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Avocats, autres représentants, expert(s), secrétaire du tribunal

Decision on Jurisdiction, Liability and Directions on Quantum

Table of Selected Abbreviations and Defined Terms

2005 PER 2005-2010 Renewable Energy Promotion Plan
Abandoned Projects Fotovoltaica Lobón, Solar Lobón and Solar de Botoa
Accuracy’s First Expert Report Respondent’s First Expert Report by Accuracy dated 28 October 2016
Accuracy’s Second Expert Report Respondent’s Second Expert Report by Accuracy dated 29 May 2017
Albiñana Spanish law firm CMS Albiñana y Suarez de Lezo
Arbitration Rules ICSID Rules of Procedure for Arbitration Proceedings 2006
C-# Claimant’s Exhibit
Cavalum or the Claimant Cavalum SGPS, S.A., public limited company incorporated under the laws of Portugal
CJEU Court of Justice of the European Union
Cl. Mem. Claimant’s Memorial on the Merits dated 25 July 2016
Cl. PHB Claimant’s Post Hearing Brief dated 18 September 2018
Cl. Rej. Claimant’s Rejoinder on Jurisdiction and Response to the EC’s Amicus Curiae Brief dated 7 July 2017
Cl. Reply Claimant’s Reply on the Merits and Counter-Memorial on Jurisdiction dated 28 March 2017
CL-# Claimant’s Legal Authority
CWS-MHB1 Claimant’s First Witness Statement by Ms. Maria Helena Brandão dated 25 July 2016
CWS-MHB2 Claimant’s Second Witness Statement by Ms. Maria Helena Brandão dated 27 March 2017
CWS-JP1 Claimant’s First Witness Statement by Mr. José Valentim Pereira da Cunha dated 25 July 2016
CWS-JP2 Claimant’s Second Witness Statement by Mr. José Valentim Pereira da Cunha dated 28 March 2017
CWS-SLM Claimant’s Witness Statement by Ms. Sonia López Mera dated 25 July 2016
Disputed Measures RD 1565/2010, RDL 14/2010, Law 15/2012, RDL 2/2013, RDL 9/2013, Law 24/2013, MO IET/1045/2014 and RD 413/2014
EC European Commission
EC’s First Application European Commission’s First Application for Leave to Intervene as a Non-Disputing Party dated 18 April 2016
EC’s Second Application European Commission’s Second Application for Leave to Intervene as a Non-Disputing Party dated 17 January 2017
EC’s Third Application European Commission’s Third Application for Leave to Intervene as a Non-Disputing Party dated 16 May 2018
ECT Energy Charter Treaty which entered into force for the Kingdom of Spain and Portugal on 16 April 1998
EPC European and Community Patents Court
FiT Feed-in Tariff
FTI’s First Quantum Report Claimant’s First Quantum Report by Mr. Richard Edwards of FTI Consulting dated 22 July 2016
FTI’s Second Quantum Report Claimant’s First Quantum Report by Mr. Richard Edwards of FTI Consulting dated 28 March 2017
FTI’s First Regulatory Report Claimant’s First Regulatory Report by Dr. Boaz Moselle and Dr. Dora Grunwald of FTI Consulting dated 22 July 2016
FTI’s Second Regulatory Report Claimant’s Second Regulatory Report by Dr. Boaz Moselle and Dr. Dora Grunwald of FTI Consulting dated 28 March 2017
Hearing Hearing on Jurisdiction and the Merits held from March 12 to 16 March 2018 in London
ICSID Convention Convention on the Settlement of Investment Disputes Between States and Nationals of Other States dated 18 March 1965
ICSID or the Centre International Centre for Settlement of Investment Disputes
IRR Internal Rate of Return
Law 2/2011 Law 2/2011, of 4 March 2011, on Sustainable Economy, published in the Official Gazette No. 55 of 5 March 2011
Mr. Margarit’s Testimony Videoconference held by the Tribunal and the Parties on 28 June 2018, for the cross-examination of the Claimant’s Witness, Mr. Jaume Margarit
New Regulatory Framework RDL 9/2013, Law 24/2013; RD 413/2014; and Order IET/1045/2014
PO1 Procedural Order No. 1, dated 5 May 2016, concerning procedural matters
PV Photovoltaic
R-# Respondent’s Exhibit
RDL 14/2010 Royal Decree-Law 14/2010, of 23 December 2010, establishing urgent measures for the correction of the tariff deficit of the electricity sector, published in the Official Gazette no. 312 of 24 December 2010
RAIPRE Special Regime (Registro de Instalaciones de Producción en Régimen Especial)
REIOs Regional Economic Integration Organizations
Request Request for arbitration from Cavalum against Spain dated 27 July 2015
Resp. C-M Respondent’s Counter-Memorial on the Merits and Memorial on Jurisdiction dated 28 October 2016
Resp. PHB Respondent’s Post Hearing Brief dated 18 September 2018
Resp. Rej. Respondent’s Rejoinder on the Merits and Reply on Jurisdiction dated 2 June 2017
RL-# Respondent’s Legal Authority
Spain or Respondent The Kingdom of Spain
TEC Treaty Establishing the European Community
TEU Treaty on the European Union
TFEU Treaty on the Functioning of the EU
Tr.-E Day [#] [Speaker(s)] [page:line] English Transcript of the Hearing
Tribunal Arbitral tribunal constituted on 22 January 2016
TVPEE 7% tax on the production of electricity, established by Law 52/2012
VCLT Vienna Convention on the Law of Treaties

Cases

9REN Holding S.à.r.l. v. The Kingdom of Spain, ICSID Case No. ARB/15/15, Award, 31 May 2019 ("9REN v. Spain (Award)"), Legal Authority CL-0219.

AES Summit Generation Limited and AES-Tisza Erömü Kft. v. The Republic of Hungary, ICSID Case No. ARB/07/22, Award, 23 September 2010 ("AES Summit v. Hungary (Award)"), Legal Authority RL-0039.

Antin Infrastructure Services Luxembourg S.à.r.l. & Antin Energia Termosolar B.V. v. The Kingdom of Spain, ICSID Case No. ARB/13/31, Award, 15 June 2018 ("Antin v. Spain (Award)"), Legal Authority CL-0199.

BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH v. Kingdom of Spain, ICSID Case No. ARB/15/16, Decision on Jurisdiction, Liability and Directions on Quantum, 2 December 2019 ("BayWa v. Spain (Decision on Jurisdiction, Liability and Directions on Quantum)"), RL-0095.

Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic, ICSID Case No. ARB/14/3, Award, 27 December 2016 ("Blusun v. Italy (Award)"), Legal Authority CL-0192.

Case Concerning the Factory at Chorzów, PCIJ Rep, Series A, No. 17, Judgment, 13 September 1928 ("Factory at Chorzów (Judgment)"), Legal Authority CL-0116.

Charanne B.V. and Construction Investments S.A.R.L. v. Kingdom of Spain, SCC 062/2012, Final Award and Dissent, 21 January 2016 ("Charanne v. Spain (Final Award)"), Legal Authority RL-0049/CL-0004.

Compañía del Desarrollo de Santa Elena S.A. v. The Republic of Costa Rica, ICSID Case No. ARB/96/1, Final Award, 17 February 2000 ("Compañía del Desarrollo de Santa Elena S.A. v. Costa Rica (Final Award)"), Legal Authority CL-0108.

Cube Infrastructure Fund SICAV and others v. Kingdom of Spain, ICSID Case No. ARB/15/20, Decision on Jurisdiction, Liability and Partial Decision on Quantum, 19 February 2019 ("Cube v. Spain ("Decision on Jurisdiction, Liability and Partial Decision on Quantum)"), Legal Authority RL-0094.

EDF (Services) Limited v. Romania, ICSID Case No ARB/05/13, Award, 8 October 2009 ("EDF v. Romania (Award)"), Legal Authority CL-0054.

Eiser Infrastructure Limited and Energia Solar Luxembourg S.À R.I. v. Kingdom of Spain, ICSID Case No. ARB/13/36, Award, 4 May 2017 ("Eiser v. Spain (Award)"), Legal Authority CL-0191.

Eiser Infrastructure Limited and Energia Solar Luxembourg S.À R.I. v. Kingdom of Spain, ICSID Case No. ARB/13/36, Decision on Annulment, 11 June 2020 ("Eiser v. Spain (Annulment Decision)"). Legal Authority RL-102.

Electrabel S.A. v. The Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability. 30 November 2012. ("Electrabel v. Hungary (Decision on Jurisdiction, Applicable Law and Liability)"). Legal Authority CL-0070.

Electrabel S.A. v. The Republic of Hungary, ICSID Case No. ARB/07/19, Award, 25 November 2015. ("Electrabel v. Hungary (Award)"). Legal Authority RL-0048.

El Paso Energy International Company v. The Argentine Republic, ICSID Case No. ARB/03/15, Award. 31 October 2011 ("El Paso v. Argentina (Award)"). Legal Authority CL-0053.

EnCana Corporation v. Republic of Ecuador, LCIA Case No. UN 3481, Award, 3 February 2006 ("EnCana v. Ecuador (Award)"). Legal Authority RL-0027.

Enron Corporation and Ponderosa Assets, L.P v. The Argentine Republic, ICSID Case No ARB/01/3. Award. 22 May 2007 ("Enron v. Argentine Republic (Award)"). Legal Authority CL-0062.

Foresight Luxembourg Solar 1 S.À.R.L ., Foresight Luxembourg Solar 2 S.À.R.L ., Greentech Energy Systems A/S, GWM Renewable Energy I S.P.A., GWM Renewable Energy II S.P.A. v. Kingdom of Spain, SCC Arb V 2015/150. 14 November 2018 ("Foresight v. Spain (Final Award"). Legal Authority CL-0217.

Invesmart, B.V. v. Czech Republic, UN-0036-01, Award, 26 June 2009 ("Invesmart v. Czech Republic (Award)"), Legal Authority RL-0019.

Ioan Micula, Viorel Micula and others v. Romania, ICSID Case No. ARB/05/20, Award, 11 December 2013. ("Micula v. Romania (Award)"). Legal Authority CL-0014.

Isolux Infrastructure Netherlands, B.V. v. Kingdom of Spain (SCC Case V2013/153), Award, 12 July 2016 ("Isolux v. Spain (Award)"). Legal Authority RL-0075/CL-0176.

LG&E Energy Corp., LG&E Capital Corp., and LG&E International, Inc. v. The Argentine Republic, ICSID Case No ARB/02/1, Decision on Liability, 3 October 2006 ("LG&E v. Argentine Republic (Decision on Liability)"). Legal Authority CL-0063.

Mamidoil Jetoil Greek Petroleum Products Societe Anonyme S.A. v. Republic of Albania, ICSID Case No. ARB/11/24. Award. 30 March 2015 ("Mamidoil v. Albania (Award)"). Legal Authority CL-0173.

Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1, Award. 16 May 2018 ("Masdar v. Spain (Award)"). Legal Authority CL-0198/RL-0091.

Mr. Jurgen Wirtgen, Mr. Stefan Wirtgen, Mrs. Gisela Wirtgen, JSW Solar (zwei) GmbH & Co. KG v. The Czech Republic, PCA Case No. 2014-03, Final Award, 11 October 2017 ("Wirtgen v. Czech Republic (Final Award)"). Legal Authority RL-0087.

Novenergia II - Energy & Environment (SCA), SICAR v. Kingdom of Spain, SCC Arbitration 2015/063, Final Award, 15 February 2018 ("Novenergia v. Spain (Final Award)"), Legal Authority CL-0196.

OperaFund Eco-Invest SICAV PLC and Schwab Holding AG v. Kingdom of Spain, ICSID Case No. ARB/15/36, Award, 6 September 2019 ("OperaFund v. Spain (Award)"), Legal Authority CL-0225.

Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/08, Award, 11 September 2007 ("Parkerings v. Lithuania (Award)"), Legal Authority CL-0060.

Plama Consortium Limited v. The Republic of Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2008 ("Plama v. Bulgaria (Award)"), Legal Authority RL-0034.

The PV Investors v. Spain, PCA Case No. 2012-14, Final Award, 28 February 2020 ("PV Investors v. Spain (Award)"), Legal Authority RL-100.

The PV Investors v. Spain, PCA Case No. 2012-14, Concurring and Dissenting Opinion of Charles N. Brower, 28 February 2020 ("PV Investors v. Spain (Dissenting Opinion)"), Legal Authority RL-101.

RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/30, Decision on Jurisdiction, 6 June 2016 ("RREEF v. Spain (Decision on Jurisdiction)"), Legal Authority CL-0135.

RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spai n, ICSID Case No. ARB/13/30, Decision on Responsibility and on the Principles of Quantum, 30 November 2018 ("RREEF v. Spain (Decision on Responsibility and Principles of Quantum)"), Legal Authority RL-0093.

Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award on Jurisdiction and Merits, 17 March 2006, ¶ 307 ("Saluka v. Czech Republic (Partial Award)"), Legal Authority CL-0055.

Stadtwerke München GMBH, RWE Innogy GMBH, and Others v. Kingdom of Spain, ICSID Case No. ARB/15/1, Award, 2 December 2019, ("Stadtwerke v. Spain (Award)")

Slowakische Republik (Slovak Republic) v. Achmea BV, Court of Justice of the European Union, Case C-284/16, Judgment, 6 March 2018 ("Achmea ruling"), Legal Authority CL-0205.

Técnicas Medioambientales Tecmed S.A. v. United Mexican States, ICSID Case No ARB(AF)/00/2, Award, 29 May 2003 ("Tecmed v. United Mexican States (Award)"), Legal Authority CL-0056.

Vattenfall AB, Vattenfall GmbH, Vattenfall Europe Nuclear Energy GmbH, Kernkraftwerk Krummel GmbH & Co. oHG, Kernkraftwerk Brunsbuttel GmbH & Co. oHG v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea Issue, 31 August 2018 ("Vattenfall v. Germany (Decision on the Achmea Issue)"), Legal Authority CL-0216.

Waste Management, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/00/3, Award, 30 April 2004 ("Waste Management v. United Mexican States (Award)"), Legal Authority CL-0057.

WNC Factoring Ltd (United Kingdom) v. The Czech Republic, PCA Case No. 2014-34, Award, 22 February 2017 (WNC v. Czech Republic (Award)"), Legal Authority RL-0076.

Yukos Universal Limited (Isle of Man) v. The Russian Federation, PCA Case No. AA 227, Final Award, 18 July 2014 ("Yukos v. Russia (Final Award)"), Legal Authority RL-0073.

I. INTRODUCTION AND PARTIES

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

II. PROCEDURAL HISTORY

A. Registration and Tribunal’s Constitution

4.
On 27 July 2015, ICSID received a request for arbitration from Cavalum against Spain, accompanied by Exhibits CEX-001 to CEX-007 (the "Request").
5.
On 4 August 2015, the Secretary-General of ICSID registered the Request in accordance with Article 36(3) of the ICSID Convention and notified the Parties. The Secretary-General also invited the Parties to proceed to constitute an arbitral tribunal as soon as possible in accordance with Rule 7.d of ICSID’s Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings.
6.
On 19 October 2015, the Parties informed the Centre of their agreement on the method for the constitution of the arbitral tribunal. According to this, the Claimant would appoint an arbitrator by 19 October 2015, Spain would appoint an arbitrator by 30 October 2015, and the Parties would try to reach an agreement on the appointment of the presiding arbitrator by 13 November 2015.
7.
On that same date, the Claimant appointed Mr. David R. Haigh Q.C., a national of Canada, as an arbitrator. On 28 October 2015, Mr. Haigh accepted his appointment.
8.
On 12 November 2015, Spain appointed Sir Daniel Bethlehem Q.C., a national of the United Kingdom, as an arbitrator. Sir Daniel accepted his appointment on 14 November 2015.
9.
On 15 January 2016, the Claimant informed the Centre of the Parties’ agreement to appoint Lord Collins of Mapesbury, LLD, FBA, a national of the United Kingdom, as the presiding arbitrator in this case. On 18 January 2015, Spain confirmed the agreement.
10.
On 22 January 2016, the Secretary-General, in accordance with Rule 6.1 of the ICSID Rules of Procedure for Arbitration Proceedings (the "Arbitration Rules"), notified the Parties that all three arbitrators had accepted their appointments and that the Tribunal was therefore deemed to have been constituted on that date. Mr. Francisco Grob, ICSID Legal Counsel, was designated to serve as Secretary of the Tribunal.

B. The First Session

11.
In accordance with ICSID Arbitration Rule 13(1), the Tribunal held a first session with the Parties on 18 March 2016, by teleconference.
12.
Following the first session, the Tribunal issued Procedural Order No. 1 ("PO1") on 5 May 2016, recording the agreement of the Parties on procedural matters and the decision of the Tribunal on disputed issues.

C. The European Commission’s First Application to Intervene

13.
On 18 April 2016, the European Commission ("EC") submitted an Application for Leave to Intervene as a Non-Disputing Party pursuant to Article 37.2 of the ICSID Arbitration Rules ("EC’s First Application").
14.
On 6 May 2016, each Party submitted its observations on the EC’s First Application. The Claimant’s submission was accompanied by Indexes of Exhibits and Legal Authorities, Exhibit C-0008 and Legal Authorities CL-0001 to CL-0042. Spain’s submission was accompanied by Appendices 1-3.
15.
On 20 May 2016, the Tribunal issued Procedural Order No. 2. The Tribunal found that the Application was premature and dismissed it without prejudice to a further application by the Commission after Spain had submitted its Counter-Memorial.

D. The Parties’ First Round of Written Submissions

16.
On 25 July 2016, the Claimant filed its Memorial on the Merits ("Cl. Mem."), together with the Witness Statements of Mr. José Valentim Pereira da Cunha ("CWS-JP1"), Mss. Maria Helena Brandão ("CWS-MHB1") and Sonia López Mera ("CWS-SLM"), the Expert Reports of Manuel Aragón Reyes, Jaume Margarit and FTI’s Consulting Quantum ("FTI’s First Quantum Report") and Regulatory ("FTI’s First Regulatory Report") Reports accompanied by their corresponding supporting documentation, Indexes of Exhibits and Legal Authorities, Exhibits C-0009 to C-0235, and Legal Authorities CL-0043 to CL-0134.
17.
On 28 October 2016, Spain filed its Counter-Memorial on the Merits and Memorial on Jurisdiction ("Resp. C-M"), together with a Witness Statement of Carlos Montoya ("RWS-CM1") and its supporting documentation, and Expert Reports of Professors Pablo Pérez Tremps and Marcos Vaquer Caballería and Accuracy ("Accuracy’s First Expert Report"), which was filed together with its corresponding supporting documentation, Indexes of Factual Exhibits and Legal Authorities, Exhibits R-0001 to R-0229, and Legal Authorities RL-0001 to RL-0069.

E. Document Production

18.
Pursuant to the Parties’ agreement of 19 December 2016, each Party filed on 22 December 2016, a Request for Production of Documents, together with its corresponding Redfern Schedule and the Responses or Objections to the Other Party’s Request.
19.
On 13 January 2017, the Tribunal issued its rulings on the Parties’ Requests for Production of Documents.

