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TABLE OF SELECTED ABBREVIATIONS AND ACRONYMS

ABV Asset-Based Valuation
AEE Wind Power Business Association
APV Adjusted Present Value
Antaris Award Antaris Solar GmbH and Dr Michael Göde v. Czech Republic (PCA Case n° 2014-01), Final Award, May 8, 2018
Antin Award Antin Infrastructure Services Luxembourg S.à.r.l and Antin Energia Termosolar B.V. v. Kingdom of Spain, ICSID Case No. ARB/13/31, Award, June 15, 2018
Arbitration Rules ICSID Rules of Procedure for Arbitration Proceedings
BCG Boston Consulting Group
Borawind Borawind Energy, S.L.
Bridgepoint Bridgepoint Advisers Limited
C-[#] Claimants’ Exhibit
CAPM Capital Asset Pricing Model
CJEU Court of Justice of the European Union
CL-[#] Claimants’ Legal Authority
Claimants or Watkins Watkins Holdings S.à r.l.; Watkins (Ned) BV; Watkins Spain, S.L.; Redpier, S.L.; Northsea Spain S.L.; Parque Eólico Marmellar, S.L.; and Parque Eólico La Boga, S.L.
Claimants’ Memorial Claimants’ Memorial on the Merits dated November 14, 2016
Claimants’ Rejoinder Claimants’ Rejoinder on Jurisdiction dated March 7, 2018
Claimants’ Reply Claimants’ Reply on the Merits and CounterMemorial on Jurisdiction dated September 28, 2017
Claimants’ Post-Hearing Claimants’ Post-Hearing Brief dated September 7, 2018
Claimants’ Post-Hearing Reply Claimants’ Post-Hearing Reply Brief dated October 31, 2018
Claimants’ Submission on Costs Claimants’ Submission on Costs dated November 30, 2018
CNE National Energy Commission
CNMC National Commission on Markets and Competition
Commission European Commission
Commission’s Application European Commission’s Application dated January 16, 2017
Commission’s Request European Commission’s Request for Reconsideration dated March 23, 2017
CPI Consumer Price Index
DCF Discounted Cash Flow
Disputed Measures Law 15/2012, RDL 2/2013, RDL 9/2013, Law 24/2013, RD 413/2014 and the June 2014 Order
ECT Energy Charter Treaty dated December 17, 1994, which entered into force on April 16, 1998 with respect to Spain, Luxembourg and the Netherlands
EU European Union
FET Fair and Equitable Treatment
Fifth Claimant Northsea Spain S.L.
First Accuracy Report Expert Report by Accuracy dated February 10, 2017
First Ayuso Statement First Witness Statement of Mr. Juan Ramón Ayuso dated February 9, 2017
First Brattle Quantum Report Expert Report on quantum by the Brattle Group dated November 14, 2016
First Brattle Regulatory Report Expert Report on regulatory matters by the Brattle Group dated November 14, 2016
First Claimant Watkins Holdings S.á r.l.
First Moreno Statement First Witness Statement of Mr. Felipe Moreno Zabala dated November 14, 2016
FIT Feed-in-Tariff
Fourth Claimant Redpier, S.L.
ICSID or Centre International Centre for Settlement of Investment Disputes
ICSID Convention Convention on the Settlement of Investment Disputes between States and Nationals of Other States
ICSID Institution Rules Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings
IDAE Institute for Diversification and Saving of Electricity
June 2014 Order Ministerial Order IET/1045/2014 dated June 16, 2014
Law 15/2012 Law 15/2012 on Tax Measures for Energy Sustainability dated December 27, 2012
Law 24/2013 Law 24/2013 on the Electricity Sector dated December 26, 2013
Ministry Ministry of Industry, Tourism and Commerce
Parque Arroyal Parque Eólico Arroyal (49.5 MW)
Parque El Perul Parque Eólico El Perul (49.6 MW)
Parque La Lastra Parque Eólico La Lastra (11.69 MW)
Parque Lodoso Parque Eólico Lodoso (49.5 MW)
Parque Lora 1 Parque Eólico Lora 1 (49.6 MW)
Parque Lora 2 Parque Eólico Lora 2 (49.6 MW)
Parque Marmellar Parque Eólico Marmellar (49.5 MW)
Parque Sargentes Parque Eólico Sargentes (24 MW)
Pre-Assignment Register Pre-Assignment Register mechanism established in RDL 6/2009
Project Companies Marmellar SL and La Boga SL
R-[#] Respondent’s Exhibit
RAIPRE Registro Administrativo de Instalaciones de Producción en Régimen Especial
RD 2818/1998 Royal Decree 2818/1998 dated December 23, 1998
RD 436/2004 Royal Decree 436/2004 dated March 12, 2004
RD 661/2007 Royal Decree 661/2007 dated May 25, 2007
RD 1614/2010 Royal Decree 1614/2010 dated December 7, 2010
RD 413/2014 Royal Decree 413/2014 dated June 6, 2014
RDL 7/2006 Royal Decree-Law 7/2006 dated June 23, 2006
RDL 6/2009 Royal Decree-Law 6/2009 dated April 30, 2009
RDL 2/2013 Royal Decree-Law 2/2013 dated February 1, 2013
RDL 9/2013 Royal Decree-Law 9/2013 dated July 12, 2013
RE Renewable Energy
REIOs Regional Economic Integration Organizations
REP Renewable Energy Plan
Request for Arbitration Request for Arbitration dated October 26, 2015, accompanied by Exhibits C-1 to C-33
Respondent’s Counter-Memorial Respondent’s Counter-Memorial on the Merits and Memorial on Jurisdiction dated February 10, 2017
Respondent’s Rejoinder Respondent’s Rejoinder on the Merits and Reply on Jurisdiction dated January 9, 2018
Respondent’s Post-Hearing Respondent’s Post-Hearing Brief dated September 7, 2018
Respondent’s Post-Hearing Reply Respondent’s Post-Hearing Reply Brief dated October 31, 2018
Respondent’s Submission on Costs Respondent’s Submission on Costs dated January 16, 2019
RL-[#] Respondent’s Legal Authority
RREEF Decision 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, Decision on Responsibility and Principle of Quantum, November 30, 2018
Second Accuracy Report Expert Report by Accuracy dated January 9, 2018
Second Ayuso Statement Second Witness Statement of Mr. Juan Ramon Ayuso dated January 9, 2018
Second Brattle Quantum Report Second Expert Report on quantum matters by the Brattle Group dated September 28, 2017
Second Brattle Regulatory Report Second Expert Report on regulatory by the Brattle Group dated September 28, 2017
Second Claimant Watkins (Ned) BV
Second Moreno Statement Second Witness Statement of Mr. Felipe Moreno Zabala dated September 28, 2017
SES Spanish Electric System
Seventh Claimant Parque Eólico La Boga, S.L.
Sixth Claimant Parque Eólico Marmellar, S.L.
Spain or Respondent Kingdom of Spain
TMR Tarifa Media de Referencia
Third Claimant Watkins Spain, S.L.
Tribunal Arbitral Tribunal constituted on March 31, 2016
TVPEE Impuesto sobre el valor de la producción de energía eléctrica
UNFCCC United Nations Framework Convention on Climate Change
Vattenfall Decision Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea Issue, August 31, 2018
VCLT or Vienna Convention Vienna Convention on the Law of Treaties
Wind Farms Wind farm sites located in the province of Castilla y León in Spain (Parque Arroyal, Parque El Perul, Parque La Lastra, Parque Lodoso, Parque Lora 1, Parque Lora 2, Parque Marmellar, Parque Sargentes)
1997 Electricity Law or Law 54/1997 Law 54/1997 on the Electricity Sector dated November 27, 1997
2001 Renewables Directive European Parliament and Council Directive 2001/77/CE on the promotion of electricity produced from renewable energy sources in the internal electricity market dated September 27, 2001
2009 Renewables Directive European Union 2009 Directive on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC dated April 23, 2009

I. INTRODUCTION

A. The Parties

1.
The Claimants are Watkins Holdings S.á r.l. (the "First Claimant"), a private limited liability company incorporated under the laws of Luxembourg; Watkins (Ned) BV (the "Second Claimant"), a limited liability company incorporated under the laws of the Netherlands and a wholly-owned subsidiary of the First Claimant; Watkins Spain, S.L. (the "Third Claimant"), a private limited liability company incorporated under the laws of Spain; Redpier, S.L. (the "Fourth Claimant"), a private limited liability company incorporated under the laws of Luxembourg; Northsea Spain S.L. (the "Fifth Claimant"); Parque Eólico Marmellar, S.L. (the "Sixth Claimant"); and Parque Eólico La Boga, S.L. (the "Seventh Claimant"), all three are private limited liability companies incorporated under the laws of Spain. The seven companies are collectively referred to as "Watkins" or the "Claimants." The Claimants are represented in these proceedings by Mses. Virginia Allan, Marie Stoyanov, and Agustina Alvarez, and Messrs. David Ingle, Pablo Torres and Antonio Vazquez-Guillen of Allen & Overy LLP.
2.
The Respondent is the Kingdom of Spain ("Spain" or the "Respondent," and, collectively with the Claimants, the "Parties"). The Respondent is represented in these proceedings by Mses. Mónica Moraleda Saceda, Elena Oñoro Sainz, Amaia Rivas Kortazar, Patricia Froehlingsdorf Nicolás, Gloria de la Guardia Limeres, and Ana María Rodríguez Esquivias, and Messrs. Antolín Fernández Antuña, Diego Santacruz Descartín, Javier Torres Gella, Javier Castro López, Roberto Fernández Castilla, and Alvaro Navas López of the Ministry of Justice of the Government of Spain.

B. Overview of the Dispute

3.
This case relates to a dispute arising from the Claimants’ investment in the Spanish wind generation sector and, in particular, the purchase of seven wind farm sites located in the province of Castilla y León in Spain ("Wind Farms"). The Claimants allege that the Respondent adopted measures radically modifying and dismantling the applicable legal and economic regime for renewable energy ("RE") projects on which the Claimants relied on when making their investment. According to the Claimants, in adopting such measures, Spain has breached its international obligations.

II. PROCEDURAL HISTORY

A. Initiation of the Arbitration Proceedings and Constitution of the Tribunal

4.
On October 26, 2015, Watkins filed with the International Centre for Settlement of Investment Disputes Centre ("ICSID" or the "Centre") a request for arbitration against Spain (the "Request for Arbitration") accompanied by Exhibits C-1 to C-33.
5.
The Request for Arbitration was made pursuant to the Energy Charter Treaty dated December 17, 1994, which entered into force on April 16, 1998 with respect to Spain, Luxembourg and the Netherlands (the "ECT"), and to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States dated March 18, 1965, which entered into force on October 14, 1966 (the "ICSID Convention").
6.
On October 28, 2015, pursuant to Rule 5 of the Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings ("ICSID Institution Rules"), the Centre acknowledged receipt of the Request for Arbitration, and, on October 29, 2015, it transmitted a copy of the Request for Arbitration to Spain as well as to the Embassy of Spain in Washington D.C.
7.
On November 4, 2015, the Secretary-General of ICSID registered the Request for Arbitration pursuant to Article 36(3) of the ICSID Convention and ICSID Institution Rules 6 and 7 and notified the Parties of the registration. The Secretary-General invited the Parties to proceed, as soon as possible, with the constitution of the Arbitral Tribunal pursuant to ICSID Institution Rule 7(d).
8.
In accordance with Article 37(2) (a) of the ICSID Convention, the Parties agreed that the Arbitral Tribunal would comprise of three arbitrators, one arbitrator appointed by the Claimants, one arbitrator appointed by the Respondent, and a third, presiding arbitrator, to be appointed by the Secretary-General of ICSID.
9.
Accordingly, the Claimants appointed Dr. Michael C. Pryles AO PBM, an Australian national, the Respondent appointed Prof. Dr. Hélène Ruiz Fabri, a French national and pursuant to the Parties' agreement, the Secretary-General of ICSID appointed Tan Sri Dato' Cecil W.M. Abraham, a Malaysian national, to serve as the President of the Arbitral Tribunal.
10.
On March 31, 2016, the Secretary-General informed the Parties that all three arbitrators had accepted their appointments. The Arbitral Tribunal (the "Tribunal") was thus deemed to have been constituted and the proceeding to have begun as of that date pursuant to Rule 6 of the Rules on Procedure for Arbitration Proceedings (the "Arbitration Rules"). On the same date, Mr. Gonzalo Flores, ICSID Deputy SecretaryGeneral, was designated to serve as the Secretary of the Tribunal with the assistance of Ms. Ana Conover, ICSID Legal Associate.

B. First Session and Procedural Order No. 1

11.
On May 23, 2016, the Tribunal held the first session by telephone conference. An audio recording of the session was made and was distributed to the Parties as well as to the Members of the Tribunal.
12.
During the first session, the Tribunal and the Parties considered (i) the draft agenda and the draft procedural order circulated by the Secretary of the Tribunal on April 6, 2016 and (ii) the Parties' agreements and positions on the draft agenda and the draft procedural order received on May 6, 2016. Among other items on the agenda, the Parties expressed their agreement that the Tribunal had been properly constituted in accordance with the relevant provisions of the ICSID Convention and the Arbitration Rules, and that they did not have any objections in this respect.
13.
On May 26, 2016, the President of the Tribunal, on behalf of the Tribunal, issued Procedural Order No. 1 embodying the Parties' agreements on procedural matters and the Tribunal's decisions on the disputed issues. Procedural Order No. 1 provided, inter alia, that (i) the applicable Arbitration Rules would be those in force as of April 10, 2006; (ii) the place of the proceeding would be Washington, DC; and (iii) the procedural languages would be English and Spanish. Procedural Order No. 1 also set out the procedural calendar for the present proceeding.
14.
On July 8, 2016, Mr. Gonzalo Flores, Acting Secretary-General, informed the Parties that Ms. Ana Conover, ICSID Legal Associate, was designated to serve as Secretary of the Tribunal in the present case.

