of electrical energy under the special regime in replacement of Royal Decree 436/2004, of 12 March, establishing the methodology for updating and systematisation of the legal and economic framework of the activity of the production of electrical energy under the special regime by a new regulation for the activity of the production of electrical energy under the special regime."44
law for the electricity it produced. For example, on 10 February 2011, in response to a request from Marquesado, the Ministry of Industry, Tourism and Commerce ("Ministry") issued a resolution ("2011 Resolution") confirming that the Andasol 3 Plant under the regime in place at the time of the resolution had the right to receive the following fixed tariff for all the electricity it produced: a) for the first 25 years of operation, a Fixed Tariff of 29.0916 EUR cent/kWh or a Premium of 27.4312 EUR cent/kWh (subject to lower and upper caps of 37.1483 EUR cent/kWh and 27.4353 EUR cent/kWh respectively), and b) from year 26 onwards, a Fixed Tariff of 23.2731 EUR cent/kWh or a Premium of 21.9449 EUR cent/kWh, subject to the same aforementioned lower and upper caps.60
Indeed, in 2012, the Spanish Government ministry responsible for energy development reviewed positively the results of its efforts, and particularly the legal framework it had chosen to bring them about:
"Over the last decade, especially since 2005, renewable energies have made an ever increasing contribution in Spain, driven by a regulatory framework that has promoted development through stability. One of the keys to understanding the Spanish renewables success story is the support system that was selected.
Based on experience, it can be concluded that choosing the right economic support model is critical to successfully developing a renewable electricity generation system. Spain chose to support the sales price of renewable electricity by establishing...[a] scheme commonly known as a feed-in tariff, [which] is basically the same as that used in countries such as Germany or Denmark, which, along with Spain, have also successfully rolled out renewable energies.
These feed-in tariffs are justified by the strategic and environmental benefits offered by renewables and aim to guarantee reasonable returns on investments while learning curves and economies of scale gradually enable the various technologies to become competitive with conventional sources."63
In their Memorial, the Claimants stated their request to the Tribunal for relief as follows:
"The Claimants request the following relief:
(a) a declaration that the Respondent has violated Article 10 of the ECT;
(b) an order that the Respondent make full reparation to the Claimants for the injury to its investments arising out of Spain's violation of the ECT and international law, such full reparation being in the form of:
(i) 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 prior to the reinstatement of the prior regime; or
(ii) paying the Claimants compensation for all losses suffered as a result of Spain's breaches of the ECT; and
(iii) in any event:
A. paying the Claimants pre-award interest at a rate of 1.16% compounded monthly; and
B. paying post-award interest, compounded monthly at a rate to be determined by the Tribunal on the amounts awarded until full payment thereof; and
(c) paying 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 and experts; and
(d) any other relief the Tribunal may deem appropriate in the circumstances."88
Spain, in its Counter-Memorial, requested the following of the Tribunal:
"In light of the arguments expressed herein, the Kingdom of Spain respectfully requests the Arbitral Tribunal to:
a) To declare its lack of jurisdiction over the claims of the Claimants or, if applicable, the inadmissibility of said claims.
b) To dismiss all the claims of the Claimant on the merits because the Kingdom of Spain has not breached the ECT in any way, in accordance with section III of this Document, on the substance of the matter.
c) Secondarily, to dismiss all the Claimant's claims for damages as said claims are not entitled to compensation, in accordance with section IV of this Document; 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."90
The Respondent contends that the plain language of Article 26(1), which states the conditions necessary for a tribunal under the ECT to have jurisdiction over the parties in dispute between an investor and an ECT Contracting Party, bars the Claimants from bringing an arbitral proceeding against Spain. Specifically, paragraph (1) of Article 26 of the ECT, which is entitled, "Settlement of Disputes Between and Investor and a Contracting Party," provides:
"Article 26 - Settlement of Disputes Between an Investor and a Contracting Party
(1) Disputes between a Contracting Party and an Investor of another Contracting Parting 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."