F. The European Commission’s Second Application to Intervene

20.
On 17 January 2017, the EC submitted a Second Application for Leave to Intervene as a Non-Disputing Party ("EC’s Second Application").
21.
On 30 January 2017, each Party submitted its observations on the EC’s Second Application. The Claimant’s submission was accompanied by Indexes of Exhibits and Legal Authorities, and Legal Authority CL-0135. Spain’s submission was accompanied by Appendices 1-3.
22.
On 21 February 2017, the Tribunal issued Procedural Order No. 3, granting the EC’s Second Application. The Commission was permitted to make a written submission on the specific matter of the intra-EU jurisdictional objection, limited to 25 pages, followed by comments by the Parties.
23.
On 28 April 2017, the EC filed its Amicus Curiae Brief, together with Annexes EC-01 to EC-21.

G. The Parties’ Second Round of Written Submissions

24.
On 28 March 2017, the Claimant filed its Reply Memorial on the Merits and Counter-Memorial on Jurisdiction ("Cl. Reply") together with the Second Witness Statements of Mr. José Valentim Pereira da Cunha ("CWS-JP2") and Ms. Maria Helena Brandão ("CWS-MHB2"), the Expert Report of Mr. Andrew Lars Kirkpatrick of FTI Consulting together with its corresponding documentation, the Second Expert Reports of Manuel Aragón Reyes, Jaume Margarit, and FTI’s Consulting Quantum ("FTI’s Second Quantum Report") and Regulatory ("FIT’s Second Regulatory Report") Reports, accompanied by their corresponding supporting documentation, Indexes of Exhibits and Legal Authorities, Exhibits C-0235 to C-0288, and Legal Authorities CL-0136 to CL-0188.
25.
On 2 June 2017, Spain filed its Rejoinder on the Merits and Reply on Jurisdiction ("Resp. Rej."), together with the Second Witness Statement of Carlos Montoya ("RWS-CM2") and its supporting documentation, the Second Expert Report of Professors Pablo Pérez Tremps and Marcos Vaquer Caballería, and Accuracy ("Accuracy’s Second Expert Report") along with its supporting documentation, Indexes of Factual Exhibits and Legal Authorities, Exhibits R-0230 to R-0316, and Legal Authorities RL-0070 to RL-0078.
26.
On 7 July 2017, the Claimant filed its Rejoinder on Jurisdiction and Response to the EC’s Amicus Curiae Brief ("Cl. Rej."), together with Indexes of Exhibits and Legal Authorities, Exhibits C-0289 to C-0298, and Legal Authorities CL-0189 to CL-0195.

H. Pre-Hearing Procedures

27.
On 19 January 2018, the Claimant notified the Tribunal of the witnesses and experts it wished to call for cross-examination at the hearing, and Spain did so on 20 January 2018.
28.
On 1 February 2018, a pre-hearing teleconference was held between the Tribunal and the Parties pursuant to Section 19.1 of PO1.
29.
On 2 February 2018, the Tribunal issued Procedural Order No. 4. It reflected the Parties’ agreements and the Tribunal’s decisions concerning the organization of the hearing.
30.
Pursuant to Section 17.2 of PO1, on 23 February 2018, the Claimant requested leave from the Tribunal to file a Supplemental Expert Report by Mr. Richard Edwards into the record. Spain filed its observations opposing this request on 28 February 2018.
31.
On 1 March 2018, the Tribunal denied the Claimant’s request, and directed the Parties to submit a Joint Expert Memorandum on certain issues.
32.
On 2 March 2018, each Party requested leave from the Tribunal to introduce additional supporting documentation into the record. On 5 March 2018, the Tribunal invited the Parties to provide observations on the opposing Party’s request by 6 March 2018.
33.
On 6 March 2018, the Tribunal informed the Parties that at the hearing it wished to receive the Parties’ arguments on the judgment of the Court of Justice of the European Union ("CJEU") in the Achmea ruling. On this same date, each Party submitted observations on the other Party’s request to introduce additional supporting documentation into the record. Spain’s communication included the request to introduce the Achmea ruling into the record.
34.
On 7 March 2018, pursuant to the Tribunal’s instructions of 1 March 2018, the Parties submitted to the Tribunal a Joint Memorandum on Quantum and a Joint Memorandum on the Discount Rate in the Actual Scenario. The Parties requested an extension of time to file a Joint Memorandum on Regulatory Issues.
35.
On 8 March 2018, the Tribunal issued its decision on the Parties’ requests to file additional supporting documentation into the record.
36.
On 12 March 2018, the Parties filed a Joint Memorandum on Regulatory Issues.
37.
A Hearing on Jurisdiction and the Merits was held in London from 12 to 16 March 2018 (the "Hearing"). The following persons were present at the Hearing:

Tribunal:
Lord Lawrence Collins President
Mr. David R. Haigh Q.C. Arbitrator
Sir Daniel Bethlehem Q.C. Arbitrator

ICSID Secretariat:
Francisco Grob D. Secretary of the Tribunal

For the Claimant:
Mr. Kenneth Fleuriet King & Spalding
Mr. Reginald Smith King & Spalding
Mr. Kevin Mohr King & Spalding
Ms. Isabel San Martín King & Spalding
Mr. Antoine Weber King & Spalding
Mr. Carlos Cardoso Cavalum
Mr. José Alzate FTI Consulting
Mr. Joel Franks FTI Consulting
Ms. Kristina Danilova FTI Consulting

For Spain:
Mr. Diego Santacruz Descartín Abogacía General del Estado
Mr. Antolín Fernández Antuña Abogacía General del Estado
Ms. Mónica Moraleda Saceda Abogacía General del Estado
Ms. Elena Oñoro Sáinz Abogacía General del Estado
Ms. Amaia Rivas Kortazar Abogacía General del Estado
Ms. Raquel Vázquez Meco Instituto para la Diversificación y Ahorro Energético
Ms. Laura Cózar Accuracy
Mr. Alberto Fernández Accuracy
Mr. Carlos Canga Accuracy
Ms. Julie Dasse Accuracy

Court Reporters:
Mr. Trevor McGowan English Court Reporter
Mr. Paul Pelissier English Court Reporter
Mr. Dionisio Rinaldi Spanish Court Reporter

Interpreters:
Mr. Jesus Getan Bornn English-Spanish Interpreter
Ms. Amalia Thaler - de Klemm English-Spanish Interpreter
Mr. Marc Viscovi English-Spanish Interpreter
Ms. Maria Fordham Portuguese-Spanish Interpreter
Mr. Cristóvão Leitão Portuguese-Spanish Interpreter

38.
During the Hearing, the following persons were examined:

On behalf of the Claimant:
Mr. José Valentim Pereira da Cunha Cavalum
Ms. Maria Helena Brandão Cavalum
Ms. Sonia López Mera Cavalum
Mr. Manuel Aragón Reyes
Dr. Dora Grunwald FTI Consulting
Dr. Boaz Moselle Cornerstone
Mr. Richard Edwards FTI Consulting

On behalf of Spain:
Mr. Carlos Montoya Rasero Instituto para la Diversificación y Ahorro Energético
Prof. Dr. Pablo Pérez Tremps Universidad Carlos III de Madrid
Prof. Dr. Marcos Váquer Caballería Universidad Carlos III de Madrid
Mr. Eduard Saura Accuracy
Mr. Stéphane Perrotto Accuracy
Mr. Christophe Schmit Accuracy

I. The European Commission’s Third Application to Intervene

39.
On 16 May 2018, the EC filed a communication proposing to update its Amicus Curiae Brief of 28 April 2017 ("EC’s Third Application"), in light of the Achmea ruling.
40.
On 28 May 2018, pursuant to ICSID Arbitration Rule 37.2, each Party filed its observations on the EC’s Third Application.
41.
On 12 June 2018, the Tribunal granted the EC’s Third Application and on 22 June 2018, the EC filed its updated Amicus Curiae Brief.

J. Post-Hearing Procedures

42.
On 11 May 2018, the Parties filed their agreed corrections to the Hearing transcript.
43.
On 28 June 28, 2018, the Tribunal held a videoconference with the Parties, for the cross-examination of the Claimant’s Witness, Mr. Jaume Margarit ("Mr. Margarit’sTestimony"), who had been unable to testify at the Hearing.
44.
On 3 September 2018, the Parties filed their agreed corrections to the transcript of Mr. Margarit’s Testimony.
45.
The Parties filed simultaneous Post-Hearing Briefs on 18 September 2018.
46.
On 23 November 2018, the Claimant asked the Tribunal to take judicial notice of the award rendered in Foresight v. Spain. On 10 December 2018, Spain objected to the Claimant’s request. On 13 December 2018, the Tribunal invited the Parties to formally introduce the Foresight award into the record and to make simultaneous submissions on its relevance, if any, by 21 December 2018.
47.
On 21 December 2018, the Parties filed their comments on the Foresight award. Claimant’s submission was accompanied by Legal Authority CL-0217.
48.
On 25 January 2019, Spain requested leave from the Tribunal to introduce the "Declaration of the Representatives of the Governments of the Member States, of 15 January 2015 on the legal consequences of the judgment of the Court of Justice in Achmea and on Investment Protection in the European Union". On 4 February 2019, the Claimant filed its observations on Spain’s request. It urged the Tribunal: (1) to reject Spain’s request, (2) if the Tribunal was to admit Spain’s request, to also admit into the record the Second Declaration made by other EU Member States - including Finland, Luxembourg, Malta, Slovenia, and Sweden, and (3) to allow the Parties to file simultaneous submissions addressing both Declarations and any relevant case law post- Achmea on the intra-EU issue.
49.
On 12 February 2019, the Tribunal granted Spain’s request of 25 January and the Claimant’s request of 4 February 2019. The Parties were thus invited to make simultaneous submissions addressing both Declarations and any other relevant case law post- Achmea on the intra-EU issue. The Parties did so on 19 February 2019. The Claimant’s submission was accompanied by Exhibits C-0309 and C-0310, and Legal Authority CL-0218.
50.
On 22 February 2019, the Tribunal invited the Claimant to submit its comments on a suggestion made by Spain in its 19 February submission, in order to invite Portugal to advise the Tribunal of the consequences of the Achmea ruling. On 1 March 2019, the Claimant submitted its comments, objecting to Spain’s proposal.
51.
On 6 May 2019, Spain requested leave from the Tribunal to introduce into the record the Decision on Responsibility and on the Principles of Quantum issued in RREEF v. Spain, together with the Partially Dissenting Opinion of Professor Robert Volterra. On 16 May 2019, the Claimant accepted Spain’s request on the condition that Spain consented to the addition of the Decision on Jurisdiction, Liability and Partial Decision on Quantum issued by the tribunal in Cube v. Spain. On 27 May 2019, Spain granted its consent.
52.
On 13 June 2019, Spain filed the RREEF and Cube decisions as Legal Authorities RL-0093 and RL-0094, along with its comments thereon.
53.
On the same date, the Claimant submitted a letter, calling the Tribunal’s attention to the reasoning of the award rendered on 31 May 2019, in the proceeding between 9REN Holding S.à.r.l. v. Kingdom of Spain (ICSID Case No. ARB/15/15).
54.
On 4 December 2019, Spain requested leave from the Tribunal to file the award rendered in Stadtwerke München GmbH, RWE Innogy GmbH and Others v. Kingdom of Spain (ICSID Case No. ARB/15/1), and the Decision on Jurisdiction, Liability and Directions on Quantum issued in BayWa R.E. Renewable Energy GmbH and BayWa R.E. Asset Holding GmbH v. Kingdom of Spain (ICSID Case No. ARB/15/16).
55.
On 6 December 2019, the Tribunal invited the Parties to confer and inform the Tribunal as to whether they agreed to introduce the proposed legal authorities as well as any others the Parties considered relevant into the record.
56.
On 10 December 2019, each Party submitted its comments on the other Party’s request for introduction of new legal authorities. In its communication, the Claimant stated that it "believe[d] that the Tribunal should consider that totality of awards and decisions issued by tribunals in treaty arbitrations against Spain related to the same Disputed Measures at issue in this proceeding". Additionally, the Claimant requested leave to file additional documents into the record.
57.
On 10 January 2020, Spain submitted its comments on the Claimant’s communication of 10 December 2019. Spain’s communication also included a request to add an additional decision into the record.
58.
On 22 January 2020, the Tribunal communicated the Parties its decision regarding the admission of new documents. The Tribunal also invited Spain to submit its comments concerning the Claimant’s characterization of RDL 17/2019, one of the proposed documents to be filed.
59.
On 31 January 2020, the Claimant filed into the record Exhibits C-0311 and C-0312, and Legal Authorities CL-0219 to CL-0226. In this communication, the Claimant requested leave from the Tribunal to introduce another document into the record.
60.
On 3 February 2020, Spain submitted its comments on the Claimant’s request of 31 January 2020. Spain also requested leave to file an additional document into the record.
61.
On 5 February 2020, the Tribunal granted the Parties’ requests as formulated in the Claimant’s communication of 31 January 2020 and Spain’s communication of 3 February 2020.
62.
On 10 February 2020, Spain submitted its comments on the characterization of RDL 17/2019. The submission was accompanied by Legal Authorities RL-0095 to RL-0099.
63.
On 11 February 2020, the Claimant filed Legal Authority CL-0227. Additionally, the Claimant requested leave from the Tribunal to present its comments on Spain’s submission of 10 February 2020. On 12 February 2020, Spain opposed this request. Alternatively, Spain requested that in case the Tribunal accepted the Claimant’s request, it granted leave for Spain to submit a response to the Claimant’s comments.
64.
On 20 February 2020, the Tribunal granted both Parties’ requests. Following this decision, on 28 February 2020, the Claimant submitted its comments on RDL 17/2019 and Spain’s comments thereto of 10 February 2020. The Claimant’s comments were accompanied by a corrected version of Exhibit C-0312.
65.
On 5 March 2020, Spain requested a time extension to submit its comments on the Claimant’s submission of 28 February 2020. Additionally, Spain requested leave to introduce a new decision into the record, while stating that the Parties’ comments on such decision were not necessary. On 6 March 2020, the Tribunal granted Spain’s requests.
66.
Also, on 6 March 2020, the Claimant informed the Tribunal that it disagreed with Spain’s "suggestion that it is not necessary for the Tribunal to receive comments from the Parties" on the new decision. The Claimant opined that the Parties should be allowed to submit their comments.
67.
On March 12, 2020, Spain submitted its comments on RDL 17/2019, and introduced the Final Award rendered on 28 February 2020 in The PV Investors v. Spain (PCA Case No. 2012-14), along with the Dissenting Opinion of Charles Concurring and Dissenting Opinion of Charles N. Brower, Legal Authorities RL-0100 and RL-0101.
68.
On 13 March 2020, the EC submitted a communication concerning a Decision by which "it authorizes the measures adopted in the Spanish legislation in 2013 and 2014 as State aid", which in its opinion "directly affects the legal assessment" of the current proceeding.
69.
On 6 April 2020, the Claimant submitted its comments on the PV Investors Final Award, and copies of the Preliminary Award on Jurisdiction issued in the same case on 13 October 2014.
70.
On 20 April 2020, Spain submitted its comments on the PV Investors Final Award.
71.
On 21 April 2020, the Tribunal thanked the EC for their communication of 13 March 2020 and advised it that the Tribunal had no further questions to ask in this regard.
72.
On 23 June 2020, Spain requested leave to file a copy of the Decision on the Kingdom of Spain’s Application for Annulment rendered on 11 June 2020 in Eiser Infrastructure Limited and Energía Solar Luxembourg S.á r.l. v. Kingdom of Spain (the ICSID Case ARB/13/36). On 2 July 2020, Claimant agreed to Spain’s request, so long as the Parties were permitted to submit comments on the decision.
73.
Following the Tribunal’s directions, on 13 July 2020, Spain filed a copy of the Eiser annulment decision (Legal Authority RL-102), along with its comments thereon. On 22 July 2020, the Claimant responded to Spain’s comments.

III. THE PARTIES’ CLAIMS AND REQUESTS FOR RELIEF

74.
In its final pleading, its Rejoinder on Jurisdiction, the Claimant stated its request for relief to the Tribunal as follows:

a declaration that the Tribunal has jurisdiction under the ECT and the ICSID Convention for all of Cavalum’s claims, thereby rejecting Respondent’s jurisdictional objections in full;

a declaration that Spain has violated Part III of the ECT and international law with respect to Cavalum’s investments;

compensation to Cavalum for all damages it has suffered as set forth in its Memorial on the Merits and in its Reply Memorial on the Merits and as may be further developed and quantified during the course of this proceeding;

all costs of this proceeding, including (but not limited to) Cavalum’s attorneys’ fees and expenses. the fees and expenses of Cavalum’s experts. and the fees and expenses of the Tribunal and ICSID;

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

any other relief the Tribunal deems just and proper.

75.
Spain, in its Rejoinder on the Merits and Reply on Jurisdiction, requests the following from the Tribunal:

a) declare its lack of jurisdiction to hear the claims of the Claimant, or if applicable their inadmissibility, in accordance with what is set forth in section III of this Memorial, referring to Jurisdictional Objections; and

b) Subsidiarily, in the event that the Arbitral Tribunal decides that it has jurisdiction to hear this dispute, to dismiss all the Claimants' claims regarding the Merits, as the Kingdom of Spain has not breached the ECT in any way, pursuant to sections IV and V herein, referring to the Facts and the Merits, respectively;

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

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

IV. APPLICABLE LAW

A. The Claimant’s Position

76.
For the Claimant, it follows from Article 42(1) of the ICSID Convention and Article 26.6 ECT that the ECT itself and other sources of international law form the applicable law of this dispute. This includes the Vienna Convention on the Law of Treaties ("VCLT"), and other applicable rules and principles of international law, including those authoritatively set out in the Articles on Responsibility of States for Internationally Wrongful Acts of the International Law Commission of the United Nations.
77.
Spanish law is relevant to this dispute only as a matter of fact, to be considered by the Tribunal along with other facts of this case. Spanish law does not provide and cannot influence the legal standards that the Tribunal applies to determine whether Spain violated the ECT and international law. It is well settled that a State cannot avoid liability under international law by relying upon its domestic law. Thus, whether or not Spain’s regulatory measures complied with its domestic law is irrelevant to the Tribunal’s consideration of Spain’s breaches of the ECT and international law.

B. Spain’s position

78.
Spain argues that EU law is international law and as such, it must be applied by the Tribunal in accordance with Article 26.6 ECT. EU law is also part of the laws of Spain and a relevant fact for deciding the dispute.1
79.
Both Spain and Portugal, the Claimant’s home State, are EU Member States. In an intra- EU context, EU law has primacy over the laws of Member States.
80.
EU Law is not confined to the Treaties signed by EU Member States, but it has to be extended to the relevant legal acts of EU Institutions through which those Institutions exercise the European Union’s competencies, including Regulations, Directives and Decisions as provided for by Article 288 of the Treaty on the Functioning of the European Union (thereinafter "TFEU").2
81.
Moreover, the core of the dispute in this case revolves around issues of State Aid. Public subsidies are the largest component of feed-in tariffs. This is a matter regulated by EU law. EU law is thus decisive in determining the scope of investors’ rights under the regulatory framework of renewable energies in Spain.