C. Parties’ Written Pleadings and Procedural Requests

15.
On November 14, 2016, the Claimants filed their Memorial on the Merits (the "Claimants’ Memorial") in accordance with the procedural calendar. The Claimants' Memorial was accompanied by Exhibits C-34 to C-173; Legal Authorities CL-1 to CL-93; a Witness Statement by Mr. Felipe Moreno Zabala (the "First Moreno Statement"); two Expert Reports by the Brattle Group, i.e. an Expert Report on regulatory matters (the "First Brattle Regulatory Report") and an Expert Report on quantum (the "First Brattle Quantum Report"), supported, respectively, by Exhibits BRR-1 to BRR-156 and BQR-1 to BQR-45. On December 5, 2016, the Claimants submitted the corresponding translations into the other language of the proceeding.
16.
On February 10, 2017, as provided in the procedural calendar, the Respondent filed its Counter-Memorial on the Merits and Memorial on Jurisdiction (the "Respondent’s Counter-Memorial") in Spanish. The Respondent's Counter-Memorial was accompanied by Exhibits R-1 to R-278; Legal Authorities RL-4 to RL-71; a Witness Statement by Mr. Juan Ramon Ayuso (the "First Ayuso Statement"), along with Exhibits W-01001-W-01013, W-01021-W-01035, W-01037, W-01043-W-01044, W-01084-W-01085, W-01087, W01095, W-01101 -W-01131, and W-01142; and an Expert Report by Accuracy (the "First Accuracy Report"), supported by Exhibits ACQ-2 to ACQ-55. On March 2, 2017, the Respondent submitted the corresponding translations into the other language of the proceeding.
17.
On April 28, 2017, following exchanges between the Parties, and in accordance with Procedural Order No. 1, the Parties jointly filed their document production applications in the form of Redfern Schedules.
18.
On May 16, 2017, the Tribunal issued Procedural Order No. 4, ruling on the Parties' document production applications. Procedural Order No. 4 established, inter alia, that (i) "the Parties shall produce the documents ordered by the Tribunal by June 9, 2017;" and that (ii) the Respondent shall "elaborate on its objections to produce the minutes of the Council of Ministers on the grounds of privilege and secrecy by 23 May 2017," and "the Claimants may submit a responsive submission within seven days upon receiving the Respondent's observations."
19.
On May 25, 2017, the Respondent requested an extension until May 29, 2017 to elaborate on its objections to produce the minutes of the Council of Ministers on the grounds of privilege and secrecy. The Tribunal granted the time extension on May 26, 2017.
20.
On May 29, 2017, the Respondent submitted its comments as ordered in Procedural Order No. 4 and pursuant to the extension granted by the Tribunal, along with three supporting documents.
21.
On June 5, 2017, in accordance with the time-limit set forth in Procedural Order No. 4, the Claimants filed their observations to the Respondent's objection to produce the minutes of the Council of Ministers.
22.
On June 15, 2017, the Tribunal issued Procedural Order No. 5 denying the Claimants' request to produce the minutes of the Council of Ministers' meetings, noting, inter alia, that "they are secret, that no documentation reflecting the discussions held within the Council of Ministers exists, and therefore the legal impediment in Article 9.2(b) of the IBA Rules would apply."
23.
On August 25, 2017, Martina Polasek, the Acting Secretary-General, informed the Parties that Ms. Catherine Kettlewell, ICSID Legal Counsel, was designated to serve as Secretary of the Tribunal in the present case.
24.
On September 19, 2017, the Parties informed the Tribunal that they had reached an agreement to extend certain deadlines of the procedural calendar. On the same date, the Tribunal confirmed the Parties' agreement.
25.
On September 28, 2017, the Claimants filed their Reply on the Merits and CounterMemorial on Jurisdiction (the "Claimants’ Reply"). The Claimants' Reply was accompanied by Appendices 1 to 6, Exhibits C-174 to C-265; Legal Authorities CL-94 to CL-159; a Witness Statement by Mr. Felipe Moreno Zabala (the "Second Moreno Statement"); and two Expert Reports by the Brattle Group, on regulations (the "Second Brattle Regulatory Report") and on quantum (the "Second Brattle Quantum Report"), with their respective Exhibits BRR-157 to BRR-266 and BQR-46 to BQR-52. On October 18, 2017, the Claimants submitted the corresponding translations into the other language of the proceeding.
26.
On January 9, 2018, the Respondent filed its Rejoinder on the Merits and Reply on Jurisdiction (the "Respondent’s Rejoinder"). The Respondent's Rejoinder was accompanied by Exhibits R-279 to R-380; Legal Authorities RL-72 to RL-95; a Witness Statement by Mr. Juan Ramon Ayuso (the "Second Ayuso Statement") along with Exhibits W-01146, W-01152-W-01154, W-01157, W-01162-W-01163, W-01165, W-01167, W-01170-W-01171, W-01174-W-01183, W-02005, W-R-0084, W-R-0224, W-R-0237, W-R-0238, W-R-0260; and an Expert Report by Accuracy (the "Second Accuracy Report") along with Exhibits ACQ-56 to ACQ-82. On January 18, 2018, the Respondent submitted the corresponding translations into the other language of the proceeding.
27.
On February 22, 2018, the Parties agreed to extend the deadline for the Claimants to submit the Rejoinder on Jurisdiction. On February 23, 2018, the Tribunal confirmed the Parties' agreement to extend the deadline.
28.
On March 7, 2018, the Claimants filed their Rejoinder on Jurisdiction (the "Claimants’Rejoinder") with two Appendices. On March 27, 2018, the Claimants submitted the corresponding translations into the other language of the proceeding.
29.
On May 7, 2018, the Parties exchanged their corresponding new document request pursuant to Procedural Order No. 6. On May 9, 2018, each Party submitted to the Tribunal the objections to the other Party's request. On May 10, 2018, the Tribunal issued its decision in this regard.

D. The Non-Disputing Party Applications

30.
On January 16, 2017, the European Commission (the "Commission") filed with the Centre, an application for leave to intervene as a non-disputing party (the "Commission’s Application") pursuant to Arbitration Rule 37(2).
31.
On January 18, 2017, the Tribunal invited the Parties to comment on the Commission's Application.
32.
On February 2, 2017, each Party filed their observations on the Commission's Application. The Claimants' observations were accompanied by Attachments 1 to 3, and the Respondent's observations were accompanied by Legal Authorities RL-1 to RL-3.
33.
On March 21, 2017, the Tribunal issued Procedural Order No. 2 embodying the Tribunal's analysis of and decision on the Commission's Application. Noting that "[t]he Respondent in its [...] Counter-Memorial on the Merits and Memorial on Jurisdiction [...] has raised two jurisdictional objections," the Tribunal concluded that the "Respondent would be able to argue the issue of jurisdiction." However, observing that the "Commission may have a particular knowledge or insight which may be of assistance to the Tribunal in its consideration of the jurisdictional issue," the Tribunal decided that "it is appropriate for the Commission to intervene."
34.
Accordingly, the Tribunal authorised the Commission to intervene as a non-disputing party and "to file a written submission of not more than 30 pages by 3 April 2017." The Tribunal specified, inter alia, that such submission "shall set out all matters that the Commission wishes to bring to the Tribunal’s attention regarding jurisdiction;" that "[t]he Commission shall not attend or observe the hearings;" and, "as a condition for being given leave to file a non-disputing party submissions," the Commission was required to "provide the Tribunal with a written undertaking [...] to pay the additional costs of legal representation which may be reasonably incurred by the parties in responding to the Commission’s Submissions." Finally, the Tribunal invited the Parties to "submit their observations on the Submission of the Commission to the Tribunal by 18 April 2017."
35.
On March 23, 2017, the Commission submitted a request for the Tribunal to reconsider Procedural Order No. 2 "in so far as it require[d] the Commission to provide an undertaking on costs, and to remove the procedural direction set out in paragraph 53(e) thereof" (the "Commission’s Request").
36.
On March 27, 2017, the Centre communicated the Commission’s Request to the Parties. On the same date, the Tribunal invited the Parties to provide their observations. Furthermore, the Tribunal informed the Parties that the filing dates related to the Commission’s written submission as set forth in Procedural Order No. 2 were suspended, and that it would notify the Commission and the Parties of the new filing dates upon issuance of its decision on the Commission’s Request.
37.
On April 7, 2017, the Claimants filed their observations on the Commission’s Request.
38.
On April 10, 2017, the Respondent filed its observations on the Commission’s Request and on the same date, ICSID transmitted the Parties’ observations to the Tribunal.
39.
On April 27, 2017, the Tribunal issued Procedural Order No. 3 rejecting the Commission’s Request to alter Procedural Order No. 2 and inviting the Commission, as a condition for being given leave to file a non-disputing party submission, to provide the cost undertaking as described in Procedural Order No. 2. Further, the Tribunal updated the schedule pertaining to the filing of the Commission’s written submission, indicating that (i) "the Commission may file its written submission by 26 May 2017 ;" and that (ii) "the Parties shall present their observations on the Commission’s written submission in their respective briefs."
40.
On May 2, 2017, the Commission informed the Tribunal that it would not provide the undertaking on costs.

E. Oral Procedure

41.
On April 24, 2018, the Tribunal held a pre-hearing organisational meeting with the Parties by telephone conference.
42.
On April 24, 2018 the Tribunal issued Procedural Order No. 6, amended on April 26, 2018, embodying the Parties’ agreements on the procedural matters related to the Hearing and the Tribunal’s decisions on the matters in which there was disagreement between the Parties.
43.
The Hearing was held from May 21, 2018 to May 24, 2018 in Paris, France. The list of participants was as follows:

Tribunal :
Tan Sri Dato’ Cecil W.M. Abraham President of the Tribunal
Dr. Michael Pryles Arbitrator
Prof. Dr. Hélène Ruiz Fabri Arbitrator

ICSID Secretariat :
Ms. Catherine Kettlewell Secretary of the Tribunal

For the Claimants :
Ms. Marie Stoyanov Allen & Overy LLP
Mr. Antonio Vazquez-Guillén Allen & Overy LLP
Mr. Antonio Jiménez-Blanco Allen & Overy LLP
Mr. David Ingle Allen & Overy LLP
Mr. Alexandre Fichaux Allen & Overy LLP
Mr. Tomasz Hara Allen & Overy LLP
Mr. Pablo Torres Allen & Overy LLP
Mr. Valentin Bourgeois Allen & Overy LLP
Ms. Carmen de la Hera Allen & Overy LLP
Mr. Carlos Lapuerta The Brattle Group
Mr. Richard Caldwell The Brattle Group
Mr. José Antonio García The Brattle Group
Ms. Annika Opitz The Brattle Group
Ms. Henna Trewn The Brattle Group
Mr. Juan Arteche Bridgepoint
Mr. Felipe Moreno Self-employed

For the Respondent :
Mr. Diego Santacruz Descartín State Attorney’s Office Ministry of Justice
Ms. Mónica Moraleda Saceda State Attorney’s Office Ministry of Justice
Ms. Elena Oñoro Sainz State Attorney’s Office Ministry of Justice
Mr. Antolín Fernández Antuña State Attorney’s Office Ministry of Justice
Mr. Joaquín Garrigos Millán State Attorney’s Office Ministry of Justice
Ms. Almudena Pérez-Zurita Gutiérrez State Attorney’s Office Ministry of Justice
Ms. Carmen María Roa Tortosa IDAE
Mr. Juan Ramón Ayuso Ortiz IDAE
Mr. Eduard Saura Accuracy
Mr. Nicolas Barsalou Accuracy
Ms. Laura Cózar Accuracy
Mr. Alberto Fernández Accuracy
Mr. Carlos Canga Accuracy
Ms. Aurea Alvarez Accuracy

Court Reporters :
Mr. Trevor McGowan The Court Reporter Ltd.
Mr. Paul Pelissier DR-Esteno
Ms. Luciana Sosa DR-Esteno

Interpreters :
Mr. Juan María Burdiel Pérez
Mr. Jesus Getan Bornn
Ms. Amalia Thaler-de Klemm

44.
The following persons were examined during the Hearing:

On behalf of Claimants :
Fact Witness
Mr. Felipe Moreno Zavala
Expert Witnesses
Mr. José Antonio García
Mr. Carlos Lapuerta
Mr. Richard Caldwell

On behalf of Respondent :
Fact Witness
Mr. Juan Ramón Ayuso
Expert Witnesses
Mr. Eduard Saura
Mr. Nicolas Barsalou

F. Post-Hearing Developments

45.
On May 29, 2018, the Tribunal instructed the Parties to submit the corrections to the hearing transcripts by Tuesday, June 12, 2018 or any other date as the Parties agreed upon.
46.
On the same date, the Parties informed the Tribunal that both Parties agreed to submit the corrections by June 29, 2018. On July 10, 2018, not having received the corrections, the Tribunal invited the Parties to inform the status of the corrections, which were then submitted by the Parties on July 11, 2018.
47.
On August 13, 2018, the Claimants requested the introduction into the record of the award in the Antin Infrastructure Services Luxembourg S.a.r.l and Antin Energia Termosolar B.V. v. Kingdom of Spain (ICSID Case No. ARB/13/31) ("Antin award"). The Tribunal admitted the Antin award into the record as Exhibit CL-176 and invited the parties to comment on the Antin award in their Post-Hearing submissions due on September 7, 2018.
48.
On September 6, 2018, the Parties informed the Tribunal that they had agreed to modify section 11.4 of Procedural Order No. 1 and only submit their Post-Hearing briefs and Reply Post-Hearing briefs in English. The Parties clarified that English and Spanish would continue to be the procedural languages of the arbitration. On the same date, the Tribunal confirmed the Parties' agreement.
49.
On September 7, 2018, the Parties simultaneously submitted their Post-Hearing briefs.
50.
On October 18, 2018, the Claimants requested the introduction into the record of the following: (i) the "Decision on the Achmea Issue" dated 31 August 2018 rendered in Vattenfall AB and others v. Federal Republic of Germany (ICSID Case No. ARB/12/12) (the "Vattenfall Decision"); and (ii) the Final Award dated 8 May 2018 rendered in Antaris Solar GmbH and Dr Michael Gode v. Czech Republic (PCA Case n° 2014-01) (the "Antaris award"). This request from the Claimants was based on Section 16.3 of Procedural Order No. 1. On October 22, 2018, the Tribunal granted the Claimants' request to introduce both documents into the record and invited both Parties to comment on these decisions in their respective Reply Post-Hearing briefs due on October 31, 2018.
51.
On October 30, 2018, the Respondent informed the Tribunal of a technical problem affecting its ability to file its Submission on Costs. On November 2, 2018, the Tribunal extended the deadline to file each Parties' Submission on Costs until November 30, 2018.
52.
On October 31, 2018, the Parties informed the Tribunal of their agreement to limit to 40 pages their Reply Post-Hearing Brief and Submission on Costs, which the Tribunal confirmed.
53.
On October 31, 2018, the Parties simultaneously submitted their Reply Post-Hearing briefs. The Claimants’ Reply Post-Hearing brief was submitted together with CL-177 and CL-178.1
54.
On November 30, 2018, the Respondent requested a further extension because the technology issue had not been resolved. On the same date, the Claimants filed their corresponding Submission on Costs.
55.
On December 3, 2018, the Tribunal granted the Respondent an extension to file its Submission on Costs until January 2, 2019. On December 28, 2018, the Respondent requested a further extension to file its Submission on Costs. The Tribunal granted the further extension. On January 16, 2019, the Respondent submitted its Submission on Costs. On January 18, 2019, the Secretary of the Tribunal then circulated to the Parties the respective Submissions on Costs.
56.
On 8 April 2019 the Respondent requested authorization to add a new legal authority, RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.a.r.l v. Kingdom of Spain, to the record. The Claimants did not object to the addition of the legal authority but sought directions to file further submissions.
57.
The Tribunal on 19 April 2019 gave the following set of directions:

a) The Tribunal grants the Respondent’s request to introduce into the record 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) Decision on Responsibility and Principle of Quantum dated 30 November 2018 ("RREEF Decision");

b) The Tribunal also grants leave to introduce the Partial Dissenting Opinion of Prof. Robert Volterra to the RREEF Decision requested by the Claimants;

c) The Tribunal invited the Parties to comment on the RREEF Decision and the Partial Dissenting Opinion of Prof. Robert Volterra;

d) The Respondent was to file its comments by 3 May 2019 and the Claimants were to file their comments by 17 May 2019.

58.
The Respondent filed its Comments on the RREEF Decision by 3 May 2019.
59.
The Claimants filed their Comments on the RREEF Decision and Partial Dissent on 17 May 2019.
60.
On 11 October 2019, the Claimants requested leave to the Tribunal to introduce "new awards which concerned the Kingdom of Spain."2 The Tribunal invited the Respondent to comment on the Claimants’ request. On 21 October 2019, the Respondent filed its response.
61.
On 22 October 2019, the Tribunal decided that the new awards rendered were not necessary for the Tribunal’s decision for this case and, therefore, denied the Claimants’ request.
62.
On 4 December 2019, the Respondent requested leave to the Tribunal to introduce two new awards to the record of this case. The Tribunal invited the Claimants to comment on the Respondent's request. On 11 December 2019, the Claimants filed their response.
63.
On 17 December 2019, the Tribunal decided that the new awards indicated by the Respondent were not necessary for the Tribunal to deliver its decision and, therefore, denied the Respondent’s request.
64.
On 18 December 2019, the Tribunal declared the proceedings as closed.

III. RELIEF SOUGHT BY THE PARTIES

A. The Claimants

65.
The Claimants requested that the Tribunal grants the following relief:

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

b) ORDERING that Spain:

i) 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

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

in any event:

iii) pay the Claimants pre-award interest at a rate of 1.16% compounded monthly; and

iv) pay post-award interest, compounded monthly at a rate to be determined by the Tribunal on the amounts awarded until full payment thereof; and

v) 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

vi) any such other and further relief that the Tribunal shall deem just and proper.3

66.
The Claimants reserved their rights to request in the course of the proceedings any additional, alternative or different relief as may be appropriate, including conservatory, injunctive or other interim relief.
67.
In the Claimants’ Reply, the Claimants also asked the Tribunal to dismiss all of Spain's jurisdictional objections.4

B. The Respondent

68.
The Respondent requested that the Tribunal grants the following relief:

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

b) Subsidiarily, 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) Subsidiarily, 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.5

69.
The Respondent reserved its right to supplement or modify the above request for relief at any time during the proceeding.6

IV. FACTUAL BACKGROUND

70.
In this Section, the Tribunal addresses the events relevant to the dispute in a chronological manner. The Tribunal wishes to state that this summary of the factual background is not an exhaustive summary. The Tribunal has considered the entirety of the Parties’ submissions of fact in their written and oral submissions, whether or not they are expressly discussed in this section.