The CJEU 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 investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept."100
Lastly, the Respondent argues that in this case three additional reasons further support its position:
"The EU Law is especially relevant for this dispute, since the claim refers to the payment of a compensation that derives from a supporting scheme, which the EC has qualified as State Aid;
Article 6(1) ECT states a binding rule for the Contracting Parties which affects to EU Rules on competition.;
In accordance to Article 10(8) ECT, ‘any dispute concerning subsidies.. shall be reserved for the supplementary treaty in paragraph 4’, which has not been approved as of today."106
Second, all the Claimants are "Investors of another Contracting Party," as those terms are used by Article 26 of the ECT. Under Article 1(7)(a)(ii), an Investor of a Contracting Party means "a company or other organization organized in accordance with the law applicable in that Contracting Party." Except for Marquesado, all the Claimants are incorporated under the laws of Germany, which is an ECT Contracting Party. Marquesado is a company organized under the law of Spain; however, Article 26(7) of the ECT provides:
"An Investor other than a natural person which has the nationality of a Contracting Party to the dispute on the date of the consent in writing referred to in paragraph (4) and which, before a dispute between it and that Contracting Party arises, is controlled by Investors of another Contracting Party, shall for the purpose of article 25(2)(b) of the ICSID Convention be treated as a ‘national of another Contracting State’ and shall for the purpose of article 1(6) of the Additional Facility Rules be treated as a ‘national of another State.’"
The core of Respondent’s intra-EU objection to the Tribunal’s jurisdiction concerns the interpretation of Article 26 of the ECT. The relevant section of this provision reads as follows:
"Article 26: Settlement of Disputes Between an Investor and a Contracting Party
(1) Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably."
To resolve this jurisdictional objection, the Tribunal must make its own analysis and interpretation of that Article and in doing so must be guided by the relevant provisions of the Vienna Convention of the Law of Treaties ("VCLT"), the most important of which for purposes of this case are VCLT Articles 31 and 32. They provide as follows:
General Rule of Interpretation
1. A Treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:
(a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty;
(b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.
3. There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;
(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;
(c) any relevant rules of international law applicable in the relations between the parties.
4. A special meaning shall be given to a term if it is established that the parties so intended."
Supplementary Means of Interpretation
Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, on order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable."
Third, the Tribunal is not persuaded by the Respondent’s argument that SWM should be equated to the Federal Republic of Germany in the light of Article 344 of the TFEU, and thus the dispute be dismissed as submitted by the Republic of Germany.121 According to the Respondent, the fact that SWM is a company controlled and owned by the City Council of Munich entails that this case was filed by the Republic of Germany against the Kingdom of Spain, falling within the prohibition of Article 344 of the TFEU,122 which reads as follows:
Member States undertake not to submit a dispute concerning the interpretation or the application of the Treaties to any method of settlement other than those provided for therein."
The preliminary ruling of the CJEU rendered in the Achmea case concerned an award issued by an arbitral tribunal established on the basis of the Dutch-Slovak BIT." Article 8 of this treaty provides:
1. All disputes between one Contracting Party and an investor of the other Contracting Party concerning an investment of the latter shall if possible, be settled amicably.
2. Each Contracting Party hereby consents to submit a dispute referred to in paragraph (1) of this Article, to an arbitral tribunal, if the dispute has not been settled amicably within a period of six months from the date either party to the dispute requested amicable settlement.
3. The arbitral tribunal referred to in paragraph (2) of this Article will be constituted for each individual case in the following way: each party to the dispute appoints one member of the tribunal and the two members thus appointed shall select a national of a third State as Chairman of the tribunal. Each party to the dispute shall appoint its member of the tribunal within two months, and the Chairman shall be appointed within three months from the date on which the investor has notified the other Contracting Party of his decision to submit the dispute to the arbitral tribunal.
4. If the appointments have not been made in the above mentioned periods, either party to the dispute may invite the President of the Arbitration Institute of the Chamber of Commerce of Stockholm to make the necessary appointments. If the President is a national of either Contracting Party or if he is otherwise prevented from discharging the said function, the Vice-President shall be invited to make the necessary appointments. If the VicePresident is a national of either Contracting Party of he too is prevented from discharging the said function, the most senior member of the Arbitration Institute who is not a national of either Contracting Party shall be invited to make the necessary appointments.
5. The arbitration tribunal shall determine its own procedure applying the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL).
6. The arbitral tribunal shall decide on the basis of the law, taking into account in particular though not exclusively:
- the law in force of the Contracting Party concerned;
- the provisions of this Agreement, and other relevant Agreements between the Contracting Parties;
- the provisions of special agreements relating to the investment;
- the general principles of international law.
7. The tribunal takes its decision by majority of votes; such decision shall be final and binding upon the parties to the dispute."