V. FACTUAL BACKGROUND

A. The Investor

82.
Cavalum SGPS, S.A. ("Cavalum") is a joint-stock company ("sociedade anónima") incorporated under the laws of Portugal. It was created by two Portuguese engineers, Mr. Carlo Cadoso and Mr. José Valentim Pereira da Cunha. Cavalum specialises in developing, financing, and operating facilities that produce electricity from renewable energy sources.
83.
In 1995, Cavalum began investing in the Portuguese market. It expanded outside Portugal in 2007, with plans to establish a presence in France and Spain across multiple renewable energy technologies. Until today, Cavalum maintains a strong presence in the renewable energy sectors of Portugal, Spain, and France. Although, as noted below, Spain initially asserted that Cavalum did not have standing in respect of claim by companies in which it is a shareholder, that claim was not maintained. Subject to Spain’s "intra-EU" objection, addressed below (which goes to the issue of whether the Claimant is an investor of another Contracting Party, i.e., not whether it is an "investor" per se), there is no material dispute about the Claimant as investor in Spain.

B. Claimant’s Investments in Spain

84.
There is equally no material dispute about the nature of the Claimant’s investments in Spain. Through its Spanish subsidiaries and special purpose vehicles, Cavalum holds interests in, controls, and operates the following seven photovoltaic ("PV") power plants in Spain:

- Don Alvaro PV plant ("Don Alvaro"), located in Extremadura, which has an installed nominal power capacity of 1.5 MW and was commissioned in May 2008. Cavalum owns 100% of this facility.

- La Albuera PV plant ("La Albuera"), located in Extremadura, which has an installed nominal power capacity of 2.0 MW and was commissioned in July 2008. Cavalum owns 50% of this facility.

- Fuente de Cantos PV plant ("Fuente de Cantos"), located in Extremadura, which has an installed nominal power capacity of 4.0 MW and was commissioned in July 2008. Cavalum owns 50% of this facility.

- La Roda PV plant ("La Roda"), located in Castilla-la- Mancha, which has an installed nominal power capacity of 2.0 MW and was commissioned in August 2008. Cavalum owns 100% of this facility.

- Riosalido PV plant ("Riosalido"), located in Castilla-la- Mancha, which has an installed nominal power capacity of 1.5 MW and was commissioned in September 2008. Cavalum owns 100% of this facility.

- Talarrubias PV plant ("Talarrubias"), located in Extremadura, which has an installed nominal power capacity of 1.9 MW and was commissioned in June 2010. Cavalum owns 51% of this facility.

- Solarwell PV plant ("Solarwell"), located in Extremadura, which has an installed nominal power capacity of 2.5 MW and was commissioned in January 2013. Cavalum owns 51% of this facility.

C. The Materialization of the Investment

85.
The Claimant states that in early 2007, Cavalum was put in contact with Sonia López Mera from the Spanish company Acción Solar Iberia SL, regarding investment opportunities in Spain. Ms. López Mera introduced Valsolar to Cavalum’s shareholders and management, which had been developing PV and other renewable energy facilities in Spain since 2006.
86.
Following several meetings, Cavalum and Valsolar executed on 21 August 2007 an agreement on the sale of rights for the Don Álvaro PV project. Parque Fotovoltaico Don Álvaro, S.L. was incorporated along with 15 other special purpose vehicles for this project, of which Cavalum owns 100% of the shares. Cavalum then obtained the necessary EPC and O&M agreements for the construction of the facilities in fall 2007. Don Álvaro was commissioned in May 2008 and registered in the Registry of Power Installations under Special Regime (Registro de Instalaciones de Producción en Régimen Especial) ("RAIPRE") in June 2008.
87.
On 23 November 2007, Cavalum and Valsolar entered into a Joint Participation Agreement to complete the development of the Fuente de Cantos and La Albuera projects. Parque Fotovoltaico Fuente de Cantos, S.L. was established with additional 40 special purpose vehicles. Cavalum has a 50% ownership stake in these subsidiaries. Parque Fotovoltaico La Albuera, S.L. was also incorporated as a subsidiary project company along with 20 special purpose vehicles. Cavalum has a 50% ownership stake in these companies. After entering into the relevant EPC and O&M agreements for the construction of the facilities, La Abuera and Fuente de Cantos were commissioned and registered in the RAIPRE during the summer of 2008.
88.
While Cavalum was jointly developing these three projects with Valsolar, the company also partnered with Bosques Solares S.L., a development company in Spain, to complete and acquire two additional projects, Riosalido and La Roda. On 2 May 2008, Cavalum incorporated two subsidiary project companies for these additional projects, Parque Fotovoltaico La Roda, S.L. with 20 special purpose vehicles and Parque Fotovoltaico Riosalido, S.L. with 19 special purpose vehicles. Cavalum owns 100% of the shares in both subsidiaries. On the same day of their incorporation, these companies entered into EPC and O&M agreements with Bosques Solares for the construction of the facilities. Over the course of July and August 2008 both the Riosalido and La Roda facilities were commissioned and registered in the RAIPRE.
89.
Cavalum states that after new PV facility registration was closed under RD 661/2007 in September 2008, it continued to assess additional investments in Spain. By April 2009, Cavalum claims that it had secured all of the necessary documents to apply for enrolment in RD 1578/2008 for six additional plants: Talarrubias (planned capacity of 1.9 MW); Vega de Botoa or Solarwell (planned capacity of 2.5 MW); Calzadilla (planned capacity of 2.0 MW); Fotovoltaica Lobon (planned capacity of 2.7 MW), Solar Lobon (planned capacity of 2.4 MW), and Solar de Botoa (planned capacity of 2.5 MW).
90.
On 10 October 2008, Cavalum acquired 51% of the shares in Solarwell. In November 2008, Cavalum applied for the pre-allocation registry for these installations, which it secured in October 2011. Cavalum achieved final commissioning for Solarwell on 29 January 2013, and final registration in the RAIPRE on 7 March 2013. On 9 May 2009, Cavalum also acquired 51% of the shares in Talarrubias. In July 2009, this plant was registered in the pre-allocation registry of RD 1578/2008. Construction was completed in June 2010, and final registration in the RAIPRE on 30 June 2010. Two more subsidiary companies were incorporated for these projects, Fotovoltaica Talarrubias, S.L. and Solarwell Parques Fotovoltaicos, S.L. Cavalum has a 51% ownership share in both of these subsidiaries.
91.
Spain enrolled Calzadilla into the RD 1578/2008 pre-allocation registry in 2011, but Cavalum and Valsolar sold that facility in April 2012. The Claimant states that the three other projects were never developed, because they did not secure a spot in the RAIPRE registration before the enactment of Royal Decree - Law 1/2012 (the "Abandoned Projects").
92.
For purposes of this arbitration, Claimant contends that the relevant date of the investment is when Cavalum made the decision to invest in each of the PV plants, not the date of subsequent expenditures to develop the PV plants. These dates are as follows:3
PlantClaimant's InvestmentRAIPRE RegistrationSources
Don Alvaro 21 Aug. 2007 30 June 2008 Agreement on Sale/Purchase of Rights (C-198); RAIPRE Registration (C-205)
La Albuera 23 Nov. 2007 28 Aug. 2008 Joint Participation Agreement (C-194); RAIPRE Registration (C-211)
Fuente de Campos 23 Nov. 2007 4 Sept. 2008 Joint Participation Agreement (C-194); RAIPRE Registration (C-213)
La Roda 2 May 2008 25 Aug. 2008 Deed of Incorporation and EPC/O&M Agreements (C-215, C-217, C-219); RAIPRE Registration (C-224)
Riosalido 2 May 2008 25 Aug. 2008 Deed of Incorporation and EPC/O&M Agreements (C-216, C-218, C-220); RAIPRE Registration (C-222)
93.
Even if the date of subsequent expenditures was relevant, the Claimant states that all these plants were completed by the summer of 2008, when they received their RAIPRE registrations. The only plants that were completed later are Talarrubias and Solarwell. For these plants, the date of investment, according to the Claimant, must be when Cavalum committed to these projects, which in the case of Talarrubias is 9 May 2009, when Cavalum acquired the shares in the SPV and paid €327,000 for them. In the case of Solarwell, Cavalum committed to this project on 12 October 2008, when Cavalum acquired the shares for a price of €663,000. At this point, the Claimant argues, Cavalum could not simply walk away without losing its investment and the bank guarantees submitted to apply for the pre-allocation registry (i.e., €950,000 for the Talarrubias plant and 1.25 million for the Solarwell plant) to secure completion of these projects.
94.
For the three Abandoned Projects, the Claimant submits that relevant date should be determined based on the time at which significant capital contributions were made, in October 2008, and the pre-allocation applications, which were submitted in February and April 2009.

VI. JURISDICTION

A. Overview of the Parties’ Positions

(1) The Claimant’s Position

95.
The Claimant asserts that the Tribunal has jurisdiction to hear this claim. The Claimant is a company incorporated in Portugal, and of Portuguese nationality. Portugal and Spain are Contracting States to both the ICSID Convention and the ECT.
96.
Cavalum consented to ICSID arbitration by filing a Request for Arbitration on 27 July 2015 after it attempted, unsuccessfully, to settle the dispute amicably.4 Spain gave its "unconditional consent" to the submission of this dispute to ICSID arbitration in Article 26.3 ECT.
97.
The dispute involves covered "Investments" under the ECT, which include: (i) the Claimant’s ownership of tangible and intangible property and property rights; (ii) the Claimant’s ownership of shares and equity participation in Spanish companies and business enterprises, as well as debt obligations; (iii) the Claimant’s right to returns, claims to money, and claims to performance pursuant to contracts having economic value and related to the investments; (iv) rights conferred by law, including, but not limited to, the rights to fixed feed-in tariffs conferred through RD 661/2007 and RD 1578/2008; and (v) rights conferred by licenses and permits.
98.
The dispute is also of a legal nature relating to Part III of the ECT.

(2) Spain’s Position

99.
In its Counter-Memorial, Spain raised three jurisdictional objections. It contended that (a) the ECT does not apply to disputes involving EU Member States (i.e., the so-called "intra-EU" disputes); (b) the ECT’s tax "carve-out" bars Cavalum’s Article 10 claims in relation to Law 15/2012; and (c) Cavalum does not have standing to claim damages sustained by the companies in which it is a shareholder.
100.
The last objection, however, was withdrawn by Spain in its Reply Memorial on Jurisdiction.5 Consequently, only the intra-EU and the tax "carve-out" objections are addressed below.

B. The Intra-EU Objection

101.
Spain raised the intra-EU objection in its Counter-Memorial and developed it further in its Rejoinder. Shortly before the March 2018 Hearing, the CJEU rendered a ruling in the Achmea case, which is discussed below. At the Hearing, both Parties addressed this decision. The Parties further developed their arguments in their post-hearing briefs. A summary of the Parties’ positions concerning this objection is provided below. The Parties’ arguments are addressed at length in section [VII.A.1] infra.

(1)Spain’s Position

102.
Spain objects to the Tribunal’s ratione personae jurisdiction, arguing that the Claimant is not an "investor of another Contracting Party" in the terms of Article 26 ECT. The Claimant is a company incorporated in Portugal. Both Spain and Portugal were EU Member States at the time they entered into the ECT. In Spain’s view, the ECT does not apply to disputes relating to "intra-EU" investments such as this.6
103.
In its Counter-Memorial, Spain raised three main arguments in support of this objection: (i) the EU system confers particular protection upon the EU-national investor, which is of preferential application over the provisions of the ECT;7(ii) the prevalence of EU law among EU Member States is reflected in the literal interpretation, context and purpose of the ECT;8 and (iii) commentators also support Spain’s position.9
104.
Spain draws attention, particularly, to the following provisions of the ECT: (a) Article 1.2, which includes Regional Economic Integration Organizations ("REIOs") such as the EU under the definition of the "Contracting Parties" and Article 1.3, which recognises the binding nature of competences conferred to the EU by its Member States; (b) Article 16, which establishes the rules of compatibility between the ECT and other treaties, including EU treaties, which prevail over the ECT in intra-EU relations; (c) Article 25, which prevents the applicability of the EU’s system of preferential treatment to other ECT Contracting Parties that are not EU Member States via the Most Favoured Nation clause; (d) Article 36.7, which provides REIOs with votes equivalent to the number of its member states which are Contracting Parties to the ECT when voting on matters over which it has competence; and (e) Article 26.6, which requires disputes to be resolved "in accordance with this Treaty and applicable rules and principles of International law", which requires, in Spain’s view, that the Tribunal must interpret the dispute settlement provision of Article 26 ECT in accordance with EU law, which is applicable international law. EU Law, as reflected in Article 344 TFEU, prevents Spain from submitting any matters relating to the EU’s Internal Market in Electricity (such as this dispute) to any dispute settlement method other than the EU judicial system. At the time the ECT was signed, the Member States of the then European Community were unable to contract obligations between them as regards the Internal Market (as it is an area in which they had transferred competence to the then European Community) and for this reason the EU is a Contracting Party to the ECT. Therefore, Article 26 ECT does not generate obligations between the EU Member States.
105.
In its Rejoinder, Spain added that under the "principle of primacy" of EU law, it is EU law and not the ECT which must be applied to resolve this dispute.10 EU law constitutes part of public international law and thus the "applicable rules and principles of international law" under Article 26.6 ECT.11 Articles 25 and 26 ECT recognise the primacy of EU law in the context of intra-EU relations (to the extent that Article 25 refers to "preferential treatment" applicable between the parties to an economic integration agreement. Moreover, EU law, not the ECT, should apply because this dispute affects essential elements of EU law such as State aid.12
106.
At the Hearing and in its the post-hearing submission, Spain focused its jurisdictional arguments on the Achmea ruling.13 Spain submits that this ruling applies in the context of the ECT and confirms Spain’s intra-EU objection in this case.
107.
Concerning the relevance of this ruling Spain mentions, inter alia, the following: (i) the findings of the judgment are not a novelty but reflect consolidated case law that dates back to 1991; (ii) the judgment’s scope of application is not limited to BITs but it extends to any international treaty, including the ECT; (iii) the judgment is applicable in this case because it concerns an intra-EU dispute in which the Tribunal is obliged to apply EU law; and (iv) given that the Tribunal does not form part of the EU judicial system, and therefore cannot make a question for a preliminary ruling to the CJEU under Article 267 TFEU, the Tribunal lacks jurisdiction over this intra-EU dispute.
108.
Finally, with regard to the declarations made by EU Members States on 15 and 16 January 2019 regarding the Achmea ruling, Spain considers, inter alia, that the declaration adopted by the majority of Member States "confirms that Article 26 ECT cannot be considered a valid consent to arbitration in the case of intra-EU disputes for it would be incompatible with the autonomy and primacy of EU law".14

(2)The Claimant’s Position

109.
The Claimant submits that the ECT applies to "Intra-EU" disputes. In its Reply Memorial on the Merits and Counter-Memorial on Jurisdiction, the Claimant gave three main reasons in support of this contention.
110.
First, there is nothing in the text of Article 26 or elsewhere in the ECT that detracts from this conclusion. The EU’s Status as a Contracting Party is irrelevant to this dispute, which is not against the EU but against Spain. The definition of "REIO" and "Area" of an REIO in ECT Articles 1.3 and 1.10 contain no language affecting the ability of investors of EU Member States to commence an arbitration against EU Member States. The ECT merely acknowledges that some Contracting Parties are also members of REIOs. If anything, the voting provisions selectively quoted by Spain confirm the desire of the Contracting Parties to the ECT to preserve the autonomy of EU Member States to exercise their individual rights as ECT Contracting Parties. If the EU Member States had wanted to include a disconnection clause in the treaty, they could have easily done so, as they have done in the context of many other treaties.
111.
Second, the relationship between the ECT and EU Law does not lead to the nonapplication of the ECT to intra-EU disputes. As is clear from the terms of Article 16 ECT, when two international agreements between the same Contracting Parties are in force, the ECT gives preference to more favourable provisions for investors and investments. Cavalum’s right under the ECT to submit its dispute to a neutral arbitration forum is more favourable than a rule that would require it to resort to the domestic courts of Spain before continuing through the EU legal system. The reference in Article 26.6 ECT to international law does not in any way help Spain as international law requires the Tribunal to apply the ECT according to its provisions. Even assuming that the ECT and the EU treaties share the same subject matter, there is no incompatibility between the ECT and the EU legal framework. Article 344 TFEU does not play any role in this case. The reference to "the Treaties" in that provision does not point to the ECT, but to the TFEU itself and the Treaty on the European Union ("TEU"). neither of which Claimant has invoked in this dispute. Nor does Legal Opinion 1/91 of the CJEU advance Spain’s position. There is no risk that the present Tribunal would need to interpret EU law at all in resolving the present dispute. Even if it did, the exclusivity of EU courts to interpret EU law does not mean that another authority cannot apply EU law.
112.
Third, unanimous case law confirms the ECT’s application to "intra-EU" disputes.
113.
In its Rejoinder on Jurisdiction and Response to the European Commission’s Amicus Curiae Brief, the Claimant added that it is not correct that EU Member States lacked the external competence to conclude the ECT. They did have such competence. The Claimant also stated that Spain mischaracterised both the principle of EU "Primacy" and ECT Article 25, and that the outcome of the CJEU’s then-pending judgment in Achmea was irrelevant for the fate of Spain’s intra-EU objection.
114.
At the Hearing and in its the post-hearing submission, the Claimant reiterated its arguments and denied that the Achmea ruling supported Spain’s position.15
115.
The Claimant states that the Achmea ruling is irrelevant for the present proceedings because the German Federal Court of Justice only asked the CJEU to determine whether the BIT was in compliance with EU law. Hence, Achmea applies solely to the BIT between Slovakia and Netherlands.16
116.
In any event, key distinguishing factors exist between Achmea and the dispute at hand. Unlike the Netherlands-Slovakia BIT in issue in Achmea, the EU is a Contracting Party to the ECT.17 This fact is outcome determinative because the CJEU stated that Achmea would not apply to investment protection treaties where the EU is a contracting party.18 Moreover, the Netherlands-Slovakia BIT in Achmea contains governing law provisions that expressly provided that a tribunal constituted under the BIT consider the "law of the contracting party concerned," "relevant agreements between the contracting parties," and "provisions of [the] agreement and other relevant agreements between contracting parties." Pursuant to these provisions a tribunal constituted under the Netherlands-Slovakia BIT in Achmea could be called upon to interpret EU law. However, this is not the case in the dispute at hand because the ECT’s governing law provisions refer only to the ECT itself and "applicable rules and principles of international law." Claimant thus concludes that— unlike the Netherlands-Slovakia BIT at the core of the dispute in Achmea— nothing in the ECT requires the Tribunal to interpret or apply EU regional law.19
117.
The Claimant also notes that all tribunals - pre- and post- Achmea - have rejected the intra-EU objection.
118.
Lastly, the Claimant submits that the possible difficulties that might hamper the enforcement of any arbitral decision remain essentially speculative since at the present stage it is highly uncertain in what way an award might be enforced

(3)The EC’s Amicus Curiae Briefs

119.
The Commission submits, in essence, that the ECT has not created international obligations between the EU Member States inter se, but only between EU States and non-EU countries. Even if certain inter se obligations were created, those would not cover investment protection and ISDS, for which Member States have no competence. Any such obligations, if ever created, must be interpreted in conformity with EU law. If this is not possible, they must be deemed superseded or derogated as contrary to EU law.
120.
According to the Commission, the Achmea ruling has confirmed that an offer for investment arbitration made by a Member State to investors from another Member State is precluded by the general principle of Union law of autonomy, Article 19 TEU, and Articles 267 and 344 JFEU.