A. Respondent’s Renewable Energy Regulatory Framework

71.
Spain's development of RE dates back to the United Nations Framework Convention on Climate Change ("UNFCCC"), which was adopted on 9 May 1992 and entered into force on 21 March 1994.7 The UNFCCC established a framework for intergovernmental efforts to tackle climate change.
72.
Spain's commitments under the UNFCCC were expanded through the Kyoto Protocol, negotiated in 1997 by the parties to the UNFCCC, which fixed upon its signatories (including members states of the European Union) binding greenhouse gas emissions targets. As such, the European Union set greenhouse gas emission targets for its member states to align with the objectives of the Kyoto Protocol. The Kyoto Protocol was signed by Spain on 29 April 1998 and ratified on 31 May 2002. It entered into force on 16 February 2005.8

1. Initial Framework

(a) Basic Feature

73.
Spain's Energy Policy (also referred as the Spanish Electrical System) is found in a number of laws and regulations, which are as follows:9

1) The Spanish Constitution of 1978, which is the supreme legislation of the Spanish Legal System.

2) Statute Law, which is of two kinds, namely: (a) organic law and (b) ordinary laws.

3) Royal Decree Law, which, as regulation, has the force of law. The Constitution authorises the Spanish Government to approve Royal Decree Law in situations of extraordinary need or urgency. The approval of Royal Decree Law is subject to strict conditions, controls, and limits and requires subsequent Parliamentary validation.

4) Royal Decree, which is a regulatory standard that emanates from the Government. It complements or implements laws and is hierarchically inferior to them.

5) Ministerial Orders, which are a regulatory standard emanating from one or several ministerial departments.

(b) Regulators

74.
Regulators of Spain's Energy Policy include, first, the Ministry of Industry, Energy and Tourism, which has the primary responsibility for regulation of energy matters. Second, the Secretary of State for Energy exercises specific responsibilities for energy policies. Third, the Institute for Diversification and Saving of Electricity ("IDAE") provides advice to policymakers on technical and economic issues and drafting of legislations and acts as a liaison between the Government and Industry.
75.
Another relevant agency is the National Energy Commission ("CNE"),10 which oversees competition in market settlement of regulated costs of the electricity system and monitors the technical compliance of both conventional and renewable power facilities. The CNE is now known as the National Commission on Markets and Competition ("CNMC").11

(c) The 1997 Electricity Law (Law 54/1997)

76.
On 27 November 1997, Spain adopted Law 54/1997 on the Electricity Sector ("1997 Electricity Law" or "Law 54/1997"), which partially opened up the electricity sector to competition and put an end to the previous State-controlled system.12 Law 54/1997 set up the framework for various public authorities to exercise competence in Spain's electricity sector. In particular, and as mentioned above, within the central Government the relevant public authorities would include the CNE and the Ministry of Industry, Tourism and Commerce.13
77.
Among the objectives of the Law 54/1997 was the "promotion of renewable energy" and for RE sources to "cover at least 12% of Spain's total energy demand by the year 2010 [...]."14
78.
For the purposes of encouraging the production of energy from renewable sources, Law 54/1997 distinguished between an "Ordinary Regime" applicable to conventional sources of energy—such as coal-fired power plants—and a "Special Regime" applicable to energy production facilities of less than 50MW, which generated electricity from "non-consumable renewable energy sources. "15 Under the Special Regime, electricity generators benefitted from a supplementary premium over and above the market price.
79.
Spain explains that the creation of a double regime stemmed from the "need to encourage production using energy sources which can only obtain a price in the competitive market that is insufficient to cover its costs of construction and operation, with reasonable return on the investment. Therefore, they require subsidies to be profitable."16 For the Claimants, "reasonable return" is an "undefined legal concept."17
80.
The basis of remuneration under the Special Regime was a feed-in-tariff ("FIT") calculated in Euro/c per kWh of electricity produced. The amount of premium was set out in Article 30.4 of Law 54/1997, which reads as follows:

In order to determine the premiums, account shall be taken of the level of delivery voltage of the energy to the grid, effective contribution to improvement of the environment, saving in primary energy and energy efficiency, production of economically justifiable useful heat and the investment costs which have been incurred, in order to achieve reasonable rates of return by reference to the cost of money in the capital market.18

(d) 1998-2006 Regulations

i. Royal Decree 2818/1998

81.
On 23 December 1998, Spain adopted Royal Decree 2818/1998 ("RD 2818/1998") on electricity production installations supplied by renewable energy, waste or cogeneration.19 RD 2818/1998 was the first regulatory development of Article 30.4 of Law 54/1997. The objective of RD 2818/1998 was to establish "a system of temporary incentives for those facilities that require them in order to place them in a competitive position in a free market."20
82.
RD 2818/1998 enabled RE generators qualifying under the Special Regime to sell electricity either under a regulated tariff or a premium paid on top of the wholesale market price. The premiums and regulated tariffs were reviewed by the Spanish Government annually, depending on the variation of the average price of electricity.21
83.
RD 2818/1998 also established the Administrative Registry for Production Facilities under the Special Regime ("Registro Administrativo de Instalaciones de Producción en Régimen Especial" or "RAIPRE") to facilitate the Government’s management and control of the retribution under the legislation.22

ii. The 2001 Renewables Directive

84.
On 27 September 2001, following the adoption of the Kyoto Protocol in 1997, the European Parliament and Council passed Directive 2001/77/CE "on the promotion of electricity produced from renewable energy sources in the internal electricity market" (the "2001 Renewables Directive").23 The 2001 Renewables Directive established obligations for the EU Member States to take appropriate measures to increase future electricity consumption derived from RE sources.24 This Directive also recognised the "need for public support in favour of renewable energy sources is recognised in the Community guidelines for State aid for environmental protection."25 It further required EU Member States to establish "national indicative targets for the consumption of electricity produced from renewable sources" consistent with the overall target of 12% of electricity consumption from renewable sources by 2010.26
85.
In addition, the 2001 Renewables Directive required EU Members States to implement a RE plan to comply with the Directive by 2003 and ensure that the charging of transmission and distribution fees did not discriminate against electricity from RE sources, among others.27 Spain's specific target was to draw 29.4% of its electricity from RE sources by 2010.28

iii. Royal Decree 436/2004

86.
Spain enacted Royal Decree 436/2004 ("RD 436/2004") on 12 March 2004,29 and which repealed RD 2818/1998. This decree, published on 27 March 2004, updated and systemised the legal and economic regime under the Special Regime by establishing that qualifying installations could sell electricity (i) at a regulated fixed tariff; or (ii) at market prices and receive a premium FIT payment over and above the market price per kWh produced.30 Both options were calculated by reference to a percentage of the average electricity tariff fixed by the Government on an annual basis, the "tarifa media de referenda" ("TMR").31 Both values were subject to market fluctuations because the regulated tariff and FIT were linked to the average cost of electricity.
87.
Further, Article 40 established that:

1. During 2006, [...] the tariffs, premiums, incentives and supplements defined in this Royal Decree shall undergo revision. [...]. Every four years, starting from 2006, a new revision shall take place.

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. [...].32

iv. The 2005-2010 Renewable Energy Plan

88.
Spain's Council of Ministers approved the 2005-2010 Renewable Energy Plan on 26 August 2005, which revised the earlier 2000-2010 Renewable Energy Plan adopted in 1999.33 The objective of the revised Renewable Energy Plan, prepared by IDAE, was to maintain Spain's commitment to cover at least 12% of the total energy demand with renewable sources by 2010, and incorporate two other objectives: 29.4% of electricity generation from renewables and 5.75% from biofuels in transport.34
89.
The 2005-2010 Renewable Energy Plan established that the RD 436/2004 FIT regime allowed wind producers to receive internal return rates above 7%, with own resources and after tax.35 It also recommended increasing the installed capacity limit on tariffs, incentives and premiums for wind sources from 13,000 MW to 20,000 MW.36

v. Royal Decree-Law 7/2006

90.
Royal Decree Law 7/2006 ("RDL 7/2006") was enacted on 23 June 20 06.37 It amended Law 54/1997 and gave RE installations priority of access to transmission and distribution network.38 This would allow generators to sell their electricity output in preference to any other non-renewable producer.
91.
RDL 7/2006 also provided that future variations of the TMR would not apply to the RD 436/2004 FIT, which meant that the RD 436/2004 remuneration options would be calculated in accordance with the TMR applicable in 2006.39

2. Regulatory Developments in 2007-2010

(a) Royal Decree 661/2007

92.
On 25 May 2007, Spain passed Royal Decree 661/2007 ("RD 661/2007") regulating the activity of electricity production under the Special Regime.40 RD 661/2007 replaced RD 436/2004. The objectives of the new policy are set out in the Preamble:

[A]lthough the growth experienced by the special electricity generation regime as a whole has been noteworthy, the targets set for certain technologies are still far from being achieved. From the point of view of compensation, the business of the production of electrical energy under the special regime is characterised by the possibility that the compensation system can be supplemented by the receipt of a premium under the terms and conditions established in the regulations, in order to determine which such factors as the voltage level of the energy delivered into the grid, the contribution to the improvement in the environment, primary energy saving, energy efficiency, and the investment costs incurred, may all be taken into account.41

93.
RD 661/2007 notably increased the installed capacity target for wind power generation from 13,000 MW to 20,155 MW.42 Article 22 established that when the 85% target of the installed capacity was reached for any technology, there would be a time limit of at least 12 months within which wind installations would be required to register with the RAIPRE to benefit from RD 661/2007's economic regime.43 By registering with RAIPRE, the installation qualified under the Special Regime and could thus benefit from the support schemes established under RD 661/2007.44
94.
With regard to the electricity output, RD 661/2007 provided qualifying RE generators the right to choose between two forms of remuneration:

a) Sell the electricity to the system through the transport or distribution grid, receiving for it a regulated tariff, which shall be the same for all scheduling periods expressed in Euro cents per kilowatt/hour.

b) Sell the electricity in the electrical energy production market. In this case the sale price of the electricity shall be the price obtained in the organised market or the price freely negotiated by the proprietor or the representative of the facility, supplemented where appropriate by a premium, in Eurocents per kilowatt/hour.45

95.
A "regulated tariff" is defined by Article 25 as a "fixed sum which shall be the same for all scheduling periods and shall be determined as a function of the Category, Group, of Sub-Group to which the facility belongs, and the installed power, and where applicable the length of time since the date of commissioning [...]"46
96.
Article 2 of RD 661/2007 defined categories of facilities based on the primary energy used, the type of technology and the energy yield. Wind facilities were included under Category b.2 and the regulated tariff was set out in Table 3 of Article 36 as follows:47
97.
Further, and contrary to what was established under RD 436/2004, tariffs for wind energy producers were de-linked from the TMR and indexed to the consumer price index ("CPI"). Article 44(3) indeed provided that:

[t]he values of the tariffs, premiums, supplements, and lower and upper limits to the hourly price of the market as defined in this Royal Decree, for Category b) [...] shall be updated on an annual basis using as a reference the increase in the CPI less the value set out in the Additional Provision One of the present Royal Decree.48

98.
Particularly, Article 44(3) defined tariffs, premiums, supplements and lower and upper limits as follows:

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 start-up document was issued before January 1 of the second year in which the adjustment was implemented.49

99.
Finally, RD 661/2007 also provided priority of access and dispatch to qualifying installations and a bonus compensation for "reactive energy."50

(b) The 2009 Renewables Directive

100.
On 23 April 2009, the EU approved the 2009 Directive "on the promotion and use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC" (the "2009 Renewables Directive").51 The 2009 Renewables Directive’s objective was to obtain 20% of its total energy consumption requirements with RE sources by 2020.52 Spain’s RD 661/2007 anticipated the measures set out in the 2009 Renewables Directive.

(c) Royal Decree-Law 6/2009

101.
Shortly after the adoption of the 2009 Renewables Directive, on 30 April 2009, Royal Decree-Law 6/2009 ("RDL 6/2009") was enacted by Spain.53 RDL 6/2009 recognised the existence of a "growing tariff deficit" in Spain and defined it as "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."54 RDL 6/2009 further noted that the deficit was 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."55
102.
Because of the "unsustainable" imbalance, which "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," RDL 6/2009 recognised the "need to adopt an urgent measure that serves to guarantee the necessary legal security of those who have made investments."56
103.
To tackle the tariff deficit, RDL 6/2009 set yearly limits from 2009 to 2012 on the amount the tariff deficit could grow.57 RDL 6/2009 also established that from 1 January 2013, access tariffs should be sufficient to meet the entire cost of regulated activities without ex ante deficit.58 It thus required an increased regulated portion of the prices of the end user electricity so as to comply with the tariff deficit yearly limits.59
104.
Article 4 of RDL 6/2009 also introduced a pre-assignment register mechanism ("PreAssignment Register") and stated that enrolment in the Pre-Assignment Register was a necessary condition to benefit from the economic regime established in RD 661/2007.60 The Pre-Assignment Register was a prior step to the RAIPRE registration and qualifying under the RD 661/2007 economic regime. Further, pursuant to RDL 6/2009, RE projects had to meet certain criteria in order to be registered. Once registered with the Pre-Assignment Register, facilities had a limit of 36 months to be registered with RAIPRE and enter into commercial operation to be able to benefit from the RD 661/2007 economic regime.
105.
The Council of Ministers adopted on 24 November 2009 a resolution establishing a timetable classifying installations in four different phases with a view to establishing the progressive entry into operation of those facilities and allow a more controlled commissioning of wind plants.61

(d) The Purported 2 July 2010 Agreement

106.
On 2 July 2010, the Spanish Government issued a press release in which it stated that the Ministry of Industry, Tourism and Commerce had reached an "agreement" with the wind power sector, including the Wind Power Business Association ("AEE"), to revise their rate structures.62 The Claimants and the Respondent are in disagreement as to the nature of the 2 July 2010 "agreement".
107.
In the 2 July 2010 press release, the Government declared that there would be a fixed limit to the numbers of hours during which wind facilities could benefit from the FIT and that it would apply a reduction to the Premium of 35% until 1 January 2013.63

(e) Royal Decree 1614/2010

108.
On 7 December 2010, Spain adopted Royal Decree 1614/2010 on "regulating and modifying certain aspects relating to the production of electricity based on thermoelectric and wind technologies" ("RD 1614/2010").64 RD 1614/2010, which applied to qualifying wind installations, introduced, inter alia, a limit on operating hours per year benefitting from the FIT pursuant to RD 661/2007.65 RD 1614/2010 also established the reduction by 35% until 1 January 20 1 3.66 Thereafter, the full premium regime under RD 661/2007 would apply to all qualifying wind installations.67
109.
Furthermore, Article 5 of RD 1614/2010 provided as follows:

[f]or wind technology facilities adhered to Royal Decree 661/2007, of 25 May, the revisions of the 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 to those that would have been registered in the Remuneration Pre-assignment Registry under the fourth transitional provision of Royal Decree-Law 6/2009, of 30 April, and that were to meet the obligation envisaged in article 4.8 thereof.68

110.
In other words, reviews under Article 44(3) of RD 661/2007 would depend on whether the installations were definitely registered with the RAIPRE as of 7 May 2009 or whether they satisfied the requirements for registration in the Pre-Assignment Register.

3. The Disputed Measures

111.
The following section describes a series of measures adopted by Spain beginning 2012, which are at issue in the present arbitration.