During the arbitral proceedings, the Slovak Republic raised an objection to the jurisdiction of the tribunal and argued that as a result of its accession to the EU, recourse to an arbitral tribunal under the basis of Article 8(2) was precluded by EU law. This objection was rejected by the tribunal in its decision of 26 October 2010 and, on 7 December 2012, the tribunal rendered its award on the merits by which the Slovak Republic was ordered to pay Achmea damages in the principal amount of EUR 22.1 million. The Slovak Republic brought an action to set aside the award before the Overlandesgericht Frankfurt am Main (Higher Regional Court, Frankfurt), which was dismissed, and then the Slovak Republic appealed to the German Bundesgerichtshof (Federal Supreme Court). It is within this context that the Bundesgerichtshof decided to stay its proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:
"1. Does Article 344 of the 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?"125
The Court of Justice responded to Questions 1 and 2 in the following terms (it declined to deal with Question 3):
"Articles 267 and 344 TFEU must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8 of the Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federative Republic, under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept."126
Article 21(1) of the ECT states:
(1) Except as otherwise provided in this Article, nothing in this Treaty shall create rights or impose obligations with respect to Taxation Measures of the Contracting Parties. In the event of any inconsistency between this Article and any other provision of the Treaty, this Article shall prevail to the extent of the inconsistency."
The Respondent argues that the exceptions to the principle of exclusion of taxation measures from the scope of obligations under the ECT are sections (2) to (5) of Article 21 of the ECT, which are not invoked by the Claimants in reference to the measures imposed by Law 15/2012. Sections (2) to (5) of Article 21 of the ECT read as follows:
"(2) Article 7(3) shall apply to Taxation Measures other than those on income or on capital, except that such provisions shall not apply (...).
(3) Article 10(2) and (7) shall apply to Taxation Measures of the Contracting Parties other than those on income or on capital, except that such provisions shall not apply to (…)
(4) Article 29(2) to (6) shall apply to Taxation Measures other than those on income or on capital.
(5) (a) Article 13 shall apply to taxes."
The Respondent argues that this provision precludes arbitration by this Tribunal of the Claimants' claim that Law 15/2012 violates the Claimants' rights under the ECT because the levy imposed by Law 15/2012 is a Taxation Measure, within the terms of Article 21(7) of the ECT. This article provides:
For the purposes of this Article:
(a) The term "Taxation Measure" includes:
(i) any provision relating to taxes of the domestic law of the Contracting Party or of a political subdivision thereof or a local authority therein; and
(ii) any provision related to taxes of any convention for the avoidance of double taxation or of any other international agreement or arrangement by which the Contracting Party is bound."
For the sake of completeness, the Tribunal's interpretation of Article 21 of the ECT is confirmed by the preparatory work of the ECT for the purposes of Article 32 of the VCLT. Thus, in his report on the ECT negotiations, Craig S. Bamberger, Chair of the Legal Advisory Committee, a panel of some 20 lawyers from different countries participating in the Conference that negotiated the ECT, wrote the following in relation to Article 21:
"This article was negotiated essentially among Finance Ministries whose objectives included defensive ones such as avoiding both MFN treatment under the ECT of their bilateral tax treaty concessions and dispute resolution under the ECT with regard to their tax settlement agreements with taxpayers. The article did not experience meaningful Conference review in its final form, and due to its overriding paragraph (1) exclusion, it may have unanticipated limiting effects on rights and obligations under other provisions of the Treaty."172
Paragraph 1 of Article 10 states the fundamental treatment that ECT Contracting Parties owe to investors and investments covered by the ECT:
"Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment. Such Investments shall also enjoy the most constant protection and security and no Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal. In no case shall such Investments be accorded treatment less favourable than that required by international law, including treaty obligations. Each Contracting Party shall observe any obligations it has entered into with an Investor or an Investment of an Investor of any other Contracting Party."