C. The Tax Objection

(1)Spain’s Position

121.
Spain contends that the Tribunal lacks jurisdiction over Cavalum’s claims under Article 10 ECT relating to Law 15/2012, which established a 7% tax on the production of electricity (the "TVPEE"). These claims are barred under ECT Article 21’s tax "carve-out". Spain has not consented to arbitration in respect of Cavalum’s claims under ECT Article 10.
122.
The TVPEE is a taxation measure for purposes of the ECT. According to Article 21.7 ECT, the term "taxation measure" includes "any provision relating to taxes of the domestic law of the Contracting Party". Law 15/2012 was approved by the Spanish Parliament in accordance with ordinary legislative procedures. Its constitutionality and conformity with EU law have been upheld by both the Spanish Constitutional Court and the European Commission, respectively.20
123.
The TVPEE is also a tax from the perspective of international law. It was established by law, it imposes an obligation on a class of persons, and it produces a revenue for the State. Indeed, the TVPEE is part of Spanish law, it is levied on all entities that produce and incorporate electricity into the grid and the revenues are included in the State’s general budget, through which State’s expenditures are funded. This is clearly reflected in the State Budget of the Spanish government for 2013 (the first year the TVPEE was in force), 2014, 2015, and 2016.21 The fact that an amount equivalent to this revenue is allotted to finance the costs of the electricity system is simply irrelevant.
124.
The findings above are sufficient to dispose of this claim. There are no "extraordinary circumstances" that may warrant the sort of good-faith analysis undertaken by the Yukos tribunal. The TVPEE was not adopted to destroy a company or eliminate a political opponent. It is also clear that the TVPEE is a tax by legal operation, which is the criterion that must be used over and above the economic effect of the measure, as correctly noted by the Encana v. Ecuador tribunal.
125.
In any event, the TVPEE is a non-discriminatory and bona fide tax. It is levied on both renewable and conventional energy producers. The Claimant concedes this point, but it argues that renewable energy producers should have received a better treatment to compensate for the allegedly greater impact of this tax on the income of renewable energy facilities. A similar argument was put before the Spanish Constitutional Court and rejected.22 There are good reasons, however, to tax the production of electricity without distinguishing the source of energy. First, the very existence of these facilities involves environmental effects. Second, the transmission and distribution lines used by all energy producers to get the energy to consumers also have environmental effects. The Preamble of Law 15/2012 points to these two reasons to explain the tax.
126.
Nor does the TVPEE discriminate against renewable energy producers in terms of legal or economic repercussions. From a legal standpoint, the TVPEE is not an indirect tax that can be passed on to consumers - either by conventional or renewable energy producers. From an economic perspective, the impact of the TVPEE has been neutralised: the TVPEE is one of the costs that are reimbursed to renewable producers through the specific remuneration they receive. This is laid out in Order IET/1045/2014. The TVPEE is also treated as a deductible expense for purposes of assessing corporate taxes without distinctions.
127.
Unsurprisingly, all the tribunals in renewable energy cases against Spain have upheld this objection and have declined jurisdiction to hear claims relating to Law 15/2012.

(2) The Claimant’s Position

128.
For the Claimant, the TVPEE is not a bona fide tax, but a disguised and unlawful attempt to reduce the financial incentives Spain had promised to investors. It therefore falls outside the carve-out for taxation measures in Article 21 ECT.
129.
To determine whether a measure qualifies as a tax, domestic law is by no means determinative (and even if it was, the validity of the TVPEE under Spanish law is far from clear).23 Investment treaty tribunals have consistently held that one must "look behind the label," and examine the legal characteristics of the purposed tax.
130.
Commonly used criteria include: (i) the measure must serve a "public purpose"; (ii) it must contribute to raise general revenue for the state; and (iii) it should affect a broad class of persons. The TVPEE does not fall within any of these criteria.
131.
First, the stated purpose of the TVPEE was to "harmoniz[e] [Spain’s] tax system with more efficient, respectful, and sustainable use of the environment" and to internationalise "environmental costs arising from the production of electricity." As a matter of law however, the TVPEE applied to renewable energy producers (like Cavalum) in the same manner as it applied to conventional energy producers. Even worse, by applying the "tax" to all revenue including incentive tariffs, and without deducting depreciation, renewable plants effectively paid a much higher "tax" on the same amount of electricity production than conventional plants without being able to pass on to consumers the costs related to the Energy "Tax" through prices as tariffs were fixed. Its discriminatory design and disproportionate impact runs against its stated goal or any notion of public purpose.
132.
Second, funds raised from Law 15/2012 were neither directed to the general treasury, nor were they even ear-marked for grid development or maintenance works. Law 15/2012 provided that revenues raised from the measures would flow back into the electricity system in order to reduce the tariff deficit. State revenues as such did not increase.
133.
Third, Law 15/2012 was not imposed on a broad class of persons because, as noted above, it had a massively disproportionate impact on renewable energy producers. At this point, there is not enough information to determine whether the effects of the "tax" have been fully neutralised as Spain claims.
134.
Spain’s appeals to EnCana v. Ecuador and Duke Energy v. Ecuador tribunals are unavailing. The VAT and customs duties at issue in those disputes did involve taxation measures, but the claimants instead based their arguments on the fact that certain measures permitting rebates or exemptions from those measures fell outside the scope of the taxation measure carve-out. That is not the case here. Law 15/2012 clearly does not satisfy the definition of a "taxation measure". Nor is the Claimant’s position in this case the same as the claimants’ positions in Eiser and Isolux as explained above. In any event, the reasoning of these tribunals is flawed. If enacting a measure under false pretences is not sufficient to demonstrate bad faith, then it is difficult to imagine what would.
135.
Finally, the Claimant notes that Spain’s objection has no bearing on Cavalum’s claim that the TVPEE was an unlawful expropriation under ECT Article 13 or contributed to such an expropriation.

VII. LIABILITY AND QUANTUM

136.
The Claimant argues that Spain (1) breached the FET Standard by (1.1) violating the Claimant’s legitimate expectation of fixed feed-in tariffs for its PV facilities; (1.2) failing to treat the Claimant’s investments transparently and consistently; and (1.3) failing to treat the Claimant’s investments in good faith. The Claimant also contends that Spain (2) impaired its investments through unreasonable or discriminatory measures; (3) violated the ECT’s umbrella clause; and (4) unlawfully expropriated the Claimant’s investments. Spain denies all these allegations.
137.
Specifically, the measures challenged by the Claimant are: RD 1565/2010, RDL 14/2010, Law 15/2012, RDL 2/2013, RDL 9/2013, Law 24/2013, MO IET/1045/2014 and RD 413/2014 (the "Disputed Measures").

A. Overview of the Parties’ Positions

(1) The Claimant’s Position

138.
The Claimant argues that Spain guaranteed under RD 661/2007 and RD 1578/2008 that Cavalum’s PV installations would receive incentive tariffs at fixed amounts for a period of twenty-five years, and then at 80% of those fixed amounts for the remaining lives of the plants subject to RD 661/2007. It says further that Spain also guaranteed that it would not retroactively alter the value of those incentives once the plants were established and registered under the RD 661/2007 and RD 1578/2008 regimes. The Claimant invested in reliance on these guarantees and the value of the "incentivized" revenue streams that resulted from them. However, Spain then undermined and ultimately abolished the RD 661/2007 and RD 1578/2008 regimes though the Disputed Measures and replaced them with the much less favorable and more arbitrary New Regulatory Regime. In doing so, Spain violated Cavalum’s rights under Spanish law and the ECT.
139.
Spain’s violations of the ECT cannot be excused by the defence of necessity under international law.24 The tariff deficit in Spain was a problem of Spain’s own making and neglect, which did not compel the Disputed Measures. Spain deliberately ignored the tariff deficit while it continued to expand its incentives regime in the PV sector to encourage additional new investment, including RD 661/2007 and RD 1578/2008.

a. Spain Struggled for Years to Find the Best Incentive Program to Accomplish its Renewable Energy Goals Until it Enacted RD 661 and RD 1578

140.
According to the Claimant, Spain committed under EU law and other international instruments to ambitious renewable energy targets. To meet such targets, it developed a system of feed-in incentives specifically designed to induce investors to invest in Spain and to facilitate their access to financing. This system, which Spanish officials aggressively promoted overseas to attract foreign investment from various countries guaranteed, among other things, a price per kWh of electricity produced during lifetime of their installations once a renewable energy facility qualified for the applicable regime.
141.
The Claimant submits that by the mid-2000s, it was clear that Spain was not on track to meet its renewable energy targets.25 The two major incentive frameworks until that time (enacted in 1998 and 2004) did not provide enough stability and security required for long-term and capital-intensive investments, such as renewable energy facilities, where as much as 90% of the total cost of production is incurred up front in order to build the plant. The latest of the two earlier incentive frameworks, RD 436/2004, calculated the tariffs by reference to a formula that the government estimated to a large degree in its own discretion. Not surprisingly, investments under RD 436/2004 had been modest, particularly in the PV sector (which remained very premature even compared to wind at the time). Improvements were needed.
142.
It was in this context that Spain enacted RD 661/2007.26 This new regulation eliminated the government’s discretion in the setting of rates by utilizing absolute terms (euros per kWh), pegged to the consumer price index. These rates were also higher than those offered in RD 436/2004. RD 661/2007 retained two other improvements introduced by RD 436/2004, namely the guaranteed duration of the tariffs and premiums (25 years, and thereafter at a reduced rate for the remaining operating life of a facility), and prohibiting retroactive applications of revisions to the incentives. As a result, Spain maintained discretion to adjust the tariffs that would apply to new projects at defined future intervals, while guaranteeing specific tariff rates for completed plants throughout their entire operating lives.27 In addition, RD 661/2007 eliminated contradictory language that implied tariffs might be revised for existing plants upon reaching certain capacity targets. Spain specifically designed these guarantees to address the concerns of PV investors and enable them (and their lenders) to model financial returns and profitability with a very high degree of certainty.
143.
Following RD 661/2007’s enactment, Spain embarked on an aggressive campaign to promote Spain’s renewable energy market to investors. Government ministries, State agencies, and the CNE were vocal about the assurances enshrined in RD 661/2007.28
144.
RD 661/2007 attracted a flood of desired investments.29 Spain reached 85% of its initial capacity target for PV in just four months. As anticipated in RD 661/2007, Spain adopted a new Royal Decree, RD 1578/2008 in September 2008.30 Since investment costs had fallen, the new regime offered lower, although still attractive, incentive tariffs. Similar to RD 661/2007, RD 1578/2008 was also a success.
145.
Cavalum completed and commissioned five PV plants under RD 661/2007 (i.e. Don Alvaro, La Albuera, Fuente de Cantos, La Roda, Riosalido). Cavalum also acquired and developed six additional PV projects under RD 1578/2008 (i.e. Talarrubias, Solarwell, Calzadilla (sold), and the Abandoned Projects). Altogether, Cavalum invested over €88 million in reliance on these regimes.31

b. After Meeting its EU Targets, Spain Pocketed the Benefits and Reneged on its Promises and Guarantees

146.
After Spain met its EU targets in 2010, the Claimant contends that Spain shamelessly pocketed the benefits of all the investments it induced without paying the tariffs it had promised to induce them.
147.
First, RDL 14/2010 imposed impermissible hour limitations on the quantity of electricity produced by PV plants that was eligible to receive feed-in tariffs established under RD 661/2007 and RD 1578/2008. This was done despite the fact that Article 17 of RD 661/2007 and RD 1578/2008 along with article 30.2 of Law 54/1997 guaranteed fixed feed-in tariffs to Claimant’s facilities for all of their electricity production. RDL 14/2010 also created a new "access toll" of 0.5 €/MWh on all electricity that a producer delivered into the grid, reducing the tariffs guaranteed in the original regulatory framework, and thus violating Article 44.3 of RD 661/2007 and Article 12 of RD 1578/2008.
148.
RD 1565/2010 then cancelled the right of the Claimant’s RD 661/2007 projects to receive the tariffs after year 25 of their operating lives (which Spain then lengthened to year 28 and finally to year 30 through RDL 14/2010 and Law 2/2011). This was done despite the clear language in Article 36 of RD 661/2007 and Article 11 of RD 1578/2008 that facilities would be eligible for the specific tariff rates set out in such decrees for the first twenty-five years of operation and a rate of 80% for the remainder of the operating lives of the plants subject to RD 661/2007.32 In addition, RD 1565/2010 reduced the tariff rates available under RD 1578/2008 by 46% for certain facilities, which violated the formula for establishing those rates stated in that decree and undermined the tariff rate that Cavalum expected for the plants subject to that regulation.
149.
Subsequently, RDL 1/2012 cancelled the incentive programs under RD 661/2007 and RD 1578/2008 for new facilities and suspended pending pre-allocation registration processes under RD 1578/2008. This measure led Cavalum to abandon three other renewable energy projects under development, after having committed nearly €2 million in investment costs, a measure which Spain’s own Supreme Court has ruled was a violation of investors’ legitimate expectations.33
150.
The same year, Spain enacted Law 15/2012, further reducing the amount of the tariff for all renewable energy facilities under the guise of an energy "tax". Notably, the 7% tax rate was applied not just to the market value of the electricity generated by renewable producers, but also to the premium component of the tariffs that Spain guaranteed.34 Spain then transferred the proceeds into the electricity system in order to reduce the tariff deficit. Contrary to Spain’s contentions, this measure was not "neutralized" in 2012 through the first half of 2013, and thus caused injury for which the Claimant is entitled to damages.
151.
A year later, Spain reduced the rate of tariff growth by redefining the inflation adjustment in RDL 2/2013. While it is true that the new inflation index was at times higher than the CPI index, it was lower on balance over time, and therefore this measure harmed Cavalum’s investment and contravened the clear terms of Article 44.1 of RD 661/2007 and Article 12 of RD 1578/2008.
152.
Spain abolished RD 661/2007 and RD 1578/2008 in their entirety in June 2013 and substituted those regimes with its new regulatory regime a year later. In its place, Spain enacted a fundamentally different incentive scheme that completely changed the rules in the middle of the game. The model resulting from this reform is laid out in RDL 9/2013, Law 24/2013; RD 413/2014; and Order IET/1045/2014 (the "New Regulatory Regime").

c. Spain Ultimately Abolished the Incentives Regime Entirely and Replaced It with a Completely Different Regulatory Paradigm That Provides Substantially Less Compensation and Vastly Less Stability

153.
According to the Claimant, the New Regulatory Regime requires investors to sell electricity on the wholesale market. It only offers "supplementary" revenue based on the investment and operating costs of what Spain arbitrarily has deemed to be a "standard installation," plus a rate of return (currently) tied to the 10-year average yield of Spanish Government bonds plus 300 basis points. In practice, the New Regulatory Regime (as currently in force, subject to future revisions) aims to provide investors with a rate of return of 7,398% before tax, equivalent to a post-tax return of 5.6%.35 This is much less than the target rate of return that Spain considered reasonable when establishing the RD 661/2007 and RD 1578/2008 incentive rates, which ranged from a minimum of 7% to up to 9.2% after taxes36 The difference is even greater if one considers that the return that Cavalum’s plants were expected to earn under RD 661/2007 and RD 1578/2008 as a result of its efficiency as a developer would have averaged approximately 10.2% post-tax for all seven plants if a 25-year operating life is assumed,37 or 10.7% post-tax, if a 35-year operating life is assumed.38
154.
The Claimant contends that the New Regulatory Regime changed the structure of the incentive payments to the detriment of investors such as Cavalum. It substituted a production-based system, under which tariffs were paid based on the amount of electricity produced and delivered to the grid, with a system based on installed capacity. By this shift from a production incentive to a capacity incentive Spain appropriated the benefits that investors expected to receive as a result of their productivity-maximizing choices in respect of issues such as the location and amount of solar irradiation of the plants, the proximity to the transmission grid, the project scale, the plant’s design (fixed axis, single axis trackers or dual axis trackers), etc.
155.
Moreover, while the previous regulatory regime fixed the returns that investors could expect from a PV plant in the form of fixed tariff rates irrespective of whether interest rates went up or down, the new regime establishes that Spain will update the rate of return every six years based on prevailing interest rates. As Spain implemented this change in 2014, knowing that interest rates had declined substantially since 2007, it appropriated the gains that investors would have otherwise received on their fixed-rate PV investments.39 This change has also harmed investors like Cavalum, which relied on the fixed-rate nature of RD 661/2007 and RD 1578/2008 when structuring the financing for their investments through swap agreements.40 Contrary to Spain’s defence, Article 30 of Law 54/1997 does not state that the relevant "cost of money" to be considered in setting the premiums should be variable over time. Nor did Spain hold this view in 2007, because RD 661/2007 fixed the tariff rates with no mechanism for adjustment based on changes in interest rates.
156.
Additionally, the assumptions about project costs under the New Regulatory Regime are incomplete, inaccurate, and arbitrary under the different compensation categories. Law 24/2013 has also increased the working capital requirements of projects by forcing producers in practice to fund any deficit tariff while the problem is solved and it has increased the risk of default and insolvency of highly leveraged projects. To make things worse, Spain retains enormous discretion to revise incentive payments years after an investment is made.
157.
Spain’s suggestion that the tariffs in RD 661/2007 resulted in "excess" or "windfall" compensation must be rejected. First, this is not a valid justification where, as here, a promise was made in exchange for increased levels of investment. Second. Spain’s justification for such assertion is at odds with the way tariffs under RD 661/2007 were set in the first place. The fact that the inflation adjustment applied to the entire tariff, while 85% of total costs were fixed at construction and thus would not increase with inflation, did not and could not result in windfall profits. The tariffs were set by estimating what level of cash flows over the lifetime of a hypothetical facility - including an inflation adjustment - would be necessary to generate the target return on investment. Nor is the fact that interest rates have declined or that investors built plants that were more efficient than anticipated, a valid excuse for Spain to adjust the tariff rates "dynamically". Lower interest rates are irrelevant to what rate of return is reasonable in relation to an investment that was made and completed years ago. Spain always knew and accepted that some plants would beat the assumptions made by the regulator in setting tariff rates.
158.
Finally, it is important to note that Cavalum’s damages claim is based on the valuations of its plants and do not materially vary on how Cavalum financed its investments.41 Spain knew and expected that equity investors like Cavalum would finance their investments with debt. If this was not factored in the renewable energy plans calculations, it is implied because there are infinite possibilities for the financing of plants which cannot be reflected, as Mr. Montoya conceded during the hearing. It was not because Spain believed investors would not or should not utilise debt financing.42 What Spain cannot definitively argue is that the cuts would have been much less severe on a percentage impact basis if only investors had made their investments with equity rather than with debt. Not after actively inducing investors to finance their investment with debt.