(a) Law 15/2012

112.
On 27 December 2012, Spain adopted Law 15/2012 on "Tax Measures for Energy Sustainability," which entered into effect on 1 January 2013 ("Law 15/2012").69
113.
Pursuant to its Preamble, Law 15/2012 meant to "harmonise" Spain's tax system through "a more efficient and respectful use of the environment and sustainable development [and] bring it into line with the basic principles that govern the tax, energy and of course the environmental policy of the European Union."70
114.
Among other tax measures, Law 15/2012 introduced a 7% levy on "the total amount that corresponds to the tax payer for the production of electricity and its incorporation into the electricity system, measured at power station bus bars, for each facility, in the tax period."71 This levy, known as the "Impuesto sobre el valor de la producción de energía eléctrica" ("TVPEE") applied to all electricity production facilities, whether they were registered under the Ordinary Regime or Special Regime.
115.
According to the Respondent, the impact of the TVPEE on RE producers "has been neutralized" because the "the specific remuneration received by renewable producers enables them to recover certain costs that, unlike conventional technologies, cannot be recovered in the market, and, also, to obtain a reasonable return. Among those costs is precisely the TVPEE."72 For Claimants, the 7% levy is a "disguised tariff cut for RE installations and an additional limitation to the RD 661/2007 economic regime."73

(b) Royal Decree-Law 2/2013

116.
On 1 February 2013, Spain adopted Royal Decree-Law 2/2013 "concerning urgent measures within the electricity system and the financial sector" ("RDL 2/2013").74
117.
RDL 2/2013 introduced several measures, two of which are impugned by the Claimants. First, RDL 2/2013 reduced to zero the amount of the premium that both existing and future installations expected to receive as a supplement to the market price for electricity under Article 36 of RD 661/2007.75 Thus, facilities under the Special Regime were forced to receive the fixed tariff.
118.
Second, RDL 2/2013 introduced a change to the inflation index applicable to the FIT. RDL 2/2013 provided that tariffs applicable to the electricity sector would no longer be updated by reference to the CPI but rather, to the "CPI at constant tax rates, excluding unprocessed foods and energy products" as of 1 January 2013.76 According to the Claimants, the impact of this measure on the Claimants’ investments was "limited."77
119.
On 19 February 2015, the Spanish Constitutional Court dismissed a challenge against RDL 2/2013, upholding its constitutionality.78 On 26 March 2015, the Supreme Court upheld the legality of the RDL 2/2013.79

(c) Royal Decree-Law 9/2013

120.
On 12 July 2013, the Government enacted Royal Decree-Law 9/2013 adopting urgent measures "to guarantee the financial stability of the electricity system" ("RDL 9/2013"), which entered into force on 14 July 2013.80 Pursuant to its Preamble, the objective of RDL 9/2013 was to introduce:

a series of measures which are urgent, balanced, proportional and reaching, aimed at guaranteeing the financial stability of the electricity system as an unavoidable prerequisite for the economic sustainability thereof and to ensure a secure supply, and which are addressed to all electricity sector activities.81

121.
RDL 9/2013 made substantial modifications to the 1997 Electricity Law, by repealing RD 661/2007 and establishing a new remuneration regime for RE facilities, which applied to both existing and new installations. For the Claimants, the regime under RDL 9/2013 ("New Regime") represented a "complete overhaul of the Special Regime."82 According to the Claimants, the New Regime "resulted in a 41% reduction in the Claimants' cash flows."83
122.
In particular, the New Regime amended Article 30(4) of RD 661/2007 as follows:

4. Additionally, subject 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.

For the calculation of that specific remuneration, the following elements shall be considered, based on the installation’s regulatory useful life and by reference to the activities carried out by an efficient and well administered business:

a) The standard revenues for the sale of generated energy valued at market price of production;

b) The standard exploitation costs; and

c) The standard value of the initial investment.

To that effect, the costs or investments determined by laws or administrative regulations that do not apply to the Spanish territory shall not be considered in any case. In the same manner, only those costs and investments related to the activity of electric energy generation can be taken into account.

As a result of the individual characteristics of the electricity system in the Spanish islands or the extra-peninsular territories, a standard installation for each of those electricity systems may be defined.

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.84

123.
By repealing RD 661/2007, RDL 9/2013 repealed the remunerative scheme for RE producers based on the Regulated Tariff or a premium in addition to electricity market prices.85 Under the New Regime, RE producers were to receive a "Special Payment" taking into account the following elements: (i) the "standard revenues for the sale of generated energy valued at market price of production;" (ii) the "standard exploitation costs;" and (iii) the "standard value of the initial investment."86
124.
RDL 9/2013 also provided that the parameters of the remuneration regime could be revised every six years.87 Further, the "reasonable rate of return" for facilities benefitting from the FIT as of the effective date of RDL 9/2013 was to be "referenced, before tax, to the average yield during the ten years prior to the this Royal Decree-Law coming into effect from ten-year Government Bonds in the secondary market, increased by 300 base points."88
125.
On 17 December 2015 and 18 February 2016, Spain's Constitutional Court dismissed challenges against certain provisions of RDL 9/2013.89

(d) Law 24/2013

126.
On 26 December 2013, Spain adopted Law 24/2013 on the Electricity Sector, which replaced Law 54/1997 ("Law 24/2013").90 In its Preamble, Law 24/2013 says that Law 54/1997 "has proven to be insufficient in terms of guaranteeing the financial balance of the system, amongst other reasons because the system for paying or rewarding regulated activities is lacking in the necessary flexibility for its adaptation to cope with the significant changes pertaining to the electric system or in economy trends."91
127.
Law 24/2013 incorporated and extended the economic regime established in RDL 9/2013. Notably, Law 24/2013 formally eliminated the distinction between the Ordinary Regime and Special Regime.92
128.
Further, Article 14(4) of Law 24/2013 provided that, in the New Regime, "remuneration parameters" for RE projects would remain valid for regulatory periods of six years, and could be "revised prior to the start of the regulatory period."93 Pursuant to Article 14(7), the remuneration mechanism would be calculated to provide reasonable profits for the installations and would rely on (i) the standard revenue from the energy produced (revised every three years for the rest of the regulatory period); (ii) the standard operating costs; and (iii) the standard value of the initial investment.94 It further established that the "reasonable return" was to be calculated throughout the "regulatory life of the plant."95
129.
Law 24/2013 did not however fully define the economic regime under the New Regime. As described below, additional implementing measures were required to define the applicable economic regime for RE installations.

(e) Royal Decree 413/2014 and Ministerial Order MO IET/1045/2014

130.
On 6 June 2014, Spain adopted Royal Decree 413/2014 "regulating the production of electricity from renewable energy sources, cogeneration and waste" ("RD 413/2014").96 This regulation was adopted to implement the new regime set forth by Law 23/2014.
131.
Among other measures, RD 413/2014 established the formulas for calculating the two components of the Special Payment under the new regime: (i) a remuneration per MW of installed capacity; and (ii) a remuneration per MWh of electricity produced to cover the operating costs that cannot be met by market prices.97 RD 413/2014 also subjected the Special Payment to certain thresholds of operating hours.98
132.
RD 413/2014 also provided that the "remuneration parameters" could be revised at the end of each "regulatory period" of six years but also at the end of each "semi (regulatory) " period of three years.99
133.
On 16 June 2014, the Ministry of Industry and Tourism issued Ministerial Order IET/1045/2014 to further implement the New Regime and define the applicable economic regime for RE producers (" June 2014 Order").100 The June 2014 Order approved the remuneration parameters of standard installations for the production of electricity from RE sources, co-generation and waste. Notably, the June 2014 Order fixed the reasonable return for existing installations at 7,398% pre-tax.101

B. Claimants’ Investment in Wind Farms

134.
According to the Claimants, in 2011, Watkins Spain, Redpier and Northsea "acquired the entire share capital" of the Marmellar SL and La Boga SL.102 Marmellar SL holds the wind farm known as Parque Eólico Marmellar (49.5 MW) ("Parque Marmellar") and La Boga SL holds the following seven wind farms:

1. Parque Eólico Lodoso (49.5 MW) ("Parque Lodoso");

2. Parque Eólico El Perul (49.6 MW) ("Parque El Perul");

3. Parque Eólico La Lastra (11.69 MW) ("Parque La Lastra");

4. Parque Eólico Lora 1 (49.6 MW) ("Parque Lora 1");

5. Parque Eólico Lora 2 (49.6 MW) ("Parque Lora 2");

6. Parque Eólico Sargentes (24 MW) ("Parque Sargentes"); and

7. Parque Eólico Arroyal (49.5 MW) ("Parque Arroyal" and, together, the "Wind Farms").103

135.
The Wind Farms are located in the province of Burgos, in the autonomous region of Castilla y León and have a total installed production capacity of 332.99 MW. Marmellar SL and La Boga SL are jointly referred to as the "Project Companies."104
136.
The Claimants are affiliates of Bridgepoint Advisers Limited ("Bridgepoint"), a private equity firm that invests in different sectors in Europe.105 According to the Claimants, Bridgepoint’s strategy is to "acquire controlling stakes in companies with a strong market position and potential for growth in the long term through: (i) operational improvement; (ii) refocusing of strategies; and (iii) the acquisition of additional companies which can be consolidated with the initial investment."106
137.
According to the Claimants, in May 2011, the Claimants were "approached by the corporate finance departments of Société Générale and Mediobanca regarding the opportunity to invest in a portfolio of wind farms being divested by the Spanish construction conglomerate Actividades de Construcción y Servicios (ACS) " and were provided with an information memorandum, which contained general information on investing in the wind facilities in Spain.107 The Wind Farms, which were registered with RAIPRE, would be held by a newly-incorporated company, Borawind Energy, S.L. ("Borawind").108
138.
The Claimants commissioned a series of due diligence reports, including a report by the Boston Consulting Group ("BCG") to analyse the "sustainability of the regulatory report."109 The Claimants also received a final technical due diligence report from Garrigues on 22 July 2011, a final tax due diligence report from KPMG on 27 July 2011 and an executive report on the legal due diligence from Allen & Overy on 2 August 2011.110
139.
On 12 August 2011, the sale and purchase agreement between the Wind Farms vendor and various entities controlled by Bridgepoint was signed.111 Further, on 8 May 2012,

"upon fulfilment of the conditions precedent applicable to the Wind Farms, the entire share capital of the Project Companies were transferred to Watkins Spain, Redpier and Northsea."112 On the same day, according to the Claimants, "the intragroup loans in place between the Project Companies and the sellers were transferred to Watkins Holdings, Redpier Holdings S.à r.l. and Northsea Holdings S.à r.l."113

140.
The Claimants paid EUR 91 million for the Wind Farms, including equity and intragroup loans.114 The construction of the Wind Farms was financed through "(i) project finance agreements; (ii) shareholders' undertaking agreements; (iii) intragroup loan agreements and profit participative Sloan agreements; and (iv) comfort letters."115

V. JURISDICTION

141.
The Respondent raises two general objections to the Tribunal’s jurisdiction.

First, Spain asserts that the Tribunal lacks ratione personae jurisdiction because the law of the European Union ("EU") precludes the applicability of the ECT to disputes involving investments in an EU state by EU investors (the intra-EU Objection);

Second, Spain contends that the 7% TVPEE, created by Law 15/2012 of 27 December 2012 on fiscal measures for energy sustainability, is a tax measure which falls outside the scope of protection of the ECT (the TVPEE Objection).

A. The Intra-EU Objection

1. The Respondent’s Position

142.
Spain submits that the Tribunal does not have jurisdiction ratione personae because the ECT does not apply to disputes involving investments made within the EU by investors from other EU countries (intra-EU investors). Spain advances several arguments in support of its position laid out below.

(a) Existence of an "Investor" from "another Contracting Party"

143.
Spain recalls that Article 26(1) of the ECT requires that the dispute submitted to arbitration occur between "a Contracting Party and an investor of another Contracting Party."116 Noting that the Claimants, on the one hand, are nationals of Luxembourg, the Netherlands,117i.e. EU Member States, and the Respondent, on the other hand, is also a national of the EU— itself a party to the ECT—, Spain concludes that this "inevitably implies the exclusion of [Article 26(1) of the ECT] 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."118

(b) Relationship between EU law and the ECT

144.
The Respondent alleges that the Claimants’ investment is made within the internal market in electricity of the EU which confers protection on EU-investors which is "preferential to the protection conferred by the ECT and any BIT." Since both Spain and the Claimants were already EU Member States when the ECT was concluded, "they had transferred their sovereignty to the [EU]"119 with respect to the energy market, Spain explains, and were thus no longer able "to contract obligations between themselves"120 related to this area.
145.
The Respondent further alleges that EU law forbids the existence of any dispute settlement mechanism other than those established by EU treaties. If the Tribunal was to decide on this matter, it would be "interfering with the competence of the judicial system of the EU."121
146.
In this context, the jurisdictional system of the EU, Spain maintains, has "the monopoly" on "the latest interpretation of EU Law,"122 and the EU prevents the settlement of intra-EU disputes by "any dispute settlement mechanism other than that established by its Treaties, which may interfere with the bases of the Internal Market."123
147.
Citing Costa v. ENEL, the Respondent argues that the foregoing stems from "the essential principle on which the objection to the jurisdiction of the Arbitral Tribunal is raised," that is to say, "the principle of primacy of EU law."124
148.
Further, according to Spain, that "the intra-EU investor protection system prevails over any in any other international treaty" does not arise solely from the specific attributes of the EU, but it also has "its literal recognition in the ECT itself."125 The Respondent finds support for its position in an "effective interpretation"126 of the ECT's wording, context and purpose, referring, in particular, to the ECT's provisions pertaining to Regional Economic Integration Organizations (the "REIOs").
149.
The Respondent relies, inter alia, on several provisions of the ECT to support this argument. For example, Article 1(2) of the ECT, which defines the Contracting Party as "a state or [REIO] which has consented to be bound by this Treaty and for which the Treaty is in force."127 Another article invoked by Spain is Article 1(3) of the ECT, which defines a 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."128 According to Spain, this provision demonstrates that the ECT expressly recognises that the EU may exercise sole competence with respect to certain matters, "because its Member States no longer have competence to do so."129 In this regard, Spain notes that the EU is the only REIO that is part of the ECT. Spain continues its allegation on the interpretation of the ECT by referring to Article 25 of the ECT, which provides that the ECT's most-favuored-nation treatment obligations do not extend to preferential treatment accorded to members of an Economic Integration Agreement eliminating or prohibiting discriminatory measures among its members. In Spain's view, Article 25 of the ECT recognises the principle of primacy of EU law in intra-EU relations and acknowledges that "the process of economic integration in the EU is more advanced than that of the ECT and ultimately more favorable to the investor."130 Article 36(7) of the ECT accords to a REIO a number of votes equivalent to the number of its member States when voting on matters as to which the REIO has competence. In this context, Spain submits that the decision "as to who is the competent Contracting Party in each matter is not the responsibility of the Arbitral Tribunal, but of the CJEU."131
150.
Moreover, Spain invokes Article 26(6) of the ECT in support of its argument that the law applicable to the present dispute is "this Treaty and applicable rules and principles of international law," which, Spain maintains, includes EU law.132 In this context, Spain quotes Electrabel v. Hungary:

[...] the Tribunal concludes that Article 307 EC precludes inconsistent preexisting treaty rights of EU Member States and their own nationals against other EU Member States; and it follows, if the ECT and EU law remained 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.133

151.
Spain also refers to Article 344 of the Treaty on the Functioning of the European Union the "TFEU"), which provides that "Member States undertake not to submit a dispute concerning the interpretation or application of the Treaties to any method of settlement other than those provided for therein."134
152.
In Spain's view, this provision prevents Spain from submitting any matters related to the harmonised internal electricity market to arbitration.135 Admitting this possibility, Spain contends, would mean that the Tribunal would have to rule upon the rights of EU investors in the internal market.136 In this respect, Spain points out that the Court of Justice of the European Union (the "CJEU") had already opined that such situation would be incompatible with EU law because the CJEU has exclusive jurisdiction over the interpretation of EU law.137
153.
Likewise, Spain considers that its position is in line with that of the Commission, which "has reiterated that arbitration is not applicable as a mechanism of dispute resolution ever since the first intra-community disputes arose relating to BITs."138 In the same vein, Spain invokes supportive writings which state, inter alia, that "there seem to be good reasons for the Commission to push for ensuring that EU law is the only regime governing investment flows within the European market and that the [CJEU] is the only ultimate instance for interpreting and applying these rules. "139
154.
In further support of its position, the Respondent alludes to the purpose of the ECT, which, according to its interpretation, was not intended to "cover an area, that of intra-EU investments, which had been totally covered—and in a far superior manner—-for years by EU Law."140 Rather, the ECT’s objective "lies in the wish of the Council of the then EC to speed up the economic recovery of Eastern Europe after the fall of the Berlin Wall through cooperation in the energy sector."141
155.
Finally, Spain concludes its intra-EU Objection by referring to the Commission’s decision in Micula v. Romania, implying that the Commission might regard any monetary award by the Tribunal in favour of the Claimants as impermissible State aid, incompatible with EU law.142
156.
In support of this argument, Spain provided further evidence in its Rejoinder indicating that the Commission’s Decision in the State aid procedure SA.40348 (20151NN) from November 2017 which declared the incompatibility of the measures in dispute with EU Law.143