The Claimants allege that the Respondent's measures violate four specific commitments embodied in Article 10(1) of the ECT. They are as follows:
(1.) Spain through its actions and measures has failed to provide the Claimants stable, equitable, favourable and transparent conditions for investors;
(2.) Spain through its actions and measures has failed to accord, at all times, to the Claimants' investments, fair and equitable treatment ("FET");
(3.) Spain through its actions and measures has failed to refrain from impairing the Claimants' investments by unreasonable measures; and
(4.) Spain has failed to observe obligations it had entered into with the Claimants or their investments.175
The Claimants submit that Article 10(1) also requires ECT Member States to establish transparent conditions of investment, which the Claimants define as "conduct. free from ambiguity and uncertainty,"183 relying on the following statement made by the Tecmed v. Mexico tribunal:
"The foreign investor expects the host State to act in a consistent manner, free from ambiguity and totally transparently in its relations with the foreign investor, so that it may know beforehand any and all rules and regulations that will govern its investments, as well as the goals of the relevant policies and administrative practices or directives, to be able to plan its investment and comply with such regulations."184
The measures considered by the Claimants to have curtailed their right to stable conditions for their investment are the following:
• The imposition of a 7% levy on electricity produced and fed into the national grid during a calendar year, including all generators, both conventional and renewable;185
• The alleged deprivation by Law 15/2012 of Andasol 3 Plant's right to receive FITs for the electricity it produced using a secondary fuel (such as gas) in combination with solar energy;186
• The alleged deprivation of the premium option to Marquesado as a result of the enactment of RDL 2/2013;187
• The replacement of the annual adjustment index based on the Spanish CPI for updating the premium to be received by Andasol 3 to account for inflation with a new and - according to the Claimants - unfamiliar index, which according to the Claimants was lower than the CPI during the period in which it was in force;188
• Different measures implemented by the RDL 9/2014, such as i) the repeal of RD 661/2007 and ii) the announcement of the implementation of a new regime for the renewable energy power generation installations, which, according to the Claimants was "radically different" from the framework established by the RD 661/2007.189
The Claimants argue that the FET standard under the ECT has a specific meaning that needs to be discerned through treaty interpretation, in application of Articles 31 and 32 of the VCLT.201 Claimants support this approach to identifying the content of the FET standard by reference to decisions rendered by other investment tribunals.202 According to the Claimants, an analysis of such cases reveals that the non-cumulative criteria against which tribunals have typically evaluated a State’s conduct in applying the FET standard include:
"(a) whether the host State breached the investor's reasonable and legitimate expectations when the investment was made;
(b) whether the State failed to provide a stable and predictable legal and business framework in relation to the investment [footnote omitted];
(c) whether the State’s conduct was transparent;
(d) whether the State acted in an arbitrary or unreasonable manner; and
(e) whether the actions of the State were disproportionate."203
In the instant case, the Claimants argue that Spain has breached its obligations under the FET standard in a number of ways. Specifically, the Claimants assert that:
"(a) Spain adopted measures that frustrated the Claimants' legitimate expectations;
(b) Spain failed to provide a stable and predictable business and legal framework for the Claimants' investments;
(c) Spain's conduct has not been transparent;
(d) Spain's measures are unreasonable; and
(e) Spain's measures are disproportionate."204
First, regarding the nature, amount and duration of the subsidy, the Claimants contend that at the time they invested in the Andasol 3 Plant they expected that once the plant was finally registered with the Spanish authorities:
(i) Marquesado would have a choice between selling electricity at a Fixed Tariff or at the Premium, with the amounts that were set out in Article 36 of RD 661/2007;
(ii) the subsidy would apply to all of the electricity produced, without any limitations on production;
(iii) the plant would be entitled to receive the subsidy during its entire operational life;
(iv) the Andasol 3 Plant would be employing equipment that uses natural gas to produce electricity, and the electricity using natural gas would be subsidized, within the threshold limitations set out in RD 661/2007;
(v) the Andasol 3 Plant would have priority of dispatch; and
(vi) the subsidy would be subject to inflation adjustments, in the terms provided in RD 661/2007.214
be changed and that, on the contrary, ECT host States have the right to adopt macroeconomic measures in a non-abusive way to meet changing circumstances.257 It points out that neither Article 44.3 of RD 661/2007, nor Article 4 of RD 1614/2010 contained a specific commitment to freeze a specific remuneration regime. Nor did the 2011 Resolution, which simply communicates to Marquesado the remunerative conditions in force at the time of that resolution.258