d. Spain’s Defences Mischaracterise the Regulatory Framework

159.
Cavalum argues that Spain’s defences severely mischaracterise the Electricity Law and its implementing regulations, which guaranteed specific tariff rates for a defined duration rather than a reasonable rate of return. Spain also mischaracterises EU State aid law.
160.
Renewable energy generation under Law 54/1997 was not a "regulated activity", in which remuneration should be adjusted "dynamically" from time to time to provide investors with a "reasonable rate of return" on their investments. Rather, it is a "liberalized activity" in which Spain guaranteed eligible solar PV facilities an unqualified "right" to sell all of their electricity to the system in exchange for the tariff set in RD 661/20007 and RD 1578/2008 (as applicable) for the stated duration, updated annually for CPI.
161.
Law 54/1997 deregulated all electricity generation including renewable energy. This is clearly stated in the preamble of the Law and further reflected in its Articles 3 and 11. Neither the Electricity Law nor its implementing regulations provided any of the procedures that are typical to regulated industries, such as pre-approval of investment and operating costs by the government (as opposed to transmission and distribution activities, which remained regulated activities under Law 54/1997). The financial data that renewable energy producers were required to make available, which Spain cites as an example of the regulated nature of this activity, was solely meant to assist Spain with setting appropriate incentives for new facilities, not for existing installations. The regulation that imposed this reporting obligation made this abundantly clear, pointing specifically to Spain’s obligation under Article 40 of RD 436/2004 (which is similar to Article 44 of RD 661/2007) not to review tariffs retrospectively.
162.
Far from providing a vague reasonable rate of return, Law 54/1997 and its implementing regulations guaranteed specific tariff rates, which the Spanish regulator set ex ante for a defined duration in respect of all the electricity that producers delivered into the grid without any limitations. This allowed investors to plan their investments beforehand. Although these rates were arguably based on a post-tax target return rate close to 7%, resulting from Spain’s economic modelling in the Renewable Energy Plans,43 the regulations did not limit - or otherwise guarantee - that plants would receive this level of remuneration. Spain knew that actual returns would vary significantly from the target based on whether investors designed individual projects more or less efficiently than the hypothetical model. Spain thereby left the investment risk with the investors: Spain would not be required to compensate investors at the "guaranteed" return rate if facilities turn out to be too expensive or performed poorly, but it would also not bar investors from achieving a higher return if they outperform the plant models. Spain acknowledged this in various reports made by public agencies.44 Article 30.2.a of Law 54/1997 also made it clear that the remuneration would be paid on the amount of electricity that special regime generators delivered into the system, not on the capacity that producers installed. This idea is reiterated in Article 16.7 of the Law. Unsurprisingly, Spain had to modify Article 30.4 of the Law in 2013 to allow for incentive payments based on installed capacity under the New Regulatory Regime. It does not follow from the reference in Article 30.4 of Law 54/1997 to "investment costs incurred", that retrospective changes to incentives could be made after plants were built to account for historical investment costs.
163.
Law 54/1997 did not enshrine an overriding principle of economic sustainability of the electricity system. The two alleged sources of this principle that Spain cites, the Preamble and Article 10 of that Law, say nothing about it. Maintaining security of supply is by no means tantamount to ensuring affordable conditions for consumers. Nor were the incentives in RD 661/2007 or RD 1578/2008 tied to the macroeconomic, technical, or methodological bases (or assumptions) underlying the PER 2005-2010 - not in a way that it could mean a constraint for the investors or the actual plants’ rights under such regimes. First of all, RD 661/2007 refers to the PER 2005-2010 only four times and never establishes such a connection. Second, the plant models in the PER 2005-2010 did not correspond to the tariff categories in RD 661/2007 (or RD 1578/2008). RD 661/2007 established three different tariffs for solar PV plants that differed only according to capacity (under 100 kW, 100 kW up to 10 MW, and 10-50 MW).45 The 2005-2010 Renewable Energies Plan, by contrast, contained "technical sheets" for four different standard plant models. Third, the plant definitions set out in the 2005-2010 Renewable Energies Plan referenced tariffs and premiums for solar PV plants (even though RD 661/2007 and RD 1578/2008 only provided a tariff option for solar PV), and expressed them as a percentage of the Average Electricity Tariff (even though RD 661/2007 eliminated the Average Electricity Tariff as a basis for determining the level of incentives and, for PV installations, instead established fixed tariff rates, which was also true of RD 1578/2008).46 Also, the tariff rate implied in the standard plant model for plants over 100 kW according to the 2005-2010 Renewable Energies Plan was only €0.219912/kWh,47 whereas the tariff in RD 661/2007 for plants between 100 kW and 10 MW was nearly double that amount. €0.4175/kWh.48
164.
Article 44 of RD 661/2007 confirmed that its economic regime would not be modified for commissioned plants registered in the RAIPRE. This non-retroactivity guarantee was established in direct response to the industry criticism and demands for greater regulatory stability. It identifies the only instances in which the tariff rates guaranteed to registered solar PV facilities could change. Thus, the fact that the stabilization language in Article 44.3 of RD 661/2007 refers to the revisions indicated "in this section" ("en este apariado") does not mean that other revisions were permitted. That phrase exists to distinguish the revisions in Article 44.3 of the RD from the revisions in Article 44.1 of the RD (the annual CPI revision), which expressly applied to existing plants. If Spain could revise the economic regime at any time for any reason, then it was unnecessary to specify in Article 44 what kind of revisions could occur and when. In fact, the revisions at issue in this case - allegedly enacted to address changes in technology costs, market interest rates, and the impact of the incentives on the economic management of the electricity system - are all revisions contemplated in Article 44.3 of RD 661/2007, and thus are revisions that Spain guaranteed would not affect existing plants. Similarly, absent an express provision in RD 1578/2008 allowing Spain to modify the economic regime as it applied to existing plants, Spain had no right to do so. This is the conclusion that flows from the preamble and Article 1 of RD 1578/2008.49
165.
Article 44.3 of RD 661/2007 was no less restrictive than Article 40.3 of RD 436/2004. The reference to "upper and lower limits" in Article 44.3 of RD 661/2007 points to the market plus premium option, which includes the "premiums, incentives or supplements" that Spain alleges to be missing. The point is irrelevant, however, because only changes to the fixed tariff are at issue in this case. Similarly, the absence of an explicit reference to the useful life or hours of production of the plants is simply unnecessary. Any cap to these rights is inherently precluded by Article 44.3 to the extent that it reduces the fixed tariff to €0 during the time period after the cap is reached. Finally, the removal in Article 44.3 of the reference to measures of "retroactive effect" is also immaterial. Such language would have been redundant because Article 44.3 clearly states that revisions shall not affect commissioned plants.

e. Investors were not on Notice that Spain Could Implement Retroactive Changes to the Regulatory Framework

166.
The Claimant contends that the reference in the Preamble of Law 54/1997 to a "goal" of obtaining electricity at the "lowest possible cost", and "protection of the environment", does not imply and could not be read to mean that the incentives offered would be subject to retroactive reduction in furtherance of that goal. Nor does Article 30 of Law 54/1997 necessarily compel retrospective changes to incentives after plants are built to account for historical investment costs or variations in interest rates (i.e. the "cost of money").
167.
The fact that RDL 7/2006 temporarily froze the incentives paid to renewable energy facilities registered under RD 436/2004 until Spain decoupled them from the Average Electricity Tariff did not alert, and could not have alerted, investors that retroactive changes would be possible going forward, notwithstanding the language in Article 44 of RD 661/2007. RD 436/2004 did not offer the same level of protection that Spain subsequently included in RD 661/2007 and RD 1578/2008. RD 436/2004 contained language suggesting that tariffs could be revised for wind facilities when installed capacity reached certain target levels, which undermined the clarity of the non-retroactive review provision in Article 40 of RD 436/2004.
168.
Spain’s permanent elimination of the reference "Average Electricity Tariff" (also called "TMR") "feedback loop" (by substituting RD 661/2007 for RD 436/2004) is not comparable to Spain’s subsequent reduction of the tariffs. This was clearly a defect in the law that threatened to cause incentives to increase in completely artificial and unexpected ways and needed to be fixed. Nevertheless, de-linking the incentive rates from the Average Reference Tariff had two major benefits for producers. First, it protected them from government discretion, because the formula for the Average Electricity Tariff was based on government forecasts of certain cost and demand variables.50 Second, the change protected producers from market volatility, because the Average Electricity Tariff formula also included a component for the cost of production in the ordinary regime.
169.
Contrary to Spain’s assertions, RD 661/2007 did not deteriorate the remuneration conditions of renewable energy facilities; it improved them. The remuneration structure under RD 661/2007 offered at least the same level, but generally higher, tariffs to renewable generators. The values that Spain relies on to argue otherwise, based on Mr. Montoya’s witness statement, ignore that the annual increase in the TMR was capped at 2% unless Spain granted an exception. The large increase in the tariff that Mr. Montoya anticipated under RD 436/2004 in 2007 was not at all guaranteed by that decree, and in fact it was completely illusory. Similarly, the CNE’s report. upon which Spain also relies to support its position, is unclear with respect to how the CNE calculated the projected returns of hydro plants and wind farms under the market premium option to conclude that they would diminish (e.g., whether market prices would continue to rise). Moreover, Spain’s assertion that the CNE "admitted the legality of the changes" ignores CNE’s conclusion that "dynamic innovations" should "be surrounded by certain guarantees and precautions (sufficient transition periods for adaptation and, if applicable, compensatory relief)".51 The fact that wind producers opted to remain under RD 436/2004 during a period of high wholesale prices does not necessarily mean that wind producers considered RD 661 to be materially worse in the long run. After all, no wind producer filed a legal challenge to it.
170.
The "pool plus premium" option in RD 436/2004 that was removed by RD 661/2007 did not have a meaningful impact that could have warned investors about subsequent changes. This option was only available to PV plants over 100 kW, and few if any plants over 100 kW were enrolled under RD 436/2004 because the tariff rate for such plants in RD 436/2004 was 52.17% of the rate for plants under 100 kW. Similarly, while the "cap and floor" mechanism that RD 661/2007 introduced for (non-PV) existing plants electing the market option might have reduced compensation for some plants in the near term, in the long term it served to insulate plants under the market option from market volatility, which was a significant improvement. RD 661/2007 also included a transitory provision designed to minimise the impact of the regulatory change on plants that had been completed under RD 436/2004. Moreover, the preamble of RD 661/2007 itself recognised that the changes strengthened the regulatory regime for investors. So too did Spanish officials at the time. That is why the renewable energy industry welcomed these changes, contrary to Spain’s contentions. The only one case in which an investor challenged RD 661/2007 on the ground that it adversely modified the remuneration regime for its registered facilities was rejected by the Spanish court after it found that RD 661/2007 caused no harm as the tariffs were "identical."52
171.
RD 1578/2008 also could not have put investors on notice that the regulatory regime under RD 661/2007 could be modified retroactively. RD 1578/2008 did not apply to facilities that were registered in the Special Regime under RD 661/2007. This was clearly stated in Article 2 which defined its "Applicability". In this sense, RD 1578/2008 was completely consistent with the guarantee in Article 44 of RD 661/2007 that revisions of tariffs due to cost changes would not apply to plants that were already registered in the Special Regime. Contemporaneous statements from Spanish officials confirmed this.53 Notably, when Spain enacted RD 1578/2008, it knew that the installation of new solar PV capacity under RD 661/2007 had greatly exceeded its capacity target and yet it decided to go ahead and grant new feed-in tariffs for additional PV capacity. Also, the language in the Fifth Additional Provision of RD 1578/2008, anticipating a tariff revision in 2012, can only be understood in this context as referring to changes in respect to new plants. The CNE shared in this understanding of this provision.54
172.
RD-L 6/2009, on the other hand, said nothing about modifying the guaranteed costs of the system in order to balance the tariff deficit. It only called for the elimination of the tariff deficit by 2013 and introduced the pre-allocation registry for new renewable energy projects. This registry, which RD 1578/2008 had already introduced for PV investments, merely established an additional administrative prerequisite for new plants to be eligible for Special Regime incentives. It was therefore perfectly consistent with Article 44 of RD 661/2007. The preamble even confirmed Spain’s commitment to honor its guarantees of legal security to existing investments.
173.
Only four of the Supreme Court decisions that Spain invokes were issued prior to Cavalum’s investments and all of them concerned relatively small changes to incentive regimes that pre-dated RD 661/2007. These incentives regimes did not contain an express guarantee against retroactive revisions, on which the investors could rely to resist detrimental changes from applying to existing facilities.55 The Supreme Court decision of December 2009 is also irrelevant because by then Cavalum had already taken all the necessary steps to finalise its investments in Spain.56
174.
Far from casting any doubts, the contemporaneous statements and actions of everyone connected to Spain’s renewable energy industry overwhelmingly corroborate the Claimant’s understanding of the RD 661/2007 regulatory framework. Spanish officials and agencies repeatedly and consistently touted the regulatory stability and legal certainty afforded by the RD 661/2007 regime, focusing on the transparency of its tariffs and premiums, and its protection against retroactive changes. Industry analysts and trade groups such as APPA also shared Claimant’s view of the regulatory framework, not the revisionist history that Spain advances in this arbitration. Spain’s argument ignores the massive amount of investment that poured into its renewable energy sector in 2007 and 2008, much of which was debt financing that banks provided on a non-recourse basis, reflecting investor’s confidence in the RD 661/2007 and RD 1578/2008 regulatory framework.
175.
Finally, EU State aid laws are irrelevant for the analysis of Cavalum’s expectations or for the merits of the present dispute.57 At most, this matter may be relevant in enforcement proceedings before courts of EU Member States but not to an ECT tribunal. Nor has the EC ever determined that the RD 661/2007 or RD 1578/2008 tariffs amounted to State aid much less unlawful state aid. The November 2017 EC decision solely concerned the New Regulatory Regime. The truth is that prior to the arbitrations against Spain, no one considered that RD 661/2007 or RD 1578/2008 tariffs constituted State aid - neither Spain nor the European Commission. which never investigated Spain’s former incentive schemes.

(2)Spain’s Position

a. Cavalum Never Had the Rights that it Claims Under the Applicable Regulatory Regime or EU Law

176.
Spain argues that the Electricity Law 54/1997 guaranteed renewable energy generators enrolled in the Special Regime a reasonable rate of return calculated by reference to the cost of money in the capital market (Article 30.4). Nothing else was promised, much less guaranteed.58
177.
To ensure this level of remuneration, subsidies were offered to producers "where appropriate" to cover their investment and operating costs and generate a reasonable return (Article 16.7).59 Between 1998 and 2010, the government issued multiple Royal Decrees implementing Law 54/1997 (e.g., RD 2818/1998, RD 436/2004, RD 661/2007, RD 1578/2008, etc.), which established financial incentives in the form of "feed-in" subsidies tied to production. This particular form of remuneration however, was neither imposed nor required to be maintained by Law 54/1997.60 This was known by the industry.61
178.
Law 54/1997 established a "dynamic" (i.e., flexible) framework so that the government would have sufficient leeway to adjust remunerations if the application of a rate formula resulted in higher than reasonable returns, and thus in contravention of Law 54/1997 or EU State aid regulations.62
179.
The fundamental criterion used by Law 54/1997 to judge the reasonableness of the rate of return is the cost of money in the capital market (i.e., the rate of interest charged), which is in itself a dynamic benchmark. Another criterion used is the historical investment cost of facilities, which may require looking backwards in time and assessing what is a reasonable rate of profitability.63
180.
Tariff rates were thus only detailed in lower level and easy-to-amend regulatory instruments, called Royal Decrees. Royal Decrees are subordinate laws which can be superseded by subsequent regulations of the same rank under the Spanish legal principle of hierarchy of norms. As Spanish courts held in multiple challenges to various Royal Decrees since as early as 2005, as long as the limit set forth in Article 30.4 of Law 54/1997 was respected, and a reasonable rate of return was maintained, the Government had the power to modify the applicable remuneration conditions through new royal decrees, even to existing facilities.64
181.
Registration in the RAIPRE did not confer an acquired or vested right to a specific remuneration rate or regime.65 The Disputed Measures cannot, therefore, be considered retroactive.66 This was just an administrative requirement applicable to all special (i.e., renewable energy) and ordinary (i.e., conventional) regime facilities to feed electricity into the grid. None of these facilities were granted a license, contract or concession under Spanish law. Professor Aragón, the expert presented by the Claimant, disagrees but he admits that his opinion is contradicted by the jurisprudence constante of the Spanish Supreme Court since 2006, the State Council’s opinions, the renewable energy sector’s understanding, and several CNE’s reports.
182.
Article 44.3 of RD 661/2007, which was substantively identical to Article 40 of RD 436/2004, was not a stabilization clause. The most obvious evidence of this is the fact that the revisions adopted through RD Act 7/2006 and RD 661/2007 were not foreseen in Article 40 of RD 436/2004 and yet they were implemented by the government and upheld by the courts.67 Although the CNE criticised these changes on policy grounds in early 2007, it admitted that they were lawful under Spanish law pointing to the October 26, 2006 Supreme Court decision,68 an opinion that it later reaffirmed in a decision issued in July 2008.69 The motive behind all these changes, and those which followed, was exactly the same: ensuring the electricity system’s economic sustainability and avoid excessive remuneration to some renewable energies.70
183.
Moreover, Article 44.3 of RD 661/2007 did not preclude all sorts of detrimental changes or downward revisions.71 The only prohibited changes to the remuneration rates for RAIPRE-registered facilities were mandatory quadrennial revisions of the "regulated [i.e., fixed] tariff and the upper and lower limits" in RD 661/2007. These are the planned revisions that "this section" ("en este apariado") refers to as it follows from the plain terms of Article 44 of RD 661/2007. Other changes to remuneration rates for existing facilities were permitted, including unplanned changes that were necessary to (1) ensure the economic sustainability of the SES, or (2) to correct situations of over-remuneration. Changes to factors that impacted the calculation of remuneration rates were also permitted, such as the number of hours amenable to tariffs and premiums; the index used for adjusting tariffs and premiums to inflation; and supplements or penalties for reactive power and taxes or other fiscal measures. This is clear from the wording of Article 44.3 of RD 661/2007, which is more restrictive than its predecessor, Article 40.3 of RD 436/2004. Unlike the latter, Article 44.3 of RD 661/2007 did not extend to premiums, incentives or supplements, or refer to useful life or to hours of production. The idea that a promise of stabilization could be read into Article 44.3 of RD 661/2007 was also dismissed by the Charanne and Isolux tribunals.
184.
Although renewable energy generation is not a "regulated activity", it forms part of a "regulated area".72 This is explained by the fact that renewable energy facilities’ main income, subsidies, are set by regulation and represent a cost of the electricity system, subordinate to its sustainability.73 Principles of economic sustainability were incorporated into this legal framework since the enactment of Law 54/1997.74 The preamble of the law states very clearly that electricity should be generated at the "lowest possible cost". The State must also ensure electricity supply, which is defined as an "essential service" in Article 2.1 of Law 54/1997. To do so, the system must be sustainable both technically and economically. The SES is a closed circuit that is funded through its own revenues, without external financing. Any tariff deficit must be remedied from within.
185.
The need for sustainability explains all the planning that went into this system, as reflected in the various renewable energy plans. These instruments did not only estimate costs, they also assessed whether the costs were sustainable for the electricity system as a whole based on technical and economic assumptions, including projections of electricity demand, standard lifetime of plants, operating hours, and average costs among others.75 The fact that regulations were predicated upon these plans’ underlying assumptions is no mystery. The preambles of both RD 436/2004 and RD 661/2007 refer explicitly to the 2000 and 2005 Renewable Energy Plans, respectively.76 No investor could have expected that subsidies would remain unaltered if the basis and projections of such subsidies turned out to be inaccurate. This is what happened with the electricity demand in Spain, which has experienced an unexpected and dramatic fall since 2009.
186.
As these plans show, remunerations for PV facilities such as the Claimant’s installations were intended to be "close to 7%" on equity after taxes based on an estimation of around 1,644 operating hours/year and a lifespan of 25 years.77 Notably, the PER 2005 refers to a return "close to" 7%, whereas the PER 2000 referred to a "minimum" return of 7%.78 Standard installations were used as a reference for setting all these values. Contrary to Claimant’s allegations, financial costs were never considered to be a recoverable investment for purposes of calculating returns.79 This is the same methodology used by the CNE in its reports on draft decrees 436/2004 and 661/2007. All these values were commented on in various studies made by renewable energy associations as early as 2005.80
187.
RD 661/2007 was not designed to offer higher returns. RD 661/2007 was introduced to substitute for RD 436/2004 and fix the "perverse effects" of the TMR on remunerations.81 Precisely because of the disproportionately large costs and profits resulting from RD 436/2004, RDL 7/2006 was adopted as an urgent measure (i.e., a RDL) followed by RD 661/2007, as explicitly stated in RDL 7/2006’s preamble. The 2005 Renewable Energy Plan (upon which RD 661/2007 is based) shows that the Spanish regulator knew that the initial objectives set out for most technologies, including PV power, could be achieved without increasing the contemporary remuneration levels.82
188.
If anything, RD 661/2007 reduced remuneration conditions as the CNE stated at the time.83 For instance, it lowered the incentives under the pool plus premium option for hydro and wind plants by nearly 10%, and it abolished the pool plus premium option altogether for PV producers.84 It also set tariff rates, which were generally lower than what they would have been had RD 436/2004 and RDL 7/2006 remained in place.85 The fact that every single wind farm decided to stay under RD 436/2004 rather than transition to RD 661/2007 demonstrates that RD 661/2007 did not generally improve the subsidies set in RD 436/2004.86 So too does the harsh criticism and opposition of renewable energy associations against RDL 7/200687 and early drafts of RD 661/2007. APPA, the major renewable energy association, decried the change as "disastrous and devastating for future investments".88 At the time of these critiques, the draft RD 661/2007 already contemplated Article 44.389 - a provision which the Claimant states turned RD 661/2007 into a major improvement from the existing regime, widely welcomed by the industry.90 Nothing could be further from the truth.