(c) Disconnection clause

157.
Quoting the Opinion 1/03 of the Commission,144 the Respondent notes that it is irrelevant that the ECT does not contain an express disconnection clause when such a clause is related to covered areas where there has been total harmonization.145
158.
In its Post-Hearing submissions, the Respondent raised the disconnection clause to address Claimants’ argument that "the conflict between EU law and Article 26 of the ECT should be solved by applying Article 16 of the ECT."146 Spain’s contention is that Article 26(6) requires the Tribunal to apply EU law in this dispute which in turn makes this article the "disconnection clause"147 Respondent further clarified that it intends for the ECT to be applied "with all its consequences, which include the lack of jurisdiction of the Arbitral Tribunal to hear intra-EU disputes concerning a key institution in European law: State Aid. "148

(d) Relevance of previous awards

159.
Spain denies the adequacy of the Claimants’ assertion that all international investment tribunals dealing with the intra-EU objection have rejected it. In Spain’s view, these cases must be distinguished either because (i) they involve bilateral investment treaties and not the ECT, which is signed by the EU; or (ii) they concern obligations assumed by States that were not yet members of the EU when they signed the ECT; or (iii) they do not consider the principle of primacy of EU law.149
160.
First, in Spain's view, the tribunal in Eureko v. Slovakia, invoked by the Claimants, expressly recognised the "inability to extrapolate its findings to treaties such as the ect."150
161.
Second, Spain also differentiated the Electrabel v. Hungary case where the respondent State signed the ECT when it had not yet joined the EU. According to Spain, Hungary, unlike Spain, Luxembourg and the Netherlands, was thus able to enter into obligations under Part III of the ECT.151
162.
Third, PV Investors v. Spain, Charanne v. Spain, RREEF v. Spain, Isolux v. Spain and Eiser v. Spain must all be distinguished, Spain maintains, on the basis that they fail to examine an "essential element of [Spain's] objection," the principle of primacy of EU law.152 In this regard, Spain underlines that it is precisely requesting an express pronouncement from the Tribunal about the "validity and application" of the principle of primacy of EU law.153
163.
In its Counter-Memorial and Rejoinder, Spain noted that it "maintain[ed] this jurisdictional objection" until the CJEU resolves two cases pending before it and pertaining to the compatibility between intra-EU BITs and EU law, Achmea and Micula v. Romania. Spain considers that the Tribunal shall also bear in mind several Commission's decisions on the aid systems of Spain and the Czech Republic regarding renewable energy, in which the Commission held that arbitration was incompatible with EU law.154
164.
In its Post-Hearing submission, Spain further developed its arguments on the Achmea based on the decision of 6 March 2018.155 Spain argues that the three prerequisites of the Achmea case are also present in this case. The first refers to "whether the disputes which the [] Tribunal is called on to resolve are liable to relate to the interpretation or application of EU law."156 Spain argues that the "dispute concerns [...] fundamental freedoms of EU [and]. State Aid" and that the first prerequisite is "met in the case at hand."157
165.
Regarding the second prerequisite, on the principle of autonomy, Spain says that the Tribunal is not a court because it "lacks permanence, state nature, and mandatory competence," which results in that it does not belong to the EU judicial system and "cannot make a reference for a preliminary ruling to the CJEU."158
166.
Finally, the third prerequisite, a decision of this Tribunal would only allow for review by an ad hoc Committee which is contrary to EU law which requires that arbitral awards be subject to review by a court of a Member State.159

2. The Claimants’ Position

(a) Existence of an "Investor" from "another Contracting Party"

167.
According to the Claimants, "both the EU and its Member States are Contracting Parties to the ECT and may be subject to claims brought by Investors from other Contracting Parties," including the different Member States of the EU.160

(b) Relationship between EU law and the ECT

168.
For the Claimants, nothing in Article 26 of the ECT could be construed as to prohibit intra-EU disputes.161 The plain meaning of Article 26 provides for the constant intent of the Contracting Parties to the ECT to provide their "unconditional consent to arbitration."162
169.
The Claimants further dispute that the ECT provisions pertaining to REIOs cited by Spain demonstrate that the ECT excludes intra-EU claims.163 The text of these Articles, the Claimants maintain, "is clear and can in no way be construed to deprive EU Investors of the right to bring a claim against EU Member States under Article 26 of the ECT."164
170.
Moreover, the Claimants deny Spain's contention that Article 344 of the TFEU precludes the submission of intra-EU disputes to arbitration pursuant to Article 26 of the ECT. In the Claimants' view, "a plain reading of Article 344 of the TFEU shows that it applies only to disputes involving two or more EU Member States" and it "does not refer to investor-State arbitration"" This was confirmed, according to the Claimants, by the tribunals in, inter alia, Eiser, Electrabel and Charanne.165
171.
The Claimants also specify that, contrary to Spain's stance, the subjective intentions of the EU and its Member States are irrelevant to an interpretation of Article 26 of the ECT.166 Yet, the Claimants observe, even if it were permissible to interpret Article 26 of the ECT in such fashion, "there is nothing within the provisions of EU law that could be understood to override the rights granted in Article 26 of the ECT." Referring to Electrabel, Eastern Sugar, Charanne and RREEF, the Claimants contend that "the ECT grants investors rights that are additional to any other rights provided by the internal market and that there is no inconsistency between EU law and the ECT."167
172.
In this respect, the Claimants add that "[e]ven if the ECT and EU treaties were found to cover the same subject matter, Article 16 of the ECT provides that the provision more favourable to the investor shall apply." Accordingly, "if there were a provision of the EU treaties prohibiting Investor-State arbitration (which there is not), Article 26 would prevail."168 In their Rejoinder, the Claimants highlight that EU law does not offer investors the recourse to international arbitration, whereas the ECT does; and that "the right of qualifying Investors such as the Claimants to bring their claims under the ECT is "favourable" precisely because it de-politicises the dispute by removing it from the purview of Spain's national courts."169

(c) Disconnection clause

173.
According to the Claimants, "ECT, the EU and its Member States did not negotiate a [disconnection] clause for their inter se relationships"170 and reading an implicit intra-EU disconnection clause into the ECT is irreconcilable with the ordinary meaning of the ECT.
174.
While noting that "the Respondent does not maintain the existence of an explicit or implicit disconnection clause," and that it "is a point on which the Parties now agree,"171 the Claimants contend that Spain continues to rely on the Commission’s opinion that the ECT contains an implicit disconnection clause without, however, explaining in what context it relies on it.
175.
In its Post-Hearing submission, the Claimants noted on the basis of a recent decision that the "absence of a disconnection clause in the ECT is telling,"172

(d) Relevance of previous awards

176.
The Claimants argue that there have been, to date, no fewer than fifteen tribunals that have considered and rejected the intra-EU argument.173 The Claimants note that in six of these cases, the respondent State was Spain.174 Spain's attempts to distinguish these awards are, in the Claimants' view, unavailing.
177.
Further, the Claimants reject the Respondent's unsupported contention that there are two categories of Contracting Parties under the ECT, i.e. the "old" and "new" EU Member States.175 The Claimants assert that this contention is unhelpful to Spain because it would mean that Article 26 would only be applicable to intra-EU disputes "so long as either the home State of the claimant-investor or the respondent-host State was not an EU Member State at the time the ECT was signed."176 For the Claimants, this interpretation is not supported in the text, object or purpose of the ECT.177
178.
As regards the Achmea and Micula v. Romania cases invoked by the Respondent regarding the compatibility between BITs and EU law, the Claimants note the following:

• As for Achmea, the Claimants note that the CJEU has ruled on the matter in its recent judgment of 6 March 2018, and held that the submission to arbitration set forth in Article 8 of the BIT between the Netherlands and Slovakia is incompatible with EU law. According to the Claimants, the case must however be distinguished because "(i) the CJEU only addresses a BIT and not the ECT, a circumstance which the CJEU itself goes out of its way to highlight; and (ii) the CJEU's decision is not binding on this Tribunal which, as confirmed by numerous arbitral precedents, is not called upon to apply EU law."178 The Claimants further explain that there are several differences between the Netherlands-Slovakia BIT and the ECT. The Claimants analyse that in this case, "[Article 26(6) ] provides that disputes shall be solely resolved on the basis of (i) the ECT and (ii) applicable rules of international law."179 This Tribunal would then not be called to apply EU law.180 The Claimants further argue that, different from the Achmea case, this case is "been brought before ICSID,"181 the question before the CJEU "has no relevance in this ECT arbitration"182 as Spain, The Netherlands and Luxembourg had already acceded the EU when the ECT was ratified, and "the Tribunal derives its jurisdiction from the ECT and it is not bound by the decisions of European Institutions."183

As for Micula v. Romania, the Claimants observe that Spain fails to mention that no Intra-EU Objection was raised by Romania in the Micula v. Romania jurisdictional proceedings, that the objection was only raised by the Commission, intervening as a non-disputing party, during the annulment proceedings, and that the ad hoc committee dismissed the Commission’s submission, holding that the tribunal had not lacked jurisdiction to hear the Claimants’ claims. The Claimants also note that Spain refers to an application to the CJEU to annul the Commission’s decision of 30 March 2015 on the non-enforceability of the arbitral award in Micula v. Romania, payment of which has been deemed by the Commission to constitute illegal State aid. For the Claimants, the application relates to whether the enforcement within the EU of an arbitral award pursuant to Article 54 of the ICSID Convention could be considered incompatible with EU law; it does not concern jurisdiction-related matters.

179.
Further, for the Claimants, Spain's references to the Commission's decisions on support schemes are irrelevant since, as held in Charanne, "the question of whether a certain support scheme could constitute incompatible State aid under EU law could only possibly affect the merits of the relevant dispute, not jurisdiction, and then only at the enforcement stage of the proceedings."184

3. Tribunal’s Analysis

(a) Existence of an "Investor" from "another Contracting Party"

(b) The primacy/prevalence of EU law argument

(c) Disconnection clause

(d) Relevance of previous awards

(i) First line of argumentation: Achmea's solution is ill-grounded

(ii) Second line of argumentation: Achmea is not pertinent in a multilateral treatybased context

(iii) Third line of argumentation: Achmea's solution has no bearing in another legal order

4. The Tribunal’s Decision

B. The Tax Objection

1. The Respondent’s Position

227.
The Respondent contends that the Tribunal lacks jurisdiction to hear the dispute over the tax measures that Spain had adopted through the introduction of the TVPEE by Law 15/2012, which, according to the Claimants, resulted in the breach of Spain’s obligations under Article 10(1) of the ECT.224 Spain’s main arguments in support of its Tax Objection are described in seriatim below.

(a) Spain’s consent to arbitration is restricted to disputes pertaining to alleged violations of obligations derived from Part III of the ECT

228.
According to Spain, under Article 26 of the ECT, it "[has] only consented to submit to investment arbitration alleged breaches of obligations derived from Part III of the ECT."225 Yet, pursuant to Article 21 of the ECT, Spain maintains, "section (1) of Article 10 of the ECT, invoked by the Claimants, despite being located in Part III of the ECT, does not give rise to obligations with regard to taxation measures of the Contracting Parties."226

(b) The ECT does not impose obligations regarding tax measures of the Contracting Parties

229.
Spain supports this objection on, inter alia, Articles 21(1) and 21(7) (a) of the ECT.

Article 21(1) provides:

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.227

230.
While Article 21(7) reads as follows:

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;...228

231.
Spain contends that the ECT does not impose obligations or create rights with respect to the Contracting Parties' tax measures so there is a general exclusion of taxation measures from the scope of the ECT (taxation carve-out) unless it is included in the expressly defined exceptions under Article 21 of the ECT (claw-backs).229
232.
Sections (2) through (5) are as follows:

2) Article 7(3) shall apply to Taxation Measures other than those on income or on capital, except that such provision shall not apply to: [...]

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 (8) 63 shall apply to Taxation Measures other than those on income or on capital.

5) (a) Article 13 shall apply to taxes.

b) Whenever an issue arises under Article 13, to the extent it pertains to whether a tax constitutes an expropriation or whether a tax alleged to constitute an expropriation is discriminatory, the following provisions shall apply: [...]230

233.
Referring to these exceptions, Spain observes that "none of the exceptions [...] by which taxation measures are included in the scope of protection of the ECT comprises section (1) of Article 10 of the ECT."231 Accordingly, Spain concludes, "section (1) of Article 10 of the ECT, on which the Claimants try to base their claims, does not impose any obligations for the Contracting Parties regarding taxation measures."232
234.
Spain concedes that the only sections of Article 10 of the ECT that do apply to taxation measures are sections (2) and (7), however, the Claimants support their claim on Section 10(1). Consequently, section (1) of Article 10 of the ECT invoked by Claimants, is not applicable to taxation measures.233

(c) The TPVEE is a tax measure for the purposes of the ECT

235.
According to Spain, there are two possible interpretations of the above-mentioned provision of the ECT for the purposes of determining whether a challenged measure is a "tax measure" and falls under the scope of the ECT's taxation carve-out: either (i) the measure must be defined in reference to the domestic law of the Contracting Party, or (ii) it must be defined from the perspective of international law.234
236.
Spain submits that, in accordance, inter alia, with arbitration case law,235 the wording of Section (7) (a) (i) of Article 21 of the ECT itself, or Article 3 of the double taxation Convention between Spain and Luxembourg, the Tribunal shall adopt the first interpretation.236 Notwithstanding this recommendation, Spain remarks that "to the extent relevant for this arbitration, either of the two stated interpretations of Article 21(7) (a) (i) of the ECT leads us to conclude that the TVPEE is a tax."237
237.
First, in regards to the TVPEE being a tax under the domestic law, Spain contends that Law 15/2012 is domestic law, approved by the Spanish Parliament in accordance with the ordinary legislative procedure governed by Spanish law.238 Spain further alleges that Law 15/2012 "is clear about the taxation nature of the TVPEE,"239 which was also ratified by the Spanish Constitutional Court.240 On the latter, Spain refers to the Spanish Constitutional Court Judgment of 6 November 2014 which dismissed an appeal against the TVPEE and declaring the "TVPEE regulation contained in Law 15/2012 as perfectly valid and in accordance with the Spanish Constitution."241
238.
Second, with respect to international law, Spain affirms that the TVPEE also has the characteristics of a tax measure under international law (i) as interpreted by international investment tribunals,242 and (ii) confirmed by the European Commission, which had specifically ratified the tax nature of the TVPEE and its compliance with EU law.243 Thus, Spain concludes, "there is no doubt that the TVPEE is a tax, both from the perspective of Spanish law and from the perspective of international law."244
239.
In the light of the foregoing, Spain concludes that "the provisions relating to the TVPEE of Law 15/2012 are provisions relating to taxes of the domestic law of the Kingdom of Spain,"245 and, accordingly, the TVPEE is a tax for the purposes of the ECT.246