The Respondent also submits that it has respected the duty to create stable conditions in relation to the Claimants’ investment.261 In response to the claim that it failed to provide stable conditions for investment, Spain has offered the defenses discussed earlier in this Award.262 It argues that the requirement of stability does not demand that it freeze its legal system once an investment has been made and that despite subsequent changes in the law the basic requirements of the renewable energy regulatory system have remained unchanged. In addition to relying on the Plama v. Bulgaria case, noted above, it also finds support for its position in AES Summit v. Hungary:
"The stable conditions that the ECT mentions relate to the framework within which the investment takes place. Nevertheless, it is not a stability clause. A legal framework is by definition subject to change as it adapts to new circumstances day by day and a state has the sovereign right to exercise its powers which include legislative acts."263
Finally, and in respect of the third requirement, the Respondent submits that the Claimants’ expectations are not reasonable or justified.275 According to the Respondent, this is so as the regulatory framework in place at the time of the Claimants’ investment, was governed by three essential principles:
• the principle of regulatory and the result of legally stipulated regulation creation procedures;
• the principle of economic sustainability; and
• the principle of a reasonable rate of return.276
In this case, the Claimants argue that they were induced to make their investment by RD 661/2007, and that they legitimately expected that the nature, amount and duration of the subsidy offered by this RD would be maintained by Spain along the entire lifespan of their installation Andasol 3 Plant.308 In their Memorial, the Claimants assert four legitimate expectations that they say were violated by the Respondent:
"First, the Investors relied on the express confirmation by the Government that the Plant, once fully registered, would be entitled to the RD 661/2007 FIT..."309
"Secondly, in July 2010, Spain reached an agreement (the July 2010 Agreement) with the CSP (and wind) industry association that implied short-term limits on their production hours and a short-term reduction in the applicable tariffs in order to guarantee the applicability in the long term of the RD 661/2007 tariffs."310
"Thirdly, in December 2010, Spain passed Royal Decree 1614/2010 (RD 1614/2010), which was the result of the July 2010 Agreement and which re-confirmed the long-term application of the RD 661/2007 tariffs for existing installations."311
"Fourthly, on 2 February 2011, Spain issued a resolution addressed to Marquesado (the 2011 Resolution) confirming that the Andasol 3 Plant qualified under the RD 661/2007 economic regime. In particular, pursuant to the 2011 Resolution, the Government committed itself to provide the RD 661/2007 FITs for all of the electricity produced by the Andasol 3 Plant."312
It is the task of this Tribunal to determine whether the Claimants’ asserted expectations about the immutability of the remuneration system applicable to the Andasol 3 Plant are reasonable and legitimate, and thus provide a valid basis for the Claimants’ claim of breach of the FET standard. The Tribunal will proceed to examine the following instruments and acts invoked by the Claimants as providing a basis for their expectations:
(i) Article 44(3) of RD 661/2007
(ii) Agreement of July 2010
(iii) RD 1614/2010
(iv) 2011 Resolution
(v) Pre-registration under RDL 6/2009 and registration with the RAIPRE
This is the principal instrument invoked by the Claimants. Article 44(3) reads:
"In 2010, in view of the results of the follow up reports on the extent to which the Renewable Energy Plan for 2005-2010 and the Energy Savings and Efficiency Plan for Spain (E4) have been achieved, as well as the new objectives included in the next Renewable Energy Plan for 2011-2020, tariffs, premiums, additional payments, and lower and upper thresholds set out in this royal decree will be reviewed, taking into account the costs associated with each of these technologies, the degree of participation of the special regime in meeting demand and its impact on the technical and economic management of the system, guaranteeing reasonable returns with reference to the cost of money on capital markets. Every four years thereafter a new adjustment will be carried out using the above criteria.
The adjustment to the regulated tariff and the lower and upper threshold referred to in this section will not affect the facilities for which the startup document was issued before January 1 of the second year in which the adjustment was implemented."315
Chapter II of the 1997 Electricity Law creates the "Special regime for electricity production" that applies, inter alia, to solar electricity production. Article 30 of Chapter II is entitled "Obligations and rights applicable to energy producers operating under the special regime" and contains the following provisions relating to the remuneration of energy producers:
"3. The remunerative regime applicable to electrical energy producing plants operating under the special regime shall be adjusted pursuant to provisions outlined in sub-section 1 of article 16 for electrical energy producers.
4. The payment regime for electricity production facilities under the special regime shall be supplemented by the earning of a premium, under the terms set by regulation, in the following cases:
a) Facilities referred to in letter a) of section 1 of article 27 [which includes solar plants such as those operated by the Claimants]
To determine the premiums, the voltage level of electricity delivered to the network must be considered, along with the actual contribution to improvement of the environment, primary energy savings and energy efficiency, the economically justifiable production of usable heat, and the investment costs that have been incurred, for the purpose of achieving reasonable rates of return with respect to the cost of money on the capital market."322