b. The Disputed Measures are Legitimate Macroeconomic Control Measures to ensure the Electricity System’s Sustainability and Correct Situations of Overcompensation

189.
The Disputed Measures sought to ensure the economic sustainability of the electricity system and to correct situations of overcompensation in the context of a severe economic crisis.91 They were necessary macroeconomic measures to stabilise the Spanish economy and were entirely reasonable under the circumstances.
190.
As is well known, the 2009 financial crisis had an extraordinary impact on the Spanish economy: Spanish GDP shrunk, the rate of unemployment grew dramatically, the fiscal position of the government deteriorated, and the accumulation of budget deficits resulted in a huge increase in Spain’s government debt. This led to a sharp decline in electricity demand which, in turn, caused tariffs to rise much more than the average European tariff rates. Many of the most critical assumptions upon which RD 661/2007 was premised turned out disproved, including electricity demand forecasts, which bear deeply in the overall balance of the system.
191.
The Disputed Measures were adopted in this context. But these were not the only actions taken by the Government. Electricity prices paid by consumers were raised, becoming one of the highest in Europe; the Government committed funds from the State budget to fund the deficit as an exception to the self-sufficiency principle; entry into operation of pre-registered plants was deferred; remunerations for transmission and distribution activities were reduced, and so was the remuneration for electricity production in insular territories; payments for capacity were also reduced, among many actions. Even though subsidies to renewable energies are the main cost of the electricity system, the Government sought to balance out the measures.
192.
The first measure that the Claimant challenges is Royal Decree 1565/2010 of 23 November 2010. This measure eliminated fixed tariffs (i.e., incentive tariff) for PV installations after 30 years. This was in line with the estimated useful life of the plants.92 After this period, an investor must have recovered all its costs and made a reasonable profit. Therefore, there is no need, nor would it be permissible under EU State aid regulations, to continue providing public support. Law 54/1997 never guaranteed that producers would receive feed-in tariffs for the whole lifetime of the plants.
193.
The second measure is RDL 14/2010. It set a limit on the annual operating hours for which PV facilities could receive feed-in tariffs in accordance with the calculations made in the PER 2005-2010. These estimated annual operating hours were known to investors. The specific limit varied based on the geographic location and type of PV technology. Above these caps however, plants could continue producing and selling its energy on the market. Additionally, RDL 14/2010 subjected PV facilities, registered under RD 661/2007, to a 3-year limit on equivalent operating hours irrespective of their location and it also created a new "access toll" on all electricity that a producer delivered into the grid. At the same time, Spain also enacted RD 1614/2010, which contained similar provisions for wind and solar thermoelectric facilities.
194.
Spain then enacted Law 15/2012, which introduced a 7% levy on all electricity producers (i.e., the TVPEE) to contribute to finance the electricity system. This measure, however, did not have any impact on Cavalum’s installations because under the new regime the operating incentive payments are calculated to allow renewable producers to recover the amounts paid for TVPEE. Therefore, any adverse effect of this measure upon Cavalum’s installations has been neutralised.
195.
In early 2013, Spain enacted RDL 2/2013. This measure substituted a new index, the CPI, for updating remunerations. The CPI was adopted in order to bring the updating mechanism into conformity with generally accepted economic practices, excluding those inputs that were most variable in the calculation’s formula. CPI, although it was superseded by additional regulations, did not adversely affect Claimant’s PV facilities. Cavalum actually benefitted from it during the short time it was in force.
196.
Later that year, Spain conducted a more in-depth reform of the incentive scheme. The model resulting from this reform is laid out in RDL 9/2013, Law 24/2013; RD 413/2014; and Order IET/1045/2014. The new regime strengthens the support for renewable technologies.

c. The New Regulatory Regime Preserves the Key Elements of the Former Regime While Still Providing Cavalum with a Reasonable Rate of Return

197.
The new remuneration framework is not a paradigm change or anything like it. Rather, the key components of the former regulation are largely preserved.
198.
Both the former and the new remuneration regimes provide generous subsidies to renewable energy producers.93 To do so, they follow a similar formula. A "reasonable return" on the investment (CAPEX) and operating costs (OPEX) is provided based on a "standard" model that references the cost of money in the capital market (i.e. a dynamic benchmark). This is done by adding up a subsidy to the market price. Although the new regime specifies that the rate to be used for this purpose is that of the average yield of ten-year Spanish government bonds plus 300 basis points, the result is essentially the same: a rate of return of 7,398% before taxes, which is consistent with the 7% post-tax return that the old regime sought to provide. This "robust" index had already been used by the Spanish regulator to set remunerations in related industries such as for the electricity distribution and transportation.94 In this respect, not only does the new system continue the trend of the previous one, but it also gives investors greater legal security because the basic parameters are set out in the law. This is something that investors had demanded for a long time.
199.
The key difference between these two regulatory regimes is that the previous model used a single fixed tariff to remunerate CAPEX, OPEX, and provide a reasonable rate of return. Under the current regime, subsidies are paid in a disaggregated manner. One portion goes to cover the investment cost (Ri) based on the installed capacity of the facility, and another portion goes to cover the gap between the market price and the operating costs (Ro) based on the energy produced. Although now "subsidies depend in greater proportion on the investment made, which is a sunk cost that is not updated anymore, and in the previous model depended in greater proportion on the production of the plant, which generated inefficiencies that have been corrected, [...] in both cases [...] the production of the facilities and investment are considered."95
200.
The most significant inefficiency of the former remuneration model, which the Claimant chooses to ignore, is that the inflation adjustment applied to the entire tariff, while roughly 85% of total costs are fixed at construction and therefore should not increase with inflation. In this sense, the CPI adjustment had an adverse effect similar to that of the TMR, resulting in excessive compensation.96 To fix this, the new framework distinguishes among these components and only adjusts operating costs at an annual rate of 1%, leaving investment costs aside. The market price standard is also adjusted every three years to adapt the forecast to the actual evolution of the pool price and so too is the portion of the subsidies intended to provide a reasonable return at the end of every regulatory period (being the first regulatory period of six years and then every two years). These adjustments protect the value of investments over time against interest rate fluctuations.97
201.
The regulatory lifespan of the plants determines the period over which installations will receive incentive (called specific) remuneration. This period has been set at 30 years for all PV plants. That was also the case under the former regime after the enactment of RD 1565/2010, although before then RD 661/2007 already incorporated an analogous limitation by reference to the PER 2005-2010. After the regulatory lifespan of a Plant, an investor has recovered all its costs and made a reasonable profit. Therefore, there is no need, nor would it be permissible under EU State aid regulations, to continue providing public support. The plants however, can continue to produce and sell energy on the wholesale market; they still enjoy priority of access and dispatch (Article 26 of Law 24/2013).98
202.
Efficiency continues to play a major role in the new regime just as it did in the former regime. To calculate the income and cost parameters, an "efficient and well-managed company" is taken as a reference in a similar manner that Renewable Energy Plans used to do. Contrary to Claimant’s allegations. the investment and operating costs of the standard facilities do adequately reflect actual costs.99 A simple comparison between the parameters used in MO IET/1045/2015 and Cavalum’s financial statements shows that Cavalum’s plants are all under the relevant thresholds. For instance. Cavalum’s plants actual CAPEX are significantly lower than the plants’ imputed CAPEX, resulting in a nearly USD 20 million benefit for Cavalum’s accounts. Cavalum’s actual OPEX are also lower on average than the estimated OPEX - after one deducts Cavalum’s management fees, which Cavalum has improperly treated as operating costs in circumstances where they should be accounted as part of Cavalum’s returns. Also, financial costs were never considered to be a recoverable investment for purposes of calculating returns, neither under the previous regime nor under the current regime.
203.
The best example that shows how the current framework provides a reasonable return is Claimant’s own case on damages. With the Disputed Measures in place, Cavalum still obtains a 9.8% return on its investments before tax, or a 7.7% return after tax (excluding managements fees).100 This is more than two points above the standard return foreseen in the current regulatory regime and is higher than the 7,164% cost of the Claimant’s capital before taxes, as calculated by its own experts.101 The rate of return of the Spanish regulatory regime is also higher than the average of the discount rates used in their impairment tests by companies in the PV sector between 2013 and 2014, which ranged from 4.9% to 5.6% before tax.

B. The Unlawful Expropriation Claim

(1) The Claimant’s Position

204.
The Claimant argues that Spain’s retroactive measures expropriated its rights under RD 661/2007 and RD 1578/2008, violating Article 13 ECT. The cumulative effect of Spain’s measures was to deprive the Claimant of its equity in its PV facilities.
205.
The ECT defines "Investments" to include "tangible and intangible property," "any property rights," "forms of equity participation in a company or business enterprise," "claims to money," and "any right conferred by law or... permits."102 All these rights are independent investments capable of expropriation. It is not necessary that a Contracting Party take the investor’s overall business operation. A partial expropriation or a creeping one is no less illegal than a full expropriation. Abundant case law supports this position, including the decisions in Middle East Cement, Eureko v. Poland and EnCana v. Ecuador. Similarly, a measure is expropriatory when a State interferes with a protected investment in a way that significantly or substantially deprives the investor of the use, benefit, or value of the investment, to an extent that is more than ephemeral. This covers any regulatory actions, including taxation measures.
206.
In this case, RD 661/2007 and RD 1578/2008 conferred distinct legal rights to investors, including the right to receive fixed tariffs on all of the electricity they produced for the first twenty-five years of operation and 80% of those rates thereafter (Article 36 of RD 661/2007); the right to annual adjustments for inflation according to the Consumer Price Index (Articles 17, 36 and 44.1 of RD 661/2007, and Articles 11 and 12 of RD 1578/2008); and protection against any future revisions to the RD 661/2007 tariff framework (Article 44.3 of RD 661/2007). These were legal rights under Spanish law as noted by Professor Aragón, and not mere expectations. An "expectation" existed only prior to the development and registration of the facilities into the registry. Once the plants were registered - and all of Claimant’s plants were - they held a vested right to the incentive tariff guaranteed under the respective regime. Therefore, Spain’s reliance on Nations Energy v. Panama to contest Cavalum’s expropriation claim is out of place. Unlike Cavalum, the claimants in Nations Energy did not have a right that was subsequently revoked by state actions. What they had was a mere possibility of applying for future tax credits. That is clearly different from the case at hand.
207.
By modifying the royal decrees, the Spanish government substantially interfered with and violated Cavalum’s legal rights under RD 661/2007 and RD 1578/2008. Specifically, Spain cancelled the right of the RD 661/2007 facilities to receive the tariffs after year 30, imposed operating hour limitations on all of Cavalum’s facilities, interfered with Cavalum’s legal rights under the royal decrees by imposing a 7% reduction of the facilities’ revenues (including tariff revenues) as a purported "tax" on electricity production, and finally destroyed Cavalum’s rights to have its RD 661/2007 and RD 1578/2008 tariffs adjusted annually according to the Consumer Price Index by substituting the New Regulatory Regime. The cumulative effect of all of Spain’s measures was to deprive the Claimant of all of its equity in its PV facilities. As the Claimant’s quantum experts have shown, over 100% of the equity that the Claimant held in its PV facilities has been destroyed as a result of the Disputed Measures.103
208.

The expropriation was unlawful because it did not satisfy the four cumulative requirements for a lawful expropriation outlined in Article 13 ECT. Spain’s retroactive legislation does not fall within the traditional scope of a State’s police powers, because the disputed measures are unreasonable and discriminatory and they also resulted in a substantial deprivation. Spain’s measures inflicted substantial harm on Claimant’s investments without serving a legitimate purpose. While the draconian measures did have the effect of reducing the tariff deficit, they did so in a manner that arbitrarily and disproportionately affected renewable energy investors, causing severe financial ham.

209.
The Tribunal should not follow the Charanne award on this point. First, the tribunal in that case misconstrued the ECT’s definition of investment to conclude that only an investment that is owned or controlled (directly) by an investor is protected under the ECT. That is plainly wrong. The ECT explicitly covers indirect investments. Because the Claimant owns registered plants under RD 661/2007 and RD 1578/2008, it also (indirectly) owned and controlled the right to future tariffs. Second, the Charanne award only considered the expropriation claim in the context of the measures Spain adopted in 2010, which had a harmful, albeit more limited, effect on the Charanne claimants’ investments than the case at hand.

(2)Spain’s Position

210.
Spain denies having expropriated the Claimant’s investments. The laws of a host State define what property rights are susceptible to expropriation. Only acquired rights that exist under such laws can be expropriated under the ECT. To be considered tantamount to an expropriation, a measure must prevent the investor from operating an investment or otherwise constitute a substantial deprivation of it, annihilating the value of the investment forever. Cases like Electrabel, AES v. Hungary, Mamidoil and Charanne all support this proposition. Also, there is no expropriation if a contested measure is reasonable or in proportion with the intended objective or public interest sought.
211.
Cavalum neither holds nor controls the future income of the PV installations. Under Spanish law, there is a clear distinction between an acquired right and a mere expectation. Projected revenues, such as those for which the Claimant seeks compensation in this case, are not an acquired right, but just an expectation. They cannot be expropriated under Spanish law nor under the ECT, which defers to the host State’s domestic law for this purpose. As the Nations Energy tribunal put it, Cavalum is "confusing the principle of non-retroactivity with the principle of immediate effect of the new act for the future". The Charanne tribunal came to the same conclusion.
212.
The Claimant has experienced no substantial deprivation of its investment. It still has control over the shares in the SPVs that own the installations. The plants continue to sell energy into the grid, receive generous subsidies, and they still make reasonable profits. During the operating life of the plants, the Claimant will recover the full amount of its investment plus operating costs and will earn no less than the equivalent of the 10-year Spanish bond plus 300 basis points. Accuracy has calculated that the returns from the Claimant’s Plants following the challenged measures will be higher than the estimated return, coming out to a 9.8% pre-tax return or 7.7% post-tax.104
213.
There is no way that a reduction like this can be considered a "substantial, radical, severe, devastating or fundamental deprivation of its rights or the virtual annihilation, effective neutralisation or factual destruction of its investment, its value or enjoyment", as required by the AES Summit tribunal, to find breach of ECT Article 13. This is even less so where, as here, this rate is higher than the average of the discount rates used by the industry in their impairment tests and Cavalum’s own cost of capital as calculated, i.e., 5.5% after tax.105
214.
The TVPEE also does not have any expropriatory effect. The economic impact of the TVPEE has been neutralised. The TVPEE is one of the costs that are reimbursed to renewable producers through the specific remuneration they receive, and it is also deductible from corporate income tax. Spanish authorities have also confirmed that the TVPEE does not amount to an expropriation pursuant to Article 21.5.b ECT.
215.
The Disputed Measures are, in any event, legitimate regulatory acts, which do not give rise to compensation. As noted above, they were reasonable, proportional, non-discriminatory, and responded to a clear public interest.