(d) The TPVEE is a bona fide tax measure for the purposes of the ECT

240.
In its Rejoinder, Spain asserts that, to determine whether the TPVEE is a taxation measure for the purposes of the ECT, the Tribunal only needs to analyse whether the TPVEE falls within the ECT definition. It does not, according to Spain, need to examine the bona fide nature of the tax, including its economic effect, as urged by the Claimants.247
241.
In this context, Spain distinguishes the case of Yukos, invoked by the Claimants, noting that it involved "extraordinary circumstances," and, as a result, "the analysis of the good faith of the taxation measures undertaken in the Yukos case is not applicable to the present case."248
242.
Spain further refers to EnCana v. Ecuador to stress that the Tribunal is only to consider the "legal operation" of a taxation measure, and not its "economic effect."249
243.
However, should the Tribunal proceed with the additional analysis suggested by the Claimants to determine whether the TPVEE falls within the taxation carve-out under Article 21 of the ECT, in Spain's view, it must only conclude that the TPVEE is a bona fide tax.250 Spain advances three arguments in support of this assertion.
244.
First, Spain sustains that the TVPEE, as a tax of general application, applies to all energy producers, both renewable and conventional.251 It applies to all producers without distinction. The general application, according to the Respondent, is a legitimate option of the legislator, which has been recognised by the Spanish Constitutional Court.252 Spain further argues that the fact that the TVPEE equally applies to conventional as well as to renewable producers, "without including tax benefits for renewable producers, cannot be construed in any way as the reason to deny the bona fide nature of this taxation measure."253
245.
Second, in response to the Claimants' contention that RE producers, as opposed to conventional producers, are unable to pass the tax to the consumer results in the TPVEE being discriminatory, the Respondent alleges that it is not discriminatory from the perspective of its legal consequence or economic consequence. On the legal consequence, Spain explains that the TPVEE is a direct tax that is not passed on by taxpayers, whether they are producers of renewable or conventional energy.254 On the economic consequence, Spain argues that there is no discrimination between conventional and renewable energy producers because both would recover the amount of the TVPEE through the market price.255
246.
Third, to counter the Claimants’ assertion that the TPVEE constitutes a disguised tariff cut, Spain notes that the TVPEE is a public income included in the General State Budget,256 which contributes to the State resources for financing of public expenditures.257 Spain highlights that an amount equivalent to the estimated annual collection deriving from the taxes included in Law 15/2012, among them the TVPEE, is destined to the promotion of RE.258 In other words, Spain maintains, "the purpose of the TVPEE is to raise revenue for the Spanish State for public purposes."259
247.
Spain also referred the Tribunal to the decisions in Isolux and Eiser, in which, according to Spain, the tribunals agreed with Spain’s position when declaring their lack of jurisdiction to hear disputes regarding the alleged breach of obligations derived from Section (1) of Article 10 of the ECT resulting from the enactment of the TVPEE by Law 15/2012.260
248.
In its Post-Hearing brief, Spain affirms its position that the tribunal lacks jurisdiction to hear the claim of an alleged breach of Article 10(1) by the enactment of the TVPEE and further notes that "all Awards rendered so far in Spanish cases have upheld this Jurisdictional Objection."261

2. The Claimants’ Position

(a) The "taxation carve-out" under Article 21 of the ECT only applies to bona fide taxes

249.
According to the Claimants, Spain's arguments aimed at establishing the TVPEE's character as a "tax" under domestic law are irrelevant.262 Instead, the question is whether the taxation measure is bona fide and therefore entitled to the benefit of the taxation carve-out under Article 21 of the ECT.
250.
In the Claimants' view, the basis for the requirement under Article 21 is that taxation measures must be bona fide derived from the basic principle of good faith in international law. The Claimants argue that Spain cannot avail itself of the exemption under Article 21 if the measure is disguised as a tax with the ultimate intent to achieve another purpose.263 On this argument, the Claimants call the Tribunal's attention to the text of Article 21 and the Yukos case to conclude that the fact that a measure is labelled as a tax does not imply that the taxation carve-out applies.264
251.
The Claimants also contend Respondent's interpretation of the EnCana v. Ecuador case asking the tribunal to consider only the "legal operation" of the taxation measure and not the "economic effect. "265 The Claimants point out that the EnCana tribunal noted that "arbitrary measures would not qualify for exemption under the taxation carve-out contained" in the corresponding BIT.266
252.
The Claimants contend that there is a clear distinction between bona fide and abusive taxation measures under international law. The Claimants argue that good faith is a fundamental principle of treaty interpretation and performance, which "pervades all aspects of Investor-State relations."267 According to the Claimants, this is demonstrated, inter alia, by Article 31(1) of the VCLT, extensive scholarship and international caselaw, which is also associated with the concept of estoppel.268
253.
The Claimants argue that the Tribunal must look into the State's pattern of conduct to determine, on the balance of probabilities, whether the measure concerned is bona fide.269 The Claimants dispute Spain's contention that the tribunal in Yukos recognised a presumption in favour of the validity of tax measures, claiming instead that the Yukos decision demonstrates that the bona fide nature (or lack thereof) of a tax measure must be assessed from the conduct of the State on the basis of the balance of probabilities.270 In this regard, the Claimants allege that there is prima facie evidence that the 7% tax is arbitrary and discriminatory.271
254.
In this regard, the Claimants also refer to Feldman v. Mexico to assert that "where a taxation measure is prima facie arbitrary or discriminatory, the burden of proof switches to the respondent State to provide a rational explanation for its conduct."272 The Claimants conclude that "Article 21 is not triggered and that there is a breach of the ECT if the balance of evidence and surrounding circumstances are more consistent with the claim that the 7% Levy was implemented as a disguised cut of the rights granted under RD 661/2007."273
255.
In their Post-Hearing Reply brief, the Claimants further this argument on the basis of the Antaris v. Czech Republic award. In this award, according to the Claimants, the tribunal applied the two-limb test to determine whether the carve-out applied: (i) the domestic law of the host State must first characterise the measure as a tax for Article 21 to apply, and (ii) tribunal must determine whether the measure is also a tax within the scope of Article 21 by looking at the requirement of whether it is "directed at raising general revenue for the state."274 In this case, the Claimants concentrate on the second limb and allege that the funds raised by the TVPEE are not used for the general public purpose of the State but rather redirected to the electricity system.275

(b) The 7% levy is not a bona fide tax

256.
According to the Claimants, the TPVEE is not a bona fide tax, but a tariff cut. In their Reply, the Claimants summarise their views as follows: "it is readily apparent from Spain's conduct that the 7% Levy is not a real tax measure, but was in fact a measure designed to strip away the rights of the Claimants' installations under the RD 661/2007 regulatory regime."276 The most obvious illustration of this is, according to the Claimants, the fact that "the money raised by the 7% Levy goes from the electricity producers within the electricity system to the State budget and then back to the electricity system in order to cover the costs of the electricity system."277
257.
In particular, the Claimants argue that (i) Spain's conduct reveals that even though denominated as a tax, the TPVEE was intended to be a tariff cut; (ii) the TPVEE, de facto, accomplishes the opposite of its stated official aim; and (iii) it is part of a Government scheme to dismantle the RD 661/2007 economic regime through which the Claimants were encouraged to invest.
258.
First, the Claimants explain that to understand Spain's intent regarding the TVPEE, it is important to understand the context in which Law 15/2012 was approved.278 The Claimants then refer to a statement made by the Ministry of Industry, Energy and Tourism after the enactment of the disputed measure, acknowledging that the Government could have opted to reduce premiums for RE installations, but instead chose to adopt the tax on generation.279 The Claimants further note that the Minister's comments as well as the implementation of the TPVEE occurred at a time when Spain "(a) was already defending ECT claims; (b) had retained legal advice to defend those claims; and (c) was aware of the Article 21 ECT provision containing the taxation carve-out."280 Hence, the Claimants conclude, that the TVPEE is not a bona fide tax based on that "[t]he inference must be that the 7% Levy was framed as a tax with the purpose of avoiding liability for breaching investors' rights under the ECT."281
259.
Second, the Claimants allege that the measure discriminates against RE plants because, unlike their conventional counterparts that can raise prices to pass the tax to consumers, the government determines renewable plants' revenues, preventing them to pass along the burden of the tax.282 Additionally, the Claimants submit that, while the Preamble of the TPVEE indicates that the measure's aim is to protect the environment, Spain has not provided a rational link between the TVPEE and its professed aim, but rather the opposite that it purports to achieve resulting in an impact on the incentives that RE installations were supposed to receive.283 Further to this argument, the Claimants say that the TVPEE had a disparate impact on RE plants.284
260.
Third, the Claimants indicate that they are not challenging the TVPEE as a discrete measure in isolation but rather considering all measures taken by Spain and their impact on the Claimants’ investment.285 The Claimants distinguish the Plama v. Bulgaria case relied by the Respondent on the basis that the investors in that case made their investments when the Bulgarian taxation laws were already in place. Differently from this case, the Claimants say, where the taxation measures were implemented after the investment was made.286
261.

Finally, the Claimants sustain that Spain’s labelling of the measure as a tax under its internal law is irrelevant to determine whether Article 21 is applicable, as it has been supported by several authorities.287 The Respondent gives the TVPEE an appearance of a tax by channelling the funds levied through the Law 15/2012 through the State Budget and then return to the electricity system.288 Even if the measure was enacted in compliance with its domestic law, the Claimants contend that this is irrelevant if the Respondent is evading its international obligations.289 Furthermore, for Claimants, the fact that it complies with the definition of tax under international law as Respondent contends, does not demonstrate that the TVPEE is bona fide.290

(c) Response to Spain’s new submissions

262.
The Claimants also responded to the following new submissions of Spain contained in its Rejoinder in defence to the TVPEE: (i) the tax measure had a valid purpose, (ii) the cost of the TVPEE is covered by the remuneration in the New Regime, and (iii) Spain's position regarding the TVPEE has been shared by other tribunals, in particular, the Isolux and Eiser tribunals.291
263.
The Claimants point out that Spain has not explained why the environmental effects caused by transport and distribution networks should be attributed in greater measure to the RE installations. Further to this argument, the Claimants call the Tribunal's attention to a decision from the Spanish Supreme Court calling for doubts as to the environmental purpose of the TVPEE.292
264.
The Claimants also argue that the New Regime does not cover the cost of the TVPEE. The Claimants allege that the disputed measures have caused the Claimants to loss value of their investment and that the TVPEE allows Spain to reduce the revenues of existing RE installations.293
265.
Finally, the Claimants differentiate this case from the Isolux and Eiser cases alleging that they have proven that the TVPEE was not to raise revenues but rather to reduce the tariff deficit and to reduce the economic rights for investors.294

3. The Tribunal’s Analysis

266.
Relying on the fact that Article 21(1) ECT is a "carve out" clause, the Respondent argues that taxation measures are excluded from the treaty protection and that the Tribunal lacks jurisdiction for the claims concerning the violation of Article 10(1) because of the adoption of Law 15/2012, having introduced the TVPEE.
267.
The Claimants do not put into question the qualification of the TVPEE as "tax" but they basically contend that this measure is not a bona fide taxation measure, as it is arbitrary and discriminatory.295 It would be a tariff cut, designed to strip away the rights of the Claimants under the RD 661/2007 regulatory regime.296 Therefore, the measure would not be covered by the Article 21 exemption.
268.
Article 21(1) ECT established that: "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". The provision entails a lack of jurisdiction ratione materiae of the tribunal, whose jurisdiction is limited to the disputes relating to the rights and obligations stemming from the ECT.297
269.
As for the question concerning the bona fide character of the tax, this Tribunal recalls that the Yukos Universal v. Russia award clarified that "the carve out of Article 21(1) can apply only to bona fide taxation actions, i.e., actions that are motivated by the purpose of raising general revenue for the State. By contrast, actions that are taken only under the guise of taxation, but in reality aim to achieve an entirely unrelated purpose (such as the destruction of a company or the elimination of a political opponent) cannot qualify for exemption from protection standards."298 Fundamentally, the Tribunal’s standard of review here lies in controlling the existence of an "abuse of tax law."299
270.
The Claimants bear the duty to prove that the tax measure was not adopted in order to raise the revenue of the State but for other purposes.300 This burden of proof is particularly demanding, as "States have a wide latitude in imposing and enforcing taxation law, even if resulting in substantial deprivation without compensation."301 Arbitral awards having decided that such was the case were faced with extreme situations, where the State was aiming at destructing a political opponent.302 The presumption is the bona fide exercise of the taxation power: "the power to tax is a core sovereign power that should not be questioned lightly."303
271.
In relation to that, the Claimants tried to shift the burden of proof claiming that the taxation measure was arbitrary and discriminatory, relying on the principle established by the Feldman v. Mexico award.304
272.
Nevertheless, the Tribunal agrees with previous cases that the standard of review in relation to a carve-out clause is limited to the assessment of an egregious abuse of tax power. The Claimants have not proved that this is the case.
273.
In addition, the Claimants contended that the TVPEE was a mere tariff cut while being presented as an environmental measure. As clearly established in the Isolux award, even if the finality of the tax measure was not purely the protection of the environment but the enrichment of the State, this objective would nevertheless coincide with the aim of a taxation measure and would not be sufficient to establish the bad faith of the Respondent.305 The present Tribunal shares this view.
274.
The Tribunal considers that the Claimants failed to demonstrate any improper or abusive use of the State's power to tax. Therefore, Article 21(1) of the ECT applies to carve out taxation measures from the jurisdiction ratione materiae of the Tribunal.

VI. APPLICABLE LAW

A. Article 42 of the ICSID Convention and 26(6) of the ECT

275.
The Parties agree that Articles 42(1) of the ICSID Convention and Article 26(6) of the ECT define the law applicable to the merits of this dispute.
276.
The Claimants assert that (i) the ECT serves as the primary source of law, and, (ii) where the ECT is silent, "the Tribunal should apply customary international law and general principles of international law."306
277.
The Respondent agrees with the Claimants that the Tribunal shall apply the rules contained within the ECT and other rules and principles of International Law to the merits of this case.
278.
However, as regards to the "rules and principles of international law," Spain points out that this provision incorporates rules of EU law, the application of which should lead the Tribunal to the dismissal of the Claimants' claims.307

B. Relevance of EU Law

1. Respondent’s Position

279.
The Respondent contends that EU law is applicable international law,308 and that it must be applied by the Tribunal to decide all the issues in dispute, including jurisdictional, merits and quantum issues as required by Article 26(6) of the ECT.309 Spain further argues that Article 26(6) of the ECT does not grant ECT prevalence over any other applicable rule or principle of international law.310
280.
The Respondent argues that the present dispute is an intra-EU dispute that concerns investments of investors of Member States of the EU made in another Member State of the EU. The Respondent explains that the Claimants made their investment in reliance of the fundamental freedoms provided under EU law and not in reliance with the ECT.311 Therefore, Spain argues, EU law has to be applied to this intra-EU relationship.
281.
In addition to citing the Electrabel, Blusun and Wirtgen cases, the Respondent supports this argument on the ruling of the CJEU in the Preliminary Ruling of 6 March 2018 in the Achmea decision:

(...) According to settled case-law of the Court, the autonomy of EU law with respect both to the law of the Member States and to international law is justified by the essential characteristics of the EU and its law, relating in particular to the constitutional structure of the EU and the very nature of that law. EU law is characterised by the fact that it stems from an independent source of law, the Treaties, by its primacy over the laws of the Member States, and by the direct effect of a whole series of provisions which are applicable to their nationals and to the Member States themselves. Those characteristics have given rise to a structured network of principles, rules and mutually interdependent legal relations binding the EU and its Member States reciprocally and binding its Member States to each other (see, to that effect, Opinion 2/13 (Accession of the EU to the ECHR) of 18 December 2014, EU:C:2014:2454, paragraphs 165 to 167 and the case-law cited).