The text of Article 44(3) of RD 661/2007 is almost identical to the previous Article 40(3) of RD 436/2004.323 And yet, Article 40(3) of RD 436/2004 could not have produced legal stabilization because it was repealed and replaced by RD 661/2007. Furthermore, the Spanish Supreme Court specifically rejected the argument that RD 436/2004 created a stabilized regime immune to revision in its Judgment of 25 October 2006. In that case, the appellants contended that RD 2351/2004, which changed the system for calculating the premiums under RD 436/2004 violated the principles of legal certainty, legitimate expectations and good faith contrary to Article 9.3 of the Spanish Constitution. After noting that the amendments did not violate Article 30 of the 1997 Electricity Law (the appellants had not submitted otherwise), the Supreme Court dismissed this argument, stating:
"Companies that freely decide to enter a market such as electricity generation under the special regime, knowing that is largely dependent on the setting of economic incentives by public authorities, are or should be aware that they may be modified within legal guidelines, by those same authorities."324
Returning to RD 661/2007, the Preamble of that regulation sets out the reasons for the modification of the Special Regime:
"The modification of the economic and legal framework which regulates the special regime existing to date has become necessary for various reasons. 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 regime established by Royal Decree 4126/2004 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."325
It was, therefore, manifest from the text of RD 661/2007 itself that the decision to promulgate RD 661/2007 and to rescind the earlier Royal Decrees establishing the premium payable under the special regime established by the 1997 Electricity Law resulted from changes in the market variables for calculating the premium. The changes introduced by RD 661/2007 were considered necessary to recalibrate the calculation of the premium to ensure that the principles underlying the remuneration for energy producers under the special regime in the 1997 Electricity Law were respected. This is also made explicit in the text of RD 661/2007:
"The economic framework in the present Royal Decree develops the principles set forth in Law 54/1997, of 27 November, on the Electricity Sector, and guarantees the owners of special regime installations a reasonable return for their investments, and the consumers of electricity an assignment of the costs attributable to the electricity system which is also reasonable..."326
As a result of the foregoing, an investor who had engaged in an appropriate due diligence of the Spanish regulatory framework for electricity production from renewable sources would have been aware of the following factors:
(1.) The umbrella legislation, the 1997 Electricity Law, required the premium to be calculated in order to generate a reasonable rate of return;
(2.) The 1997 Electricity Law also envisaged that the terms of the premium would be established by regulations;
(3.) Several regulations preceded RD 661/2007 and their promulgation, amendment and/or repeal was justified by the Ministry as necessary to give effect to changing market conditions for the calculation of the premium;
(4.) The Supreme Court had specifically rejected an argument to the effect that a provision in the earlier RD 436/2004 that purported to disapply the modifications to the calculation of the premium introduced by that Royal Decree to existing installations resulted in the immutability of RD 436/2004. The Supreme Court held that the disapplication only had effect so long as RD 436/2004 itself was not amended or repealed;
(5.) In the Preamble to RD 661/2007, the Ministry justified the promulgation of the Royal Decree as necessary in order to take into account changing market conditions and to preserve the principle of a reasonable rate of return set out in the 1997 Electricity Law.
Against that background, it would have been unreasonable for the Claimants to have interpreted Article 44(3) of RD 661/2007 as constituting a stabilized regime for the calculation of the premium that would be impervious to any future modification regardless of a change in the market conditions. In addition to the factors set out above, such an interpretation would have contradicted core principles of Spanish law:
(1.) The Ministry in promulgating a Royal Decree cannot bind the Spanish Parliament not to amend and/or repeal a Law. It was always open to the Spanish Parliament to amend and/or repeal the 1997 Electricity Law in respect of the calculation of the premium under the Special Regime, which would have had the effect of abrogating the Royal Decrees promulgated on the basis of the 1997 Electricity Law;
(2.) The Ministry in promulgating RD 661/2007 could not have included provisions that contradicted the 1997 Electricity Law. As the overriding principle for the calculation of the premium in Article 30(4) of the 1997 Electricity Law was the guarantee of a reasonable rate of return, if the application of the specific provisions of RD 661/2007 had the effect of generating an unreasonable rate of return for energy producers then those provisions would be invalid; and
(3.) Article 17 of RD 661/2007, entitled "Rights of producers under the special regime" is the provision that confers the right to be remunerated in accordance with the economic regime set out in RD 661/2007 (in particular, subsection (c) of Article 17). Article 17 commences with the following text: "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."327 This confirms that Article 30 of the 1997 Electricity Law is controlling and that the terms of remuneration under the Special Regime as fixed by RD 661/2007 cannot be inconsistent with Article 30 of the 1997 Electricity Law.