C. Fair and Equitable Treatment

(1) The Claimant’s Position

216.
The Claimant argues that by adopting the Disputed Measures Spain breached the FET standard in multiple ways: (a) it violated the Claimant’s legitimate expectation; (b) it fundamentally changed the investment framework to the Claimant’s detriment;106 and (c) it failed to treat the Claimant’s investments transparently and consistently, or in good faith. The Claimant argues that each of these represents an individual basis to find Spain liable for an FET violation as discussed hereunder.

a. Spain Violated the Claimant’s Legitimate Expectations

217.
For the Claimant, the protection of legitimate expectations is one of the major components of the FET standard.107 The central question in finding a breach of legitimate expectations is whether a government has induced reliance on the part of an investor, typically in relation to the stability of one or more elements of the investment framework. This inducement can take multiple forms - including a promise, a guarantee, a commitment, an assurance, or otherwise - and can be enshrined in a variety of sources including, statutory commitments, repeated (written or verbal) statements from State officials, the investment context, the State’s conduct, and a specific undertaking between the affected investor, or an identifiable group of investors, and the State itself.108 Specific assurances are not indispensable (although here they existed).109 Once an investor’s legitimate expectations have been so established, the State cannot invoke a "right to regulate" or point to shifting policies and/or competing interests to undermine those expectations.110 Nor is it appropriate to employ any kind of "balancing" test.
218.
In this case, Spain created legitimate expectations through general and specific promises, assurances, and representations that once Cavalum’s plants were constructed and registered under RD 661/2007 or RD 1578/2008 (as evidenced by their RAIPRE registrations), those plants would receive the tariffs in the amount and duration defined in those very same decrees. Spain’s incentive program. which Spanish officials aggressively promoted overseas to attract foreign investment,111 was very clear in this regard. It was specific as to its audience, as to its object and purpose, and as to the way it operated.112
219.
Cavalum relied on these representations upon making its investments along with many other sophisticated investors and lenders, such as those in the Eiser, Novenergia, and Masdar cases. Cavalum invested in state-of-the-art PV technology that could maximise production output, using double-axis trackers for the panels to follow the sunlight, even if that meant paying a higher price than what another facility might demand.113
220.
Cavalum’s reliance and expectations were legitimate and well-supported. They resulted from (i) the explicit terms of the decrees, and particularly from RD 661/2007 Article 17 (which guarantees a fixed tariff for all energy fed into the grid), Article 36 (which sets a specific rate per kWh for 25 years and a slightly reduced rate for thereafter), Article 44.1 (which provides for annual adjustment for inflation), Article 44.3 (which bars tariff revisions in respect of existing facilities), and the corresponding provisions of RD 1578/2008; (ii) the long-term nature of renewable energy investments and the need to recoup the investment over the operating lives of the plants (i.e., they are so capital-intensive that most of the total cost of a PV facility is incurred up front in order to build the plant); (iii) the quid-pro-quo required of PV producers for facilities to gain the rights to the tariffs (i.e., while the decrees contained the offer of tariff stability in exchange for the investment, the individual plants’ entitlement to stable remuneration for the lifetime of the plants was not granted unless the investor managed to develop, build, commission, and register the facilities in time in the RAIPRE); (iv) the context in which Spain enacted RD 661/2007 and RD 1578/2008 (i.e., repeated unsuccessful attempts to secure higher levels of investment to meet the ambitious EU targets, which lead Spain to pass these new regulations providing for greater incentives and more stability); (v) the numerous statements by Government representatives including, Spain’s highest officials, such as two different Ministers of Energy and General Secretaries regarding the stability of the regime and the tremendous amount of promotional efforts that Spain carried out to attract foreign investment (i.e. references to guaranteed tariffs throughout the life of the facilities, the stability of the system, etc.);114 and (vi) the support from legal counsel in Spain and the fact that international banks were willing to provide financing on favorable terms due to the predictable cash flows that the regimes guaranteed.115
221.
Cavalum was a diligent investor. It sought and obtained advice from experienced counsel and partners in Spain such as Ms. López Mera, a Spanish lawyer who counselled Cavalum on its expansion into the Spanish PV sector, and four different groups of legal advisors who assisted Cavalum with its investment, none of whom raised any concern that Spain could reduce the tariffs.116 Moreover, the terms of the financing agreements related to Cavalum’s investments do not indicate that Cavalum anticipated the regulatory changes Spain subsequently enacted. The language Spain cites is legal "boilerplate" common to financial agreements and designed to allocate the risk of future harmful events, without regard to whether those risks were likely or even legal. The fact that three of the financing agreements (covering Cavalum’s Don Alvaro, Fuente de Cantos and Talarrubias plants) provided financing with recourse to shareholders is not indicative that the bank anticipated regulatory changes. The reason was simply that Cavalum could conclude the financing more quickly by agreeing to that provision than if it insisted on a full, non-recourse loan. Because Cavalum was up against a tight deadline to register its facilities, Cavalum did not want to spend the little time it had finalizing a non-recourse loan.
222.
Although the Claimant had an acquired (or vested) right under Spanish law to the incentive remunerations set out in RD 661/2007 and RD 1578/2008, as Professor Aragon explained in his expert opinion,117 this question is not determinative to find that Spain violated the "fair and equitable treatment" standard or its "legitimate expectations." Even assuming arguendo that registration in the RAIPRE did not convey established rights on Claimant’s facilities, it cannot be denied that registration crystallised a general offer of incentives into a specific entitlement for Claimant’s facilities that sufficed for purposes of a "legitimate expectation."
223.
Contrary to Spain’s allegations, there were no warning signs that could have put Cavalum on notice that the Special Regime would not remain intact over the lifetime of the PV plants. First, most of the exhibits on which Spain relies to make this claim, post-date Cavalum’s investments in Spain, including both its initial investment in August 2007 as well as its final investment in May 2009. Therefore, these documents could not have informed Cavalum’s expectations. Second, Spain misconstrues the limited evidence it has put forward that pre-dates Cavalum’s investments. As noted above, only four of the Supreme Court decisions were issued prior to Cavalum’s investments and all of them concerned changes to incentive regimes that pre-dated RD 661/2007. These previous regulation changes were much less radical than those that Spain imposed after 2010. Changes to the Special Regime introduced prior to 2007 could not have alerted Cavalum because RD 661/2007 was enacted precisely to solve the problems of the previous regimes, providing for greater stability. Whatever changes Spain may have introduced in the past, they could not alter the content of the specific entitlement granted to the Claimant under RD 661/2007. The Micula tribunal came to a similar conclusion in respect to a very similar argument by Romania.118 Even RD-L 6/2009 was enacted after Cavalum had completed development of most of the plants in its Spanish portfolio (in 2007-2008), and after Cavalum had already sunk significant capital into the development of its last operating plant, Talarrubias, which Cavalum formally acquired during the first week of May 2009. Unsurprisingly, the Novenergia tribunal dismissed all the pre-investment sources upon which Spain relies noting that they were still generally vague and insufficiently defined at the time of the claimants’ investments. The Masdar v. Spain tribunal reached the same conclusion, finding that there was no Spanish Supreme Court authority, which "in any way cast doubt upon the legality or validity of the terms of RD 661/2007 generally or the stability provision of Article 44.3 in particular."119
224.
Specifically. Spain violated Cavalum’s expectations of incentive tariffs for the full operating life of Cavalum’s RD 661/2007 plants when it adopted RD 1565/2010 cancelling this right after year 30 of operation in contravention to Article 36 of RD 661/2007. Spain also violated Claimant’s expectations to fixed tariffs on all of the electricity produced by its plants, adjusted for inflation only as set out in Articles 17, 36 and 44.1 of RD 661/2007 and Articles 11 and 12 of RD 1578/2008, when it imposed "operating hour" limitations on the Claimant’s facilities and introduced a new access tolls in RDL 14/2010 (which under RD 661/2007 and RD 1578/2008 did not exist), and further reduced by 7% all revenues of the Claimant’s plants under the guise of a tax. the TVPEE, in Law 15/2012. Furthermore, all these measures violated Cavalum’s expectations of stability and non-retroactivity flowing from Article 44.3 of RD 661/2007 and Article 1 and the preamble of RD 1578/2008. RDL 1/2012, on the other hand, violated the terms of RD 1578/2008 and Cavalum’s expectations that its three pending projects would achieve enrolment, likely sometime in 2012.
225.
The New Regulatory Regime goes even further in violating the Claimant’s legitimate expectations. First, the Claimant did not invest in Spain with the expectation of receiving a "reasonable rate of return" as unilaterally and arbitrarily defined by Spain ex post facto. Rather, the Claimant invested in Spain on the legitimate expectation its facilities would receive the precise tariffs established in RD 661/2007 and RD 1578/2008 for all of the electricity produced by its installations, which the Claimant concluded based on its own criteria and judgment, would offer a sufficient return to justify the risks of investment. Second, the Claimant invested in reliance on a clear, straightforward, and stable regime. The RD 661/2007 and RD 1578/2008 frameworks were easy to understand and offered the ability to accurately predict cash flows for the future. Explicit tariff rates, adjusted for inflation, were offered to facilities that were properly constructed, connected, and registered before an established deadline. Those rates would apply to all electricity produced — period. Furthermore, Spain expressly guaranteed that any future revisions to the tariffs would not apply to existing facilities already registered under the regime. Spain’s measures violated that central guarantee of non-retroactivity.
226.
Additionally, the New Regulatory Regime is very complex and uncertain. Spain has created 578 different "standard installations" purporting to correspond to different types of PV facilities. Spain claims to use these "standard installations" to calculate the costs that factor into its formula to determine the rate of return that it considers "reasonable" for each actual facility. Once Spain calculates the "reasonable" return for a given facility, it uses that figure as a ceiling to the remuneration it will pay that facility, and compares this figure against the returns a facility has made since it began operation. Furthermore, any remuneration to be paid to the Claimant’s facilities under the New Regulatory Regime is subject to partial review every three years beginning in 2016 and full review every six years starting in 2019. Thus, not only is Spain’s assessment of the returns that a facility "should" be able to earn contrary to the fixed tariffs Spain promised in RD 661/2007 and RD 1578/2008, and the expectations it created in that respect for the Claimant, but also it is incredibly ambiguous, difficult to calculate, and impossible to predict for the future. All of these factors taken together has further violated the Claimant’s legitimate expectation of a stable and straightforward legal framework governing its investments.
227.
A "balancing" exercise such as the one employed by the Novenergia and Eiser tribunals is not an appropriate legal standard for this case. These tribunals failed to give due consideration and effect to the express and specific guarantee of Article 44.3 of RD 661/2007. Had they done so, there would have been no need or room for them to make any such exercise, which lacks clear boundaries and legal rigor. But even if a balancing exercise were to be employed, a proper application would lead to the conclusion that all of Spain’s measures, taken cumulatively as it should be, violated the FET standard. All the relevant factors in this case would weigh strongly in Cavalum’s favor, such as the importance of the original policy served by the incentives, the strength of the guarantee, the relevance of the incentives for the investments, the need for regulatory intervention, the cause of it, the impact on the investments, and the ability of the investors to adapt. The government simply decided to shift policy priorities, after receiving the benefit of the investments that it needed and that it had induced with express assurances, at a moment when investors such as Cavalum could do very little to change anything. To make things worse, the reason for those changes - the tariff deficit - was a problem of Spain’s own making. Finally, there should be no doubt that there can be no proportionality analysis with respect to the quantum assessment. The harm caused by Spain’s measures, which was catastrophic by any measure, is immaterial to the illegality of those measures.
228.
The cases upon which Spain relies (AES Summit, Electrabel, Plama, and Charanne) do not detract from this conclusion. On the contrary, this Tribunal should follow the findings in the tribunals of Micula and Total. Also, it was not until the end of 2010 that Spain made abrupt, unexpected changes harming existing plants and breaching its international obligations to Cavalum. This case therefore stands in stark contrast to other situations in which a claimant invested under an incentives regime at a later stage, when indications of change were or should have been known, such as Antaris v. Czech Republic.
229.
Lastly, it is worth noting that Spain does not dispute that legitimate expectations can arise from its regulatory framework. In fact, Spain contends that investors did have legitimate expectations that they would receive a reasonable rate of return on their investments (which is an assurance that Spain made, if at all, only in the regulatory regime and not in a contract or some more specific context directed to investors). Rather. the crux of Spain’s case challenges what the regulatory regime assured to investors.

b. Spain’s Fundamental Change in the Investment Framework Violates the FETStandard Even in the Absence of Legitimate Expectations

230.
The Claimant argues that recent decisions show that Spain has been found liable for FET violations because it radically and fundamentally dismantled the RD 661/2007 and RD 1578/2008 regimes through the Disputed Measures to the investor’s detriment. This Tribunal should follow these precedents.
231.
As noted by the Eiser v. Spain tribunal, the FET obligation in the ECT "means that regulatory regimes cannot be radically altered as applied to existing investments in ways that deprive investors who invested in reliance on those regimes of their investment’s value."120 This is exactly what Spain did by imposing the New Regulatory Regime in the present case.
232.
The Novenergia v. Spain tribunal endorsed this view by noting that the FET standard "protect[s] investors from a radical or fundamental change to legislation... that does not adequately consider the interests of existing investments already made on the basis of such legislation."121 The tribunal found that the New Regulatory Regime in Spain was "radical and unexpected," and that the manner in which Spain adopted it fell "outside the acceptable range of legislative and regulatory behaviour".122
233.
Similarly, the Antin v. Spain tribunal explained that the FET obligation under the ECT "means that a regulatory regime specifically created to induce investments in the energy sector cannot be radically altered — i.e., stripped of its key features — as applied to existing investments in ways that affect investors who invested in reliance on those regimes."123 The tribunal then concluded that Spain breached the FET standard by eliminating the essential features of RD 661/2007.

c. Spain’s Conduct Was Not Transparent, Consistent or in Good Faith

234.
According to the Claimant, another key aspect of the fair and equitable treatment standard is the State’s duty to treat investors and their investments transparently, consistently, and in good faith. These are each independent bases to find Spain liable under the FET standard.
235.
A State’s duty of "transparency" requires the absence of any ambiguity or opacity in its treatment of investments. The governing legal framework must be readily apparent and States need to correct or clarify any uncertainty that may develop over time. States also have an obligation to act coherently and apply its policies consistently. This duty endures after a change of administration. A new government cannot repudiate or alter the commitments or relationships entered into with investors by a previous government without violating its obligation to afford fair and equitable treatment. Good faith entails a sincere intention to deal fairly with others.
236.
Spain’s defence in this case is a damning confession on the subject of transparency as well as consistency and good faith. Spain has argued that it always knew that it could make fundamental changes to the RD 661/2007 and RD 1578/2008 regimes after it had benefited from billions of euros of investment in its renewables sector, although it crafted a regulatory regime that contained a guarantee against non-retroactivity and its officials were touting the "total legal security" of the framework. If Spain’s defence is credited, Spain misled the Claimant and thousands of other investors by creating the appearance of a stable regulatory regime that guaranteed specific tariff rates for a defined duration. Also, Spain imposed cuts to the Claimant’s remuneration retroactively, without giving it any opportunity to comment on the new regime.
237.
Spain’s retroactive measures were also inconsistent with the clear terms of RD 661/2007 and RD 1578/2008. None of these measures were envisaged, let alone authorised, under the original regime. RD 661/2007 provided for fixed tariffs for the entire operating life of the plants without any limitation on the number of years, annual operating hours, toll access charge, or a further reduction under the guise of a green tax. Similarly, Spain’s extraordinary reduction of the RD 1578 tariffs available to new facilities (which applied to Cavalum’s Solarwell plant) was inconsistent with the formula established in RD 1578. That measure was also arbitrary as it did not correspond to a 45% reduction in the costs of constructing such a facility.
238.
Nor were Spain’s measures carried out in good faith. Spain reaped the full benefits of the Claimant’s PV plants and energy capacity they created, while denying the Claimant the full, originally-promised benefits of the tariff regime that induced those investments. Spain’s measures targeted Cavalum and other renewable energy investors as the cause of Spain’s tariff deficit — when the real cause was a failure of Spain to address the tariff deficit from the beginning and a lack of political will to pass on costs to consumers. This forced Cavalum and other renewable energy investors to bear the burden of the "solution."
239.
Spain’s reliance on AES v. Hungary is misplaced. The facts of that case are vastly different from those of the present case.

(2) Spain’s Position

240.
For Spain, the FET must be interpreted in accordance with the objectives of the ECT. The two main objectives being to (1) ensure a "level playing field" through the principles of national treatment and non-discrimination as understood in customary international law and (2) "to promote the development of an efficient energy market" in the EU (Article 2.a).124 To provide stable and transparent conditions and to refrain from taking arbitrary or discriminatory measures (the so-called "non-impairment clause" of the ECT), or from frustrating an investor’s reasonable expectation are not independent, self-standing obligations. They are all elements of the FET standard, which must be interpreted in light of the ECT’s objectives and balanced against any other relevant consideration. That is the approach adopted by the tribunals in Plama,125Charanne, and Isolux and followed by Spain in this case.
241.
The FET does not prevent a Contracting State from taking measures of macroeconomic control or to protect consumers by reasons of public interest (Article 4.4.b). As the Electrabel tribunal noted, a "host State is not required to elevate unconditionally the interests of the foreign investor above all other considerations in every circumstance". No investor can expect that its interests will be protected unconditionally, even if that means distorting the energy market or harming consumers, much less so in such a highly sensitive and regulated area. States are not stripped from their police powers or required to freeze their legislation under the ECT. Article 10(1) ECT demands stable conditions not a frozen regulatory framework. The ECT is not insurance policy against all kinds of regulatory risks. A reasonable evolution of the host State’s Law is part of the environment within which investors must contend.
242.
Contrary to the Claimant’s allegations. Spain is not asserting a defence of necessity.126 It is simply stressing the importance of balancing the interests of (i) investors, (ii) the State, and (iii) consumers in the application of the ECT’s standards and particularly of the FET. In any event, the Claimant bears the burden of proving its case under the ECT.127