EU law is thus based on the fundamental premise that each Member State shares with all the other Member States, and recognises that they share with it, a set of common values on which the EU is founded, as stated in Article 2 TEU. That premise implies and justifies the existence of mutual trust between the Member States that those values will be recognised, and therefore that the law of the EU that implements them will be respected. It is precisely in that context that the Member States are obliged, by reason inter alia of the principle of sincere cooperation set out in the first subparagraph of Article 4(3) TEU, to ensure in their respective territories the application of and respect for EU law, and to take for those purposes any appropriate measure, whether general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the EU (Opinion 2/13 (Accession of the EU to the ECHR) of 18 December 2014, EU:C:2014:2454, paragraphs 168 and 173 and the caselaw cited).312

282.
The Respondent also contends that the Tribunal must apply EU law to resolve this dispute, otherwise, any adopted decision by the Tribunal would be contrary to EU regulation governing State aid in favour of renewable energy in member States.313 This is regardless of whether the dispute is intra-EU or not.314 The Respondent notes that the EU Commission has established that the subsidies provided under RD 661/2007 (as amended by RD 1614/2010) are State aid under EU law.315 The Respondent further argues on this point that EU law is decisive to determine the scope of the Claimants’ rights,316 their legitimate expectations,317 and the proportionality and reasonability of the disputed measures.318
283.
The Respondent contends that State aid is only permissible under EU law as long as they contribute to the purpose for which they were created.319
284.
The Respondent also argues that EU law and principles applied to decide all issues in dispute are not limited to Treaties but also comprise acts of EU institutions and notes that it has been interpreted as such in other cases such as Electrabel, Blusun, and Wirtgen.
285.
The Respondent therefore argues that the Commission’s Decision on State aid is binding and this Tribunal "cannot elude its application... [as it] affects matters of public order."320
286.
The Respondent further adds that EU law is part of Spanish law. Therefore, Spanish Courts are part of the EU legal system to ensure compliance with EU regulations.321 EU law on State aid is a matter of public order in the EU territory.322

2. Claimants’ Position

287.
In response to Spain’s allegation that no investor could have legitimate expectations to receive the RD 661/2007 FIT, the Claimants respond that when Bridgepoint invested in August 2011, it could not have expected that RD 661/2007 could be declared to be unlawful State aid because this was not clarified until the Order of 22 October 2014 of the CJEU.323
288.
The Claimants also point out that RD 661/2007 has not been found to constitute State aid.324
289.
The Claimants respond to Spain's argument that the Tribunal is bound by the EU Commission's decisions that awarding the Claimants damages in this arbitration would not be in breach of EU State aid rules. To support this argument, the Claimants note that "the returns the Claimants would obtain at the project level under RD 661/2007 But-For scenario would be between 8% and 9% post-tax. These figures do not qualify as windfall profits and would fall well within the range of returns that the EU Commission has considered proportionate."325
290.
The Claimants oppose the Respondent's argument that the Tribunal should apply Spanish law in the present dispute. The Claimants note that "a State cannot, by pleading that its conduct conforms to the provisions of its internal law, escape the characterisation of that conduct as wrongful by international law."326

C. The Object and Purpose of the ECT

1. Claimants’ Position

291.
The Claimants state that, as required by Articles 31 and 32 of the VCLT, the "ECT shall be interpreted in good faith in accordance with the ordinary meaning given to its terms in their context and in the light of the ECT's object and purpose."327
292.
The Claimants understand that the fundamental objective of the ECT is to facilitate transactions and investments in the energy sector by reducing political and regulatory risks.328 The ECT seeks to accomplish this objective, in particular, by requiring the Contracting States to maintain a stable, predictable and transparent legal and regulatory framework for such investments.329
293.
By ratifying the ECT, Contracting States agreed: (a) to provide such a framework to investors in the energy sector; and (b) to be held to account in the event that they fail to do so.330
294.
The Claimants argue that energy investments are different from many other types of investments due to: (a) their capital-intensive nature, with very high upfront capital costs; (b) the lengthy period of time required for the investor to receive a return of and on their investment; and (c) their decades-long operating horizons. These particular characteristics make a stable, predictable and transparent legal and regulatory framework a sine qua non for energy investments.331
295.
Contrary to the Respondent’s argument, the Claimants assert that the ECT provides a high level of protection for investors in the energy sector, in particular those for their long-term and capital-intensive nature.332
296.
The Claimants understand that there is a fundamental distinction between the protection of national treatment and FET under the ECT. National treatment is a contingent standard of investor protection. It is necessary to show that a local investor has received better treatment than the foreign investor to establish a breach of the national treatment standard. In contrast, FET is a non-contingent investor protection. The contingent and non-contingent standards "operate independently" in that "the fact that an investor is treated as well as a local one will not necessarily mean that the foreigner has received fair and equitable treatment."333
297.
In this context, the Claimants differentiate the cases cited by Spain from this case. The Claimants explain that the FET standard is broader than the minimum standard of proof.334 Spain contends that the Total tribunal applied the minimum standard of protection required by the FET, which would allow a State to modify its legal framework, provided that the investor is still able to recover its operating costs, amortise its investment and make a "reasonable return" over said period of time. However, according to the Claimants, the Total decision is unhelpful to Spain's case as: (a) it was not rendered pursuant to the ECT but to the 1991 France-Argentina BIT, which, unlike the ECT, does not contain any engagement with regard to stable conditions for investors; (b) contrary to what Spain contends, the Total tribunal considered that the FET standard "cannot be read as ‘treatment required by the minimum standard of treatment of aliens/investors under international law and (c) the quotations from Total used by Spain were remarks made when weighing the investors' legitimate expectations on the one hand and the Respondent's legitimate regulatory interests on the other in the absence of any specific stability commitment, as noted above. In this context, the Total tribunal found that the concept of "regulatory fairness" or "regulatory certainty" intervenes to ensure that the investors recover their operation costs and make a "reasonable return." In the Claimants' view, these facts clearly differentiate the Total tribunal's findings from the issue at hand, which is whether Spain may radically change the remuneration regime on which the Claimants relied when making their investment when it made the express commitment not to.335
298.
The Claimants also point out that Spain has not analysed the exceptions found in Article 24 of the ECT but rather read in two exceptions to the FET standard that are not in the text.336 The Claimants counter Spain's argument that considers Article 10(8) and Article 9 of the ECT to provide an exception to FET in relation to "the public aid regime." The Claimants respond that Article 10(8) of the ECT simply does not apply in the context of this case as the present dispute does not concern treatment afforded by Spain in relation to "energy technology research and development."337
299.
The Claimants also respond to Spain's alleged exception contained in Article 9(4) of the ECT that it only relates to the obligations on Contracting Parties contained in Article 9 itself. The Claimants' plain reading of Article 9 makes clear that the Article 9(4) exceptions do not apply to any other provision of the ECT.338
300.
As to Spain's reliance on the "Energy Charter Treaty Readers Guide" to claim that no liability under the ECT can arise from "macroeconomic control measures", the Claimants' response is that it is plainly wrong to rely on such a document, since the document does not form part of the ECT.339
301.
The Claimants invested approximately €91 million into the Spanish wind generation sector. In doing so, upon inducements and promises made by Spain, they reasonably relied on the expectations that the Wind Farms, in which they invested, would be entitled to the economic regime of RD 661/2007, conferring immutable economic rights protected by the ECT, for their entire operational lifetime. This was, according to the Claimants, "a sine qua non to the Claimants' decision to invest in the plant."340
302.
However, contrary to the Claimants' reasonable expectations and Spain's assurances, Spain has, through the acts and omissions of its organs, allegedly taken several wrongful measures, which have fundamentally altered the applicable legal and regulatory framework in reliance upon which the Claimants' investments were made. These include, but not limited to, Law 15/2012, RDL 2/2013, RDL 9/2013, Law 24/2013, RD 413/2014 and the June 2014 Order ("Disputed Measures").341 As a result of the Disputed Measures, the Claimants allege that they have suffered considerable losses. The Claimants allege that Spain's measures violated Article 10(1) of the ECT, namely:

a) the obligation under Article 10(1) to accord, at all times, to the Claimants' investment, "stable, equitable, favourable and transparent conditions,"

b) the obligation under Article 10(1) to accord, at all times, to the Claimants' investment, fair and equitable treatment ("FET"), and

c) the obligation under Article 10(1) to observe obligations it had entered into with the Claimants or their investments (the Umbrella Clause).342

303.
According to the Claimants, Spain adopted, inter alia, the following Disputed Measures:343

• Law 15/2012, introducing the TPVEE which, according to the Claimants, amounts to a tariff cut;

• RDL 2/2013, which, inter alia, deprived the Claimants of "the most attractive support scheme option under RD 661/2007," the Premium option (which offered the possibility of maximizing revenues by way of selling to the market when demand in the network was the highest);

• RDL 9/2013, which revoked RD 661/2007 and established a New Regime for RE power-generation installations radically different from the framework established by RD 661/2007;

• Law 24/2013, which, inter alia, (i) repealed the distinction between Ordinary Regime and Special Regime established by RDL 9/2013, (ii) put conventional and RE generators on an equal footing and, most importantly, (iii) established the applicability of a "reasonable return" over the entire life of the plant, thereby implementing a "maximum degree" retroactivity. According to the Claimants, both the future and past income streams were thus affected: "the Project Companies would be penalised for their past returns" and "Spain introduced "maximum degree" retroactivity by directly impacting the past income streams of the plant, effectively altering the rules of the game over the energy already produced and already sold on the market by the Claimants."

• In June 2014, 11 months after Spain announced the New Regime, the Government passed the necessary implementing regulation to fully define the economic regime that would henceforth apply to RE installations. The first measure was RD 413/2014 of 6 June 2014 as an implementing measure, and the June 2014 Order that fixed the compensation parameters for a standard installation.

304.
Therefore, Spain's treatment of the Claimants, its specific breaches of the ECT and the interpretation of the standards in the ECT, according to the Claimants, must all be viewed in the light of the above context, objectives and purposes of the ECT.

2. Respondent’s Position

305.
Spain disputes the Claimants' reading of the purpose of the ECT, as well as of the scope of the FET, stating that the primary objective of the ECT is non-discrimination, and that the ECT does not bar States from adopting reasonable macroeconomic control measures.
306.
The Respondent agrees with the Claimants that the protection standards of the ECT need to be analysed in accordance with the ordinary meaning of the terms of the ECT in their context and in light of the object and purpose of the ECT.344 In this regard, the Respondent argues that the protection that the ECT offers to investments is not an unfettered one but rather it is to achieve a free energy market throughout Europe, based on the principle of non-discrimination. Consequently, the primary or main objective with respect to an investor is to "achieve the introduction of a free market in order to carry out energy-related activities without discrimination on account of the investor's nationality."345
307.
The Respondent argues that the Claimants have failed to address the real objectives and principles established by the ECT, and which are applicable to this case pursuant to Article 2 of the ECT. These objectives are: "foster the development of an efficient energy market throughout Europe and a better functioning of the global market, based in both cases in the principle of nondiscrimination and on a determination of prices based on the market, taking into account the concerns expressed in relation to the environment."346
308.
The Respondent explains that the objective of non-discrimination has not been fully achieved in the ECT. The Respondent argues that the reluctance of States to limit their regulatory powers even minimally in such a strategic sector as the energy sector, led the signatories of the ECT to differentiate two moments: (1) the so-called "makinginvestment process" (paragraphs (2) and (3) of Article 10 of the ECT), in which the conditions to ensure the objective of national treatment or non-discrimination were postponed until the signing of a "supplementary treaty", which has not yet been signed and (2) the moment after the investment is made, when the guarantee of national treatment and the most favoured nation clause are applied to the overseas investor, albeit with certain limitations.347
309.
The Respondent affirms that once the investment has been made, the best standard of protection afforded by the ECT to the investor and to foreign investments is the "national treatment" standard. According to the Respondent, the greatest ambition of the ECT is non-discrimination. In other words, when Article 10(1) of the ECT establishes the obligation to give investments already made "no less favorable treatment than that required by international law," it recognises the minimum standard of protection guaranteed by international law. The maximum aspiration of the ECT is, according to Respondent, national treatment since this treatment will be applied to overseas investments whenever it is more favourable.348
310.
The Respondent alleges that Article 10 of the ECT contains a significant exception in the area of public subsidies or aid.349 According to the Respondent, this exception is applicable to this case because the Claimants are requesting the payment of subsidies or State aid for the production of electricity.350
311.
The Respondent further alleges that Article 9 of the ECT provides that a State may adopt measures which do not breach the non-discrimination principle if the regulatory measure is (i) proportionate, (ii) justified on the grounds of public interest, and (iii) applied without discrimination to both national and foreign investors.351
312.
Spain asserts that in the absence of a specific stability commitment, an investor cannot have an expectation that a regulatory framework will not be modified.352 It finds a support in the reading of the Energy Charter Treaty Guide which makes it very clear that the ECT does not prevent States from exercising their macroeconomic control power.353 The Respondent argues that the Claimants were aware or should have been aware of this.
313.
On this matter, the Respondent concludes that the ECT establishes no more limits on the regulatory power of the States than the minimum standards of international law, with the objective of non-discrimination, and that even this treatment does not apply on the subject of public subsidies or aid.354 In any case, the ECT allows the adoption of macroeconomic control measures by the signatory States, based on reasons of public interest.

VII. MERITS

314.
The Claimants allege that after the Disputed Measures were implemented, the system left in place completely dismantled the prior legal framework applicable to the Claimants’ companies. The Claimants say that the new regime was also plagued by uncertainty, lack of transparency and long-term instability. The Government retained the discretion to define the "return rate" and the right to change the remuneration regime every six years with respect to existing installations.355
315.
The Respondent sustains that it did not breach any international obligations under the ECT and requests the Tribunal to fully dismiss the Claimants’ claims on the merits.356

A. Article 10(1) of the ECT: Create Stable, Equitable, Favourable and Transparent Conditions

1. Claimants’ Position

316.
The Claimants note that the first sentence of Article 10(1) of the ECT imposes upon Spain the obligation to "encourage and create stable, equitable, favourable and transparent conditions" for investors, particularly for sectors that require a substantial amount of capital typically committed at the outset.357
317.
The Claimants clarify that it is not their position that the obligation to accord "stable" and "transparent" conditions in the ECT means that a host State must completely freeze its regulatory regime. It does, however, according to the Claimants, mean that Spain "knowingly accepted limitations on its regulatory power, in particular... its ability fundamentally to alter the regulatory framework applicable to existing investments."358
318.
The Claimants understood that stability was important to renewable energy projects and it was recognised in RD 661/2007 by offering investors certainty with respect to: (i) the exact cents per kWh that renewable energy installations would receive per unit of production;359 (ii) the sale of renewable energy installations’ entire production;360 and (iii) the stability of the FIT as its protection against its revision for existing installations.361
319.
According to the Claimants, Article 44(3) of RD 661/2007 was a self-binding commitment of the Spanish regulator to protect existing installations against changes to the FIT, otherwise permissible under Spanish law.362 The stability of the regime was supported, according to the Claimants, by Spain, including its own regulator, the Comision Nacional de Energia, also known as CNE.363 Moreover, the Ministry of Industry, Tourism and Commerce accompany the issuance of RD 661/2007 with a press release indicating that "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."364 The Claimants also refer to joint publications from the Ministry, InvestInSpain,365 and ECOFYS.366
320.
The Claimants stress that after RD 661/2007, Spain re-confirmed its commitment to provide stable conditions in RD 1614/2010, establishing that any future changes to the RD 661/2007 economic regime would not apply to duly registered, existing installations.367
321.
In the Claimants’ view, (i) the "roller coasted" of constant regulatory changes that the Claimants’ investment was subject to over the 18-month period from December 2012 to June 2014;368 (ii) the total uncertainty that characterised the eleven-month "limbo"" period from July 2013 to June 2014;369 as well as (iii) the system left in place marred by "uncertainty, lack of transparency and long-term instability," provide sufficient proof of Spain’s failure to encourage and create stable, equitable, favourable and transparent conditions as required, according to the Claimants, by the first sentence of Article 10(1) of the ECT.370
322.
First, the Claimants allege that in December 2012, Law 15/2012 imposed a 7% levy on electricity produced and fed into the national grid during a calendar year, including all generators, both conventional and renewable.371
323.
Secondly, the Claimants state that just two months after Law 15/2012, in February 2013, RDL 2/2013 deprived the Claimants of the most attractive support scheme option under RD 661/2007, on which they relied when undertaking their investment: the Premium option. The Premium had been a key part of the Claimants’ decision to invest, given the possibility of maximizing revenues by way of selling to the market when demand in the network was the highest. RDL 2/2013 also replaced the annual adjustment index based on the Spanish CPI for updating the FIT to account for inflation.372
324.
The Claimants assert that four months later, Spain decided to repeal the RD 661/2007 FIT regime entirely. RDL 9/2013, of 12 July 2013, brought substantial changes to the 1997 Electricity Law by: (i) repealing RD 661/2007; and (ii) establishing a New Regime for RE power-generation installations radically different from the framework established by RD 661/2007 and effective as of the date of RDL 9/2013.373
325.
The Claimants note that the New Regime was not fully defined or implemented until June 2014. This meant that the entire RE sector had to endure 11 months of uncertainty during which, according to the Claimants, it was impossible to discern the details of the regulatory framework or the remuneration parameters to which the Project Companies were or would be subject.
326.
The Claimants sustain that in December 2013, Law 24/2013 introduced further harmful measures: (i) the distinction between the Ordinary Regime and the Special Regime announced by RDL 9/2013 formally disappeared; and (ii) conventional and RE generators were put on an equal footing, thereby depriving the RE installations of the unconditional right of priority of grid access and priority of dispatch that existed under the previous regime.374 Moreover, Annex III established the applicability of the defined "reasonable return" over the entire useful life of the plant, implementing a "maximum degree" retroactivity. In this way, both the future and past income streams of the Claimants were affected. This meant that: (i) the Project Companies would be penalised for their past returns; and (ii) Spain introduced "maximum degree" retroactivity by directly impacting the past income streams of the plant, effectively altering the rules of the game over the energy already produced and already sold on the market by the Claimants.375
327.
Finally, the Claimants point out that in June 2014, 11 months after Spain announced the New Regime, the Government passed the necessary implementing regulation to fully define the economic regime that would henceforth apply to RE installations. The first such implementing measure was RD 413/2014 of 6 June 20 1 4.376
328.
By June 2014, according to the Claimants, none of the "key features of the regulatory regime" in reliance of which the Claimants invested, remained.377 In the Claimants’ view that was a "fundamental change."378