The only evidential basis for this argument is the 2010 Press Release from the Ministry, the first paragraph of which reads:
"The Ministry of Industry, Tourism, and Trade has reached agreements with the wind power and solar thermal trade associations, the Wind Power Business Association (AEE) and Protermosolar, respectively, for the revision of the regulatory frameworks for the production of electricity with these technologies."336
The regulation that was ultimately adopted following the consultations was RD 1614/2010. The Claimants rely upon Article 4 of that Royal Decree as reflecting the agreements reached in relation to the stability of the regime for calculating the premium. This provision reads as follows:
"For solar thermoelectric technology facilities that fall under Royal Decree 661/2007 of 25 May, revisions of tariffs, premiums and upper and lower limits referred to in article 44.3 of the aforementioned Royal Decree, shall not affect facilities registered definitively in the Administrative Registry of production facilities entitled to the special regime that is maintained by the Directorate-General for Energy and Mining Policy as of 7 May 2009, nor those that were to have been registered in the Remuneration Preassignment Registry under the fourth transitional provision of Royal Decree-Law 6/2009 of 30 April, and that meet the obligation envisaged in its article 4.8, extended until 31 December 2013 for those facilities associated to phase 4 envisaged in the Agreement of the Council of Ministers of 13 November 2009."339
It is also plain from the introduction to RD 1614/2010 that the Ministry continued to act upon the premise that the regulations fixing the premium as envisaged by the 1997 Electricity Law would continue to be updated and refined to take into account the changing market conditions:
"[T]he support regime. must adapt, while ensuring the legal security of investments and the principle of fair return, to the dynamic reality of the learning curves of the different technologies and to the technical constraints that arise due to the increased penetration of such technologies in the generation "mix", to thus maintain a necessary and adequate support that is consistent with market conditions and with the strategic objectives in the area of energy and to contribute to the transfer to society of the profit from the suitable development of these technologies."340
The 2011 Resolution was addressed to Marquesado, the owner of the Andasol 3 Plant and was in response to a letter sent by Marquesado on 2 December 2010 in which it is requested, inter alia, that "the remuneration conditions for the plant throughout its operating life be communicated."344 The response to this request in the 2011 Resolution did exactly what was requested, stating:
"... in virtue of the provisions of Section 1 of the Fifth Temporary Provision of Royal Decree-Law 6/2009, dated 30 April, the remuneration applicable to the plant is made up of rates, premiums, upper and lower limits, and addenda established in Royal Decree 661/2007, dated 25 May, and updated annually by Ministerial Order by the Ministry, the values in force starting on 1 January 2011 being as follows [...]"345
Royal Decree Law 6/2009 was enacted as a measure to reduce the tariff deficit as the Preamble makes clear:
"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 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."346
The purpose behind the "Remuneration Pre-assignment Registry Mechanism for special regime facilities" established in Article 4 is also set out in the Preamble to RDL 6/2009:
"The current regulation of the special regime does not establish sufficient mechanisms to make it possible to plan facilities that use this type of energy, nor indeed the amount and the distribution over time of the remuneration premiums and therefore the impact on costs that are attributed to the tariff system. The measure envisaged in the Royal Decree-Law, by creating the Remuneration Pre-assignment Registry, makes it possible to correct the situation described above from the very moment of its coming into effect. It will make it possible to know within the deadlines envisaged in the Royal Decree-Law, the facilities that are not only currently projected but which meet the conditions for start-up and for accessing the electricity system with all legal and statutory requirements, the volume of power associated with them and the impact on the costs of the electricity tariff and its calendar. In any event, the rights and expectations of the owners of the facilities are respected, with the necessary caution being exercised and the necessary transitional regime for adaption being envisaged."347
Article 17 of RD 661/2007 is entitled "Rights of producers under the special regime" and reads:
"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:
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."350
Article 17(c) must also be read alongside Article 9 "Public authority register of production facilities under the special regime" and Article 14 of RD 661/2007 "Effects of registration." Article 9 reads, in relevant part:
"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 [...]"351
Article 14 of RD 661/2007 reads:
"The status of facility under the special regime shall have effect as from the date of the decision to grant such status, issued by the competent authority. Notwithstanding, the final registration of the facility in the Public Authority Register of production facilities under the special regime shall be a necessary requirement for the application of the economic regime regulated under this Royal Decree to such facility, with effect from the first day of the month following the date of the final deed of entry into service of the facility."352
The other provision relied upon by the Claimants is Article 4(8) of RDL 6/2009 which reads:
"Facilities registered in the Remuneration Pre-assignment Registry shall have a maximum deadline of thirty six months from the date of notification thereof, to be definitively registered in the Special Regime Production Facilities Administrative Registry maintained by the relevant body and to begin the sale of energy, otherwise the economic right associated with inclusion in the Remuneration Pre-assignment Registry shall be withdrawn."353
The Tribunal further adopts the analysis of the tribunal in AES Summit v. Hungary, which held:
"There are two elements that require to be analyzed to determine whether a state's act was unreasonable: the existence of a rational policy; and the reasonableness of the act of the state in relation to the policy.
A rational policy is taken by a state following a logical (good sense) explanation and with the aim of addressing a public interest matter.
(…) a challenged measure must also be reasonable. That is, there needs to be an appropriate correlation between the state's public policy objective and the measure adopted to achieve it. This has to do with the nature of the measure and the way it is implemented."370
The Claimants rely upon the "Report on the Draft of the Royal Decree whereby Electricity Production under the Special Regimen and for Certain Facilities with Similar Technologies under the Ordinary Regimen is Regulated"382 of the Ministry (The draft Royal Decree is what became RD 661/2007). The Claimants maintain that the Report anticipates a reasonable rate of return of a 9.5% IRR. In fact, the 9.5% figure is stated to be an average figure between two outer limits along a spectrum of what could be considered to be reasonable for those installations which select the market option:
"The proposed value of the regulated tariff provides a rate of return (IRR in current Euros, with equity after taxes and at 25 years) of 8%.
For the market option, a premium is proposed that ensures a project IRR of 9.5% for the typical 25-year case, with a minimum of 7.6% and a maximum of 11% in the band limits."383
A reason for taking the market option was to benefit from the upside of positive market factors (and thus potentially achieve the maximum IRR of 11%) but of course this carried the risk of being exposed to negative market factors as well. This document can only thus be interpreted as providing a range of reasonable rates of return within the range of 7.6% to 11%. If this were not the case, there would not have been any real benefit of selecting the regulated tariff which guaranteed a fixed rate of 8%. As the Preamble to RD 661/2007 states:
"This new system protects the owner when revenues derived from the market price are excessively low and eliminates the premium when the market price is sufficiently high to ensure that their costs are covered, eliminating irrationalities in the remuneration of the technologies, the costs of which are not directly related to oil prices on the international markets."384
The 2005-2010 Energy Plan in section 4.2 entitled "Economic-Financial Analysis of the Investment Plan" provides as follows:
"The analysis tries to balance the application of resources so that ROI levels make it attractive relative to other alternatives in an equivalent sector, in terms of profitability, risks and liquidity, and always attempting to optimise available public resources.
The technical- financial assumptions and hypotheses employed for the calculation and analysis of the resulting scenario, and for the generality of each standard project, are the following:
Return on Project Type: calculated on the basis of maintaining an Internal Rate of Return (IRR), measured in legal tender and for each standard project, around 7%, on equity (before financing) and after taxes."389
A further document in the public domain leading up to the promulgation of RD 661/2007 was the CNE Report 3/2007 "Regarding the Proposed Royal Decree Regulating Electricity Generation in the Special Regime and Specific Technological Facilities Equivalent to the Ordinary Regime."390 It appears from the introduction to the Report "[o]n 29 November 2006, the General Minister of Energy sent the cited proposed Royal Decree [i.e. a draft of RD 661/2007] to the NEC for them to issue a mandatory report."391 That report estimates the rate of return for the "regulated tariff sale option" under the draft report in respect of fixed photovoltaic as 7.6%.392 In relation to the "market option," the CNE stated:
"[I]t is considered that the cap and floor should be calculated so that they are symmetrical with the market remuneration (sum of the regulated tariff plus the economic incentive), as a two point-variation in rate of return above and below the rate of return forecast for the market. This will ensure maintenance of a suitable rate of return in the market option."393
The following table was provided by the Respondent's expert to provide a snapshot of the different rates of return for renewable energy projects as discussed in contemporaneous documents in Spain and Germany:395
|Reference Rate of Return
|December 1999||Spanish 2000 Renewable Energy Promotion Plan||7%|
|August 2005||Spanish 2005-2010 Renewable Energy Promotion Plan||7%|
|October 2007, 2008, and 2009||Spanish Electricity Market Operator, OMEL, Presentation to APEX (Association of Power Exchanges) Conference||Average 7%|
|March 2009||Statement from a member of the German Bundestag||5-7%|
|May 2011||Deutsche Bank - German Feed in Tariff for PV (Solar)||5-7%|
|November 2012||Heinrich Boll Foundation - "Energy Transition" Report on Germany||5-7%|
|June 2013||Renewables International Magazine - Onshore wind in Germany||5-7%|
Looking at the renewable energy sector generally, according to the Claimants’ expert:
"In practice, most shareholders tend to supply only a portion of the total capital necessary to construct and operate renewable projects, including CSP projects. They often seek to raise a portion of the capital in the form of third-party debt... [a] typical financial structure for a CSP project involves non-recourse or limited recourse project financing for about 80% of its total initial capital costs."402
The question is then what the Claimants’ rate of return is after the disputed measures. During the opening submissions at the Hearing, the Respondent referred to its calculation for the Andasol 3 Plant’s current pre-tax IRR as being 8.12%. The Claimant did not address its own calculation in opening submissions. This elicited the following question from the Tribunal to one of the Claimants’ witnesses, Mr. Hassler, CFO of RheinEnergie AG:
"Q:.There's a figure of 8.12% that we've seen as the internal rate of return that's currently being generated by the project. Is that a figure that you agree with or have calculated, or have you calculated a different figure?
A. Today we assume, with the devaluation of current capital costs which would be slightly lower -- but I cannot really remember the precise figure, but it's not much lower than the figure that you've just stated.
So if you look at it the other way round, this is based on German principles: you would have an analysis without looking at Spanish accounting standards. I'm not really au fait with them, I'm not really an expert on those. I can just look at the German side of things.
So that the capital costs would be taken into account when calculating this figure."406