2. Respondent’s Position

329.
The Respondent objects to the Claimants’ characterization that there is an autonomous standard of the FET generating an obligation to "create stable, equitable, favorable and transparent conditions" for foreign investment.379
330.
Relying, inter alia, on the tribunals’ findings in Isolux and Plama (both related to the ECT),380 Spain disputes the Claimants’ assertion that Article 10(1) of the ECT contains an autonomous standard to create stable conditions for investment.
331.
Therefore, the Respondent analysed the obligation to create stable conditions within the FET standard of the ECT, and not as an autonomous obligation.381

B. Article 10(1) of the ECT: Fair and Equitable Treatment Standard

1. Claimants’ Position

332.
For the Claimants, the ordinary meaning of Article 10(1), "read in good faith and in the light of the object and purpose of the ECT" demonstrates that the FET standard in the ECT is an independent and autonomous standard.382 Therefore, the Claimants conclude, the FET standard is additional to the international minimum standard under customary international law.
333.
In arbitral practice, the Claimants contend, "the preferred method [of application of the FET] has been to unfold the standard on the basis of casuistic subgroups which will be seen as typical emanations of the standards."383 Accordingly, in the present case, the Claimants submit that:

• Spain has breached the Claimants’ reasonable and legitimate expectations;

• Spain failed to provide a stable and predictable legal and business framework in relation to the investment;384

• Spain’s conduct has not been transparent;

• Spain’s measures are unreasonable and arbitrary,

• Spain’s measures are disproportionate and discriminatory.385

2. Respondent’s Position

334.
The Respondent alleges that the Claimants have the burden to prove a breach of the FET standard through the measures challenged.386
335.
The Respondent affirms that the Claimants do not invoke cases where the FET standard was applied in ECT cases. Instead, according to the Respondent, the Claimants invoke less relevant precedents that were rendered on the basis of breach of contracts or administrative concessions in countries such as Mexico, Ecuador, Chile or Argentina.387
336.
The Respondent further notes that arbitral tribunals that have applied the FET standard under the ECT have held that such standard requires a balance between the investor’s rights and the power and duty of the host state to adopt measures for the general interest.388
337.
The Respondent insists that the "Claimants had not justified: (i) the existence of a ‘grandfathering’ institution in Spanish Law, (ii) the existence of a ‘grandfathering’ commitment in the Spanish Regulatory framework not (iii) the existence of a commitment by the Kingdom of Spain to petrify the retribution scheme of the RD 661/2007."389 Therefore, the Respondent argues, the Tribunal cannot conclude that Spain has violated the FET standard contained in the ECT.390

C. Obligation to provide a stable and predictable regulatory scheme

1. Claimants’ Position

338.
Relying on investment arbitration scholarship and several landmark decisions, the Claimants contend that a "central feature of the State’s obligation to ensure FET for investments is the general principle that the State must not frustrate a foreign investor's legitimate expectations on which that investor relied at the time it made its investment."391 In particular, the Claimants maintain, "the ECT expressly recognizes an obligation on the part of the host state to provide for legal stability," as part of the host State's obligation to respect the investor's legitimate expectations.392
339.
This obligation, the Claimants pursue, is "of particular importance in the energy sector" where, as in this case, a substantial amount of capital is invested at the outset in the hope of generating a long-term return.
340.
The Claimants note that it has been well-established that the State's conduct, which contributes to the creation of a reasonable expectation and upon which an investor relies, may take the form of the legal framework in relation to, or surrounding the investment.393 The Claimants further explain that the legal framework on which the investor is entitled to rely, comprises "legislation and treaties, and assurances contained in decrees, licences and similar executive assurances or undertakings," as stated in numerous awards, including Enron v. Argentina and LG&E v. Argentina.394
341.
The Claimants argue that they had two distinct expectations: (i) one pertaining to the nature, amount and duration of the FIT offered under RD 661/2007 and RD 1614/2010; and (b) another pertaining to the stability of the RD 661/2007 economic regime, expecting that any potential modifications to the regime would only apply prospectively, leaving existing installations unaffected.395
342.
First, regarding the nature, level and duration of the FIT, at the time the Claimants invested in the Marmellar SL and La Boga SL, the Project Companies, they expected that once the installations were finally registered with the RAIPRE:

a. the Project Companies 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;

b. the FIT would apply to all of the electricity produced, without any limitations on production;

c. the FIT would apply for the entire operational life of the installations; and

d. the FIT would be subject to inflation adjustments, as provided in RD 661/20 07.396

343.
Secondly, in the Claimants’ view, Spain explicitly promised that the economic regime for qualifying Special Regime installations would remain stable under RD 661/2007, which contains a stabilization commitment in Article 44(3).397 According to the Claimants, Spain subsequently reiterated this commitment in the July 2010 Agreement398 and RD 1614/2010, which provided that any revisions to the Fixed Tariff and the Premium pursuant to Article 44(3) of RD 661/2007 would not affect duly registered, existing installations. According to the Claimants, these "stability commitments" were core to the Claimants' expectations.
344.
The Claimants affirm that their expectations on the continued application of the RD 661/2007 economic regime for the Project Companies were legitimate and reasonable due to the following:

a. The RD 661/2007 FIT provided very specific tariffs that would apply to the Project Companies. Article 36 specified the Fixed Tariff and Premium that the Claimants would receive for 20 years and thereafter.

b. Article 44(3) of RD 661/2007 committed not to change that Fixed Tariff or the upper and lower thresholds of the Premium option for existing installations. According to the Claimants, this commitment was later reinforced in RD 1614/2010 by including the Premium itself within the scope of the protection. According to the Claimants, this was a "selfbinding" commitment entered into by Spain in order to protect against "minimum degree" retroactivity.

c. The RD 661/2007 economic regime was part of a wider international and domestic policy to develop renewable energy power-generation infrastructure. In the Claimants’ position, RD 661/2007 was the necessary instrument for Spain to reach its renewable energy targets.

d. For the Claimants, the regime that Spain put in place was sufficiently attractive to encourage the necessary investments in renewable energy projects, such as the projects in which the Claimants invested.399

345.
The Claimants also specify that Spain’s own conduct prior to the Claimants’ investment confirms that Spain’s expectations on the application and stability of the RD 661/2007 economic regime were the same as the Claimants’ expectations. In the Claimants’ view, clearly those expectations were reasonable.400
346.
The Claimants state that Spain advances a number of arguments, which are clear ex-post constructs, regarding the RD 661/2007.401 The Claimants argue that FIT schemes are currently in place in at least 103 countries worldwide, including 25 European member states. FITs are designed to provide long-term certainty as to the price at which electricity from RE producers will be purchased. As repeatedly recognised by Spain, FIT schemes seek to correct a market failure in order to induce investment in RE. According to the Claimants, Spain enacted a FIT scheme fully in line with international standard practice, offering a long-term guarantee to qualifying investors.402 In the Claimants’ view, Spain's ex post arguments regarding the interpretation of the RD 661/2007 FIT disregard the stated object and purpose behind the economic regime.403 The Claimants affirm that rather than describing the regime as specifically designed to induce investment through the provision of a stable regulatory framework, Spain now presents the RD 661/2007 regime as providing merely a discretionary subsidy that the Government was free to withdraw at any time for both new and existing installations.
347.
The Claimants respond to Spain’s contention that Article 44.3 was not a stabilization commitment or grandfathering provision because it did not say that an entirely new and different norm could not be passed.404 In the Claimants’ view, this makes no sense because it also flatly contradicts Spain’s contemporaneous assurances concerning Article 44.3 and the drafting process giving rise to the inclusion of Article 44.3.
348.
The Claimants supported the argument that Article 44.3 was a "guarantee" against tariff changes with documentation, including: (1) Ministry of Industry, Tourism and Commerce's ("Ministry") press release accompanying the issuance of RD 661/2007;405 (2) CNE Report 3/2007 of 14 February 2007;406 (3) four separate publications where the Ministry and InvestInSpain referred to the RD 661/2007 FIT;407 (4) 2008 statements made by the CNE;408 (5) CNE presentation of 29 October 2008;409 (6) 2009 and 2010 statements by the CNE;410 and (7) the Ministry’s public announcement of the July 2010 Agreement.411
349.
The Claimants also note that the evolution of the draft of the regulation that would ultimately become RD 661/2007 also confirms that the inclusion of the stability commitment at Article 44.3 was deliberate to provide an important guarantee to investors.412
350.
In the first draft of RD 661/2007 the stabilization clause was not present413 and, according to the Claimants, the CNE urged the Ministry to include a protection against tariff changes for existing installations in the new regulation. The Ministry, the Claimants argue, evidently accepted the CNE’s position and included this special provision in the next draft of RD 661/2007 dated 19 March 2007, which became Article 44.3.414
351.
The Claimants counter Spain’s argument that Article 44.3 only protected installations against tariff revisions made "in the periodic reviews every four years" and that Spain was therefore free to make wholesale changes to the incentive regime at any other time. According to the Claimants, that interpretation is absurd and is against the plain language of Article 44.3.415
352.
Moreover, the Claimants sustain that the fact that RD 661/2007 is a "Royal Decree" and, therefore, subject to change by another law or regulation, is irrelevant. According to the Claimants, the question for the Tribunal is not whether Spanish law allowed a "Royal Decree" to be amended by subsequent legislation, but, rather, whether the Claimants had an expectation that Spain would not make retroactive changes to the RD 661/2007 FIT applicable to the Wind Farms, much less overhaul the remuneration regime altogether.416
353.
Any law or regulation in Spain (or, indeed, anywhere else) can, as a matter of domestic law, be changed or repealed by a subsequent act of equal or higher rank. The 1997 Electricity Law itself was modified 35 times during the 16 years it was in force. This, according to the Claimants, does not change the fact that a regulation can give rise to legitimate expectations.417
354.
In response to Spain's argument that the Claimants knew or should have known that Spain could introduce retroactive changes to the regulation applicable to their investment, changes that would entirely overhaul the parameters for remuneration of the Wind Farms, as the Disputed Measures did, the Claimants respond as follows:

a. A guarantee in which one party can unilaterally modify the key terms -including the return that the other party may earn - is clearly no guarantee at all. This is not how FITs work generally nor is it consistent with the terms of RD 436/2004, RD 661/2007, or RD 1614/2010. These regulations expressly exempted registered installations from future tariff revisions.418

b. Had Spain implemented a dynamic rate of return, it would not have been able to attract RE investment. This is because most of the investment in wind farms is made up front and can only be repaid after many years.419

c. Regarding Spain's claim that the reference in the 1997 Electricity Law to the cost of money on the capital markets (i.e. interest rates) should have put the Claimants on notice that retroactive changes could be made if there was a change in interest rates. Claimants respond that the only reference to "cost of money on the capital markets" in RD 661/2007 is in Article 44.3, i.e. in relation to tariffs to be set for new plants. That was a clear confirmation by Spain that interest rates would play a role in the future, but that changes in interest rates would not affect existing plants.420

d. The dynamic character allegedly "makes it possible to determine whether profitability at a given time is reasonable or not." According to the Claimants, not a single contemporaneous document supports this. Moreover, the Claimants state that Spain never made any finding that the Wind Farms were being unreasonably profitable.421

355.
Spain stated in its Counter-Memorial that the due diligence made by the Claimants, was flawed, leading to their misunderstanding of the regulatory framework, which is denied by the Claimants, pointing out to the documents relied upon to make the investment.422 Also, according to the Claimants, Spain states that "the Claimant made an investment without knowing the essential aspects of the Spanish regulatory framework."423
356.
In response to the Respondent's statement that the Claimants should have anticipated the Disputed Measures because the Spanish Supreme Court "since 2005, establishes the rights of investors in the event of changes in the remuneration models of the [Special Regime]", the Claimants respond that Spain refers to a number of judgments that postdate the Claimants’ investment, which are irrelevant to this dispute.424
357.
The Claimants contend that the judgments that pre-date the Claimants’ decision to invest, relate to incentives that were not part of the guaranteed renewable energy regime and so cannot have constituted the Claimants’ expectations.425 In the Claimants’ view, there is no judicial interpretation of the meaning of the specific clauses in the legislation whereby Spain undertook to respect existing investors’ rights, i.e., Article 40.3 of RD 436/2004, Article 44.3 of RD 661/2007 or Article 5.3 of RD 1614/2010. Indeed, according to the Claimants, Spain has not been able to provide any judicial support for its strained interpretation of these provisions. Equally, according to Claimants, no Spanish judgment has ever held that the "reasonable return" concept is "dynamic."426 That is the reason why the cases invoked by Spain were not flagged by the Claimants’ legal advisors despite the Claimants’ thorough due diligence in the regulatory regime prior to investing.427
358.
The Claimants reiterated this point when they addressed Spain’s request to introduce the RREEF Decision into the record. In this regard, the Claimants disagreed that there was a consolidated trend of ECT cases as portrayed by Spain but rather to the contrary, in the Eiser, Masdar, Novenergia, Antin and Greentech awards, Spain was found to have "(i) introduced investors to invest in Spanish RE with the implementation of a favourable regime; and (ii) significantly changed the fundamentals of that Regime through the New Regime, thus breaching the ECT."428
359.
The Claimants also point out that the Supreme Court's review is limited to consider whether a Royal Decree or Ministerial Order complies with higher-ranking norms.429 As far as the Supreme Court's analysis is concerned, once a Royal Decree has been replaced, its provisions no longer exist.430 In other words, according to the Claimants, unless the derogated provision is contained in a higher-ranking law, the Supreme Court cannot consider whether that provision has been violated.431

2. Respondent’s Position

360.
The Respondent contends that in order to determine if there has been a violation of the FET standard, the Tribunal must assess the legitimate expectations that the Claimants had when making the investment in relation to the treatment that the said investment would receive. These expectations must be reasonable and objective with respect to the general regulatory framework in place. As part of this assessment, the Respondent asks the Tribunal to first analyse the investor's knowledge of the general regulatory framework when making its investment, or rather, what this knowledge should have included.
361.
The Respondent contends that the Claimants' investment was made in May 2012 and not in August 2011.432
362.
According to the Respondent, the following events should be relevant for the Tribunal's assessment: (a) the announcement of future regulatory changes made by Mr. Mariano Rajoy in his inauguration speech as President; (b) the CNE's press release dated 28 December 2011 urging a reform;433 (c) RDL 1/2012, issued on 27 January, announcing the reform in its preamble;434 (d) the CNE's Report issued on 7 March 2012 analysing the SES unsustainable situation and proposing measures both for its revenues and costs to attempt to reinstate its financial balance;435 (e) the National Reform Program;436 the Memorandum of Understanding executed with the EU and its Member States in July 2012, where Spain undertook to solve the tariff deficit issue comprehensively;437 the judgments delivered by the Supreme Court after April 2012,438 thus consolidating their case law.439
363.
In Spain's view, international arbitration case law440 is clear that when making its investment, an investor should know and understand (i) the regulatory framework, (ii) how this is applied (iii) how it affects its investment. An investor makes its investment based on this knowledge and should be aware of the risks it takes on when making such.441