a. Cavalum’s Alleged Expectations Are Not Protected Under the ECT

243.
For Spain, an expectation is protected under the FET only if it is grounded in a specific commitment addressed to a foreign investor (or an identifiable group of foreign investors) whereby a State undertakes not to amend a certain regulation. The investor’s expectations should be assessed objectively considering all circumstances surrounding the investment, including the information that the investor knew or should have known had it used due diligence to understand the legal framework in which it invested. An investor’s expectation is not objective or reasonable if it is based on an incomplete or partial reading of the regulatory environment or if it fundamentally differs from the reasoned perception of other investors, the industry, regulatory advisers, and other actors similarly situated. The investor bears the burden of proving the elements of its claim. These basic propositions have been accepted in a wide variety of ECT cases, such as Charanne B.V. v. Spain,128Isolux v. Spain,129AES Summit v. Hungary,130Electrabel v. Hungary,131 and Invesmart BV v. Czech Republic.132
244.
In this case, the only commitment that Spain made was that it would provide renewable energy investors, whether foreign or national, with a reasonable rate of return calculated by reference to the cost of money in the capital market as set out in Article 30.4 of the Electricity Law.133 This target rate was estimated in around 7% before taxes based on projections made in the Renewable Energy Plans, which later translated into the values set out in RD 661/2007. This is about the same return rate that Cavalum’s PV Plants achieve under the current regime. No other commitment, much less a specific promise, was ever made.
245.
Article 14 (RAIPRE registration), Articles 36 (tariff rates), Article 44 (alleged stabilization clause) of RD 661/2007, and the corresponding provisions of RD 1578/2008 did not confer a vested or acquired right to the revenue streams that resulted therefrom. The Disputed Measures therefore cannot be considered retroactive under Spanish or international law, as noted by the tribunals in Charanne and Isolux, following the precedent established by Nations Energy v. Panama.134 The Disputed Measures apply prospectively even though they take into account existing situations for purposes of setting remunerations forward, such as the income received by the different installations in order to comply with EU State aid regulations. But they do not claw back earnings already received, just as RDL 7/2006 or RD 661/2007 did not touch the earnings already received by such facilities either - even though both applied to existing facilities135.
246.
All these provisions, including Article 36’s timeframes and Article 44’s looking-forward directions, were meant to be in effect so long as RD 661/2007 remained in force and cannot be read in isolation of higher norms such as Law 54/1997, to which they are subordinate.136 The Government did not go any further when enacting RD 661/2007 or RD 1578/2008 because it did not know what the future would look like and it wished to retain sufficient room to manoeuvre.137 Investors knew that Royal Decrees could be superseded by the Government, and for that reason they lobbied for years to have specific remuneration rates set out in the law.138
247.
Both Spanish law and EU law require subsidies to be proportional to the goal that is pursued (i.e., enable the recipient to compete on equal footing in the market). They cannot go any further without breaching Spanish and EU State aid laws.139 As the Electrabel tribunal stated, foreign investors cannot have a legitimate expectation that the ECT would shield their investments from the effects of EU law in regard to anti-competitive conduct.140 Under EU State aid laws, any subsidies must also be notified to the EC. A recipient of State aid cannot have legitimate expectations in the lawfulness of aid that has not been notified to the Commission. That is also settled case law of the CJEU. There is no doubt that the feed-in tariffs set forth in RD 661/2007 and RD 1578/2008 are subsidies subject to EU State aid regulations. This has been conclusively decided by the EU Commission, which is the competent authority to make this determination.141
248.
The statements from ministers and officers that the Claimant selectively quotes, omitting many others,142 were made in the context of political debates. If read in full, these statements should have put the Claimant on notice that "tariffs are not going to pay for anyone’s party",143 rather than reassure them that they could expect windfall profits. The IDAE or Invest in Spain PowerPoint presentations, on the other hand, were part of seminars given by CNE staff, most of which are in Spanish, thus disproving that they were aimed at foreign investors. There was neither an aggressive campaign to attract foreign investment nor were RD 661/2007 or RD 1578/2008 specifically addressed to foreign investors. RD 661/2007 and RD 1578/2008 did not provide distinctions or preferences depending on the nationality of the investor.
249.
These presentations and press notes relied upon by the Claimant also do not support the existence of any commitment to maintain subsidies petrified.144 The former simply point to certain aspects of the regulatory regime as existing at the time, whereas the latter, which have no legal value under Spanish law, merely summarise in colloquial terms the content of the various measures adopted by the Council of Ministers. The tribunals in Charanne and ECE Projektmanagement v. The Czech Republic both stated that legitimate expectations could hardly be based on statements made by subjects lacking the capacity or the competence to grant or fulfil the commitments made.145
250.
The Claimant’s alleged expectations are not reasonable, nor do they stand up to an objective analysis.146 Cavalum claims to have made the bulk of its investment "in the period between 2007 and 2010"147 in reliance on what it considered to be stabilization guarantees in RD 661/2007 and RD 1578/2008. Yet it has not supplied evidence of a single due diligence that would support such understanding. The only due diligences on file do not even advise on regulatory matters,148 because Cavalum never asked for such advise as Mr. Valentin Pereira da Cunha openly admitted during the hearing.149 In addition, the record shows that the Claimant’s advisers warned of possible regulatory changes and, moreover, the contractual and financing documents as well as their parent company accounts, envisaged such changes.150 Three of the financing agreements (covering Cavalum’s Don Alvaro, Fuente de Cantos and Talarrubias plants) provided financing with recourse to shareholders, which according to the Claimant itself, is indicative that the bank was not certain as to whether the projects could generate stable and predictable revenues and opted to protect itself from possible changes by requesting further guarantees as collateral. The financing agreements also provide for early maturity (termination) in the event that Spain adopted subsequent measures having a material effect on cash flows. As noted by the tribunal in Invesmart v. Czech Republic, the ECT does not protect "ill-informed" or "overly optimistic" investors.151
251.
Cavalum’s expectations are also inconsistent with the evolution of the regulatory regime up to the date of the Claimant’s investment and with contemporaneous case law that was widely available to investors. Since 2006, the government selectively reduced remunerations to both prospective and existing renewable energy installations every time it was necessary to ensure the sustainability of the system and avoid windfall profits. All of these measures were upheld by the Spanish Supreme Court, which from 2006 on made it clear that renewable energy producers did not have a right to a specific remuneration formula, and that the Government was entitled to adjust remunerations downward so long as it preserved the reasonable rate of return, as delineated in Law 54/1997. In particular, neither was Article 40.3 of RD 436/2004 found to be an impediment to the remuneration cuts introduced by RDL 7/2006 and RD 661/2007, nor was Article 44.3 of RD 661/2007 considered to prevent subsequent adjustments brought about by RD 1578/2008, RDL 6/2009, and RD 1614/2010. The Claimant contends that these changes led to improvements in remuneration rates, but this argument is rebutted by the fact that in each instance where a new measure was adopted, renewable energy associations strongly opposed them, critiqued them, and many even challenged them before Spanish courts.
252.
This jurisprudence was known by investors and renewable energy associations because it was referred to in reports made by the CNE in 2007 and 2008, and it was also criticised by renewable energy associations in several contemporaneous publications. Likewise, the associations criticised prior amendments to the remuneration system for being "retroactive" insofar as they affected RAIPRE-registered plants.152 Following the draft of RD 661/2007 being disclosed for comments in early 2007, APPA put investors on notice about the risk that the Government could make changes to the remuneration rate by stating that investors "must consider the risk that such remuneration could be lowered" outside the terms of Article 40.3 (one of the alleged stabilization guarantees relied upon by the Claimant whose wording is very similar to that of RD 661/2007 Article 44.3).
253.
The cases cited by the Claimant are completely inapposite. Total, Enron, LG&E and BG are not ECT cases. They are also based on a very different legal framework. In all these cases Argentina had entered into specific concessions and/or license agreements with the investors’ local companies, which contained detailed stabilization clauses. That is not the case here. Micula v. Romania is also a non-ECT case. In this case, investors should have known that subsidies could not be higher than reasonable. Another key difference is that here Cavalum is still receiving subsidies after the measures were adopted and making a profit.

b. Spain Has Acted Consistently, Transparently and in Good Faith

254.
Spain contends that the ECT does not impose the sort of unrestricted legal security and stability that the Claimant demands. This would effectively freeze the regulatory framework even in the absence of any commitment to that effect. The ECT only requires that the respondent State’s conduct fall within an "acceptable range of legislative and regulatory behaviour", as held by the AES Summit v. Hungary tribunal. The precedents relied upon by the Claimant are inapposite. They all referred to non-ECT cases, with the exception of one, the Electrabel case, in which the claimant did not even make an allegation regarding lack of transparency.
255.
Spain has acted transparently and consistently at all relevant times. Since 2005, the Spanish Supreme Court has made it clear that there was no vested right to a particular rate of return, provided that changes did not affect earnings already received, and that the principle of a reasonable rate of return was not affected.
256.
Spain has followed the legally established procedures in all the measures taken since 2010, without incurring any undue delays and ensuring participation in the legislative process by stakeholders.153 The structural reform to the electricity system was announced more than a year before its implementation. Hundreds of observations on the drafts of RD 413/2014 and MO 1045/2014 were received from the entire renewable energy industry, which were carefully considered by the regulator (i.e., CNMC). This resulted in significant changes to the initial drafts, which largely benefited investors such as Cavalum.
257.
Contrary to the Claimant’s allegations, regulatory periods are not discretionary. Nor is the methodology for reviewing certain elements of the remuneration formula uncertain. There are clear deadlines and procedures.
258.
Moreover, the contested measures have maintained the pillars of the Spanish remuneration model in place since 1997.154

c. Spain Did Not Impair Cavalum’s Investment by Unreasonable (Arbitrary) or Discriminatory Measures

259.
Spain also denies having impaired Cavalum’s investment by unreasonable or discriminatory measures. Spain’s arguments are discussed in subsection D.2 below.

D. The Non-Impairment Clause

(1)The Claimant’s Position

260.
According to the Claimant, the "impairment" clause of the ECT sets forth a low threshold for the requisite impact on an investment (any impact is sufficient), which Spain violated by undertaking the unreasonable and discriminatory measures at issue in this arbitration. Because Article 10(1) ECT uses the disjunctive "or" instead of the conjunctive "and," either unreasonable or discriminatory measures will violate this provision. A measure is unreasonable if it is taken without due consideration of the potential negative effects it will have on foreign investors, something that must be judged from the standpoint of the parties’ expectations at the time of the decision to invest.
261.
All of Spain’s measures in this case were "unreasonable". Although they addressed the long-growing tariff deficit, they did so in a manner that was unnecessary, arbitrary, that disproportionately impacted Cavalum’s investments, and caused them significant financial harm. Backing out of explicit promises after inducing investors to put their resources in, because it wanted to avoid the political repercussions associated with having consumers to pay the actual costs of electricity, and making renewable energy investors bear the burden of this problem, is neither a legitimate purpose nor a rational policy. Spain had many other financial tools available to address this deficit. It is not sufficient for Spain to point to any "reason" underlying its policy choice - the reason Spain points to must be justified in light of Spain’s duty to protect investors and encourage investment, as enshrined in the ECT. The statements of the EC, International Monetary Fund, and International Energy Agency on which Spain relies are nothing but general statements approving Spain’s decision to (finally) address and eliminate its Tariff Deficit. They do not analyze whether Spain could have eliminated the Tariff Deficit by other means, something that it could have certainly done without reducing the incentives it had already granted to investors under RD 661/2007 and RD 1578/2008.
262.
Spain’s measures also violated fundamental principles of non-retroactivity and discriminated against renewable energy investors. Spain’s excuse that investors, such as those in the PV sector, should bear the burden of the cuts because they benefited from windfall profits is simply not true. Nor is it true that most investors accepted the new incentive regime or that such regime has any resemblance to past proposals from the sector (such as APPA’s 2009 proposal), which are always meant to apply prospectively.155 The so-called "renewable energy boom" following Spain’s illegal repeal of RD 661/2007 is a complete misrepresentation of the facts. This boom is not due to greater stability, but just the result of investors wishing to rid themselves of distressed assets.
263.
Finally, Spain’s reliance on the awards in Charanne and Isolux are misplaced. The claimant in Charanne did not raise a claim under the ECT’s impairment clause and the Isolux tribunal found that Spain’s measures did not negatively impair the claimant’s investments.

(2)Spain’s Position

264.
The Disputed Measures are not unreasonable or discriminatory. A State’s act is unreasonable, as the AES Summit v. Hungary tribunal noted, if it does not pursue a rational policy, i.e., one that follows a logical (good sense) explanation with the aim of addressing a public interest matter, and there is no appropriate correlation between the State’s public policy objective and the measure adopted to achieve it. Discrimination exists, as noted by the EDF v. Romania tribunal, where a measure inflicts damage without serving any apparent legitimate purpose; it is not based on legal standards but on discretion, prejudice or personal preference; it is taken for reasons that are different from those put forward by the decision maker, or in wilful disregard of due process and proper procedure.
265.
The Disputed Measures pursue a legitimate and rational policy. They addressed the growing tariff deficit and the excessive profits made by some producers, which were heavily burdening consumers while putting the overall sustainability of electricity system at risk. Electricity costs to consumers had increased by 81% between 2004 and 2011, placing the price of electricity in Spain well above the average of the European Union. In parallel, the costs of the system had tripled, with the increase mainly corresponding to RE subsidies.156 Addressing these issues was as much of a concern as it was in the AES Summit v. Hungary case.157 A similar analysis has subsequently been adopted by other tribunals such as the Electrabel and Charanne tribunals.
266.
Not only was there a proper correlation between the public policy objective and the Disputed Measures, but they were also proportionate. The Government took various actions, which have been praised by several international institutions such as the EC, IMF, and the International Energy Agency to adequately distribute the burden between consumers and producers, distributors, carriers, and producers. The State also committed additional resources through the general budget, making taxpayers bear part of the costs.
267.
The new regime is not arbitrary, but it is based on clear and defined legal standards. It also respects the principle of economic equilibrium for long-term investments enunciated in Total v. Argentina case. Renewable energy producers, whether national or foreign, are able to recover operations costs, amortise investments, and make a reasonable profit over time of about 7,398% before taxes. In the case of Cavalum’s plants, the rate is even higher, coming to 9.8% before taxes (7.7% after taxes), as calculated by Accuracy experts.158 This explains why the New Regulatory Regime has attracted over 5 billion euros of RE investment in Spain in 2015.
268.
The Spanish government has followed the legally established procedures to enact the regulatory standard of remuneration in the electricity sector. The Government disclosed the successive drafts of the measures to the stakeholders, who then had various opportunities to submit observations and comments before final texts were adopted and implemented.

E. The Umbrella Clause

(1)The Claimant’s Position

269.
The Claimant submits that the ECT’s umbrella clause covers any obligations, rather than only contractual obligations, and that Spain’s legislative and regulatory promises clearly fall within its scope.
270.
This is the ordinary meaning of the terms used in Article 10(1) ECT. The Oxford English Dictionary defines "entered into" as to "undertake to bind oneself by (an agreement or other commitment). Unlike other umbrella clauses, Article 10(1) explicitly refers to "any obligations" with an Investor "or" an Investment. Had the Contracting Parties to the ECT wanted the umbrella clause to only cover contractual obligations, they would have drafted "contractual obligations" instead of "any obligation".
271.
Spain entered into a binding obligation when it conferred the rights of RD 661/2007 and RD 1578/2008 to the Claimant’s plants. This was not a "general" obligation backed only by a legal framework open to anyone. The RD 661/2007 and RD 1578/2008 rights were available only to a limited number of investors who met certain eligibility requirements, and only for a limited amount of time. The Claimant’s facilities satisfied all these requirements, obtaining Final Commissioning Certificates and were individually registered in the RAIPRE. In the case of Talarrubias and Solarwell, the fixed tariff rate was also communicated in an official resolution from Spain upon the facility’s enrolment in the pre-allocation registry and Spain specifically awarded those facilities a place among its quarterly capacity allocations, conveying an independent right to those facilities under the regime. As Prof. Aragón explains, RD 661/2007 and RD 1578/2008 granted specific property rights under Spanish law to the Claimant.159 Violations of those rights give rise to Spain’s liability under its own domestic law, which means that a violation of those rights also violates the umbrella clause.
272.
Relevant case law supports the Claimant’s position. The AMTO v. Ukraine tribunal recognised the "wide character" of the ECT’s umbrella clause. Although the Plama tribunal did not need to find that the umbrella clause covered non-contractual obligations (because the dispute involved contractual obligations), it did embrace the notion that the scope of the clause extended to statutory obligations undertaken by a State. So too did the Khan Resources v. Mongolia tribunal, by adopting a plain meaning approach. Spain’s objections to the contrary based on misconceived readings of the Al-Abahloul v. Tajikistan and Eureko v. Poland cases are of no avail. Spain’s statutory and regulatory obligations were not general, but very specific.
273.
The fact that the ECT’s umbrella clause covers more than contractual obligations is also in line with the holdings of several tribunals in cases involving umbrella clauses that are narrower than the one found in the ECT. Examples include LG&E v. Argentina, Enron v. Argentina, Continental Casualty v. Argentina, CMS v. Argentina (annulment case), and Noble Ventures v. Romania. Furthermore, the ECT Secretariat in the ECT Reader’s Guide does not suggest that Article 10(1) ECT is limited to contractual obligations only. The Guide simply raises the issue in the context of its discussion of "Individual Investment Contracts."
274.
In this case, Spain violated the obligation it had undertaken in Article 36 of RD 661/2007 to pay fixed tariffs to the Claimant’s plants for their full operating lives. Spain also violated the Claimant’s right to receive the tariffs set in Articles 17 and 36 of RD 661/2007 and Article 11 of RD 1578/2008 (as well as the resolution issued in respect of Talarrubias and Solarwell), on all of the electricity produced by their plants, adjusted for inflation only as set out in Article 44.1 of RD 661/2007 and Article 12 of RD 1578/2008. Likewise, Spain violated the non-retroactivity obligation in Article 44.3 of RD 661/2007, which was also applicable to RD 1578/2008. Finally, Spain’s abrogation of RD 661/2007 and RD 1578/2008 violated all of the obligations it had undertaken for Claimant’s investments in its legislative and regulatory framework.

(2) Spain’s Position

275.
Spain denies having violated the umbrella clause of the ECT. It argues that the Claimant’s interpretation is at odds with the text of Article 10(1) ECT and the case law that has applied this provision. Spain has not acquired any commitments with the Claimant in respect to its Plants by virtue of RD 661/2007 or RD 1578/2008.
276.
Article 10(1) only applies to obligations that a State has "entered into with an Investor or an Investment". This language shows that only commitments that arise out of a bilateral or similar instrument may qualify for protection (e.g. administrative contract, concession or license between the state and the investor). The commitment must also be unequivocal and specific with respect to a particular investment. General provisions of a host State’s legislation, such as RD 661/2007 and RD 1578/2008, do not fall within this category.
277.
This is how the ECT’s umbrella clause has been interpreted by the ECT’s Secretariat, in scholarly writings, and in the prevailing case law.160 For example, the ECT Reader’s Guide discusses the umbrella clause by exclusive reference to investment agreements under a heading entitled "Individual Investment Contracts".161 Scholars like Thomas W. Wälde even call it the pacta sunt servada clause to stress its contractual nature.162 There is no single case in which the ECT’s umbrella clause has been applied without there being a contract, a concession, or a rule addressed exclusively to foreign investors. There are, on the other hand, numerous decisions both in ECT and non-ECT cases that confirm Spain’s position about the scope umbrella clauses,163 including the two only awards issued in renewable energy cases brought against Spain based on the same investment framework at issue here, namely Charanne and Isolux.164
278.
The ECT decisions cited by the Claimant do not detract from this conclusion. The Plama tribunal never accepted the application of the umbrella clause to non-contractual obligations; it expressly noted that it "need not extend its analysis any further" on this point because that case was based on a contract. The same can be said about Mohammad A. Al-Bahloul v. Tajikistan and AMTO v. Ukraine. These two cases were based on contractual obligations. The Mohammad A. Al-Bahloul tribunal went even further to point out that an umbrella clause "does not refer to general obligations of the State arising as a matter of law." In Khan Resources v. Mongolia on the other hand, the dispute related to obligations arising from a specific host state’s law designed to attract foreign investment. Spain’s regulatory framework however, is general legislation that did not and does not distinguish between domestic and foreign investors.
279.
The other non-ECT cases cited by the Claimant also do not support its position. In both Enron and LG&E, Argentina had entered into specific concession and/or license agreements with the investors’ local companies. The same applies to SGS v. Paraguay and Eureko v. Poland. That is not the case here. Moreover, the tribunal in El Paso and the annulment committee in CMS specifically rejected Claimant’s broad interpretation of an umbrella clause. In Noble Energy v. Ecuador on the other hand, the tribunal very clearly stated that "‘entered into’ indicates that specific commitments are referred to and not general commitments, for example by way of legislative acts. This is also the reason why Article II (2)(c) would be very much an empty base unless understood as referring to contracts".
280.
Registration in the RAIPRE, which by 2016 covered over 64,400 facilities with over 44,600 different owners, creates no commitment of this sort. This is just a mandatory requirement for any plant to deliver electricity into the grid. RD 661/2007 and RD 1578 were directed at any owner of an electricity plant, regardless of both nationality and origin. The scope of application of these regulations was not limited to a few who met subjective requirements, but it applied to any who met the objective requirements established in the legislation.

F. Quantum

(1)The Claimant’s Position

281.
The Claimant’s overall position is that it is entitled to damages of EUR 57.4 million in respect of its PV plants, and EUR 1.8 million in respect of its investment in the Abandoned Projects.165
282.
The ECT does not expressly provide a standard of compensation for violations of the ECT, and the customary international law principle of full compensation applies: Chorzow Factory,166 which continues to be cited and followed in contemporary cases.167
283.
The Claimant’s expert. FTI Consulting ("FTI"). calculates the quantum of compensation that Spain owes to Claimant in respect of its seven operating PV plants, based on the difference between: (a) the value that the Claimant’s investments in Spain would have had if Spain had not introduced the measures that Claimant contends violated the ECT (the "Counterfactual Position"); and (b) the value of those investments after the introduction of those measures (the "Actual Position").168 The investments which FTI values are the Claimant’s equity interest in and shareholder loans to the operating companies which own the seven PV.169 For the Abandoned Projects, FTI includes damages based on the amounts invested by Claimant through payments or through subscribed debt.170
284.
FTI uses the discounted cash flow ("DCF") method to calculate the value of Claimant’s investments in the seven operating PV plants.171 The DCF method is appropriate because the future performance of operating PV plants is relatively predictable; and the DCF method allows the valuer to ensure that the specific characteristics of particular assets or companies are properly reflected in the analysis, and that the effect on value of various changes to the financial performance of those assets (such as regulatory changes) is properly assessed.
285.
The damages are assessed as at June 30, 2014, the date which is the end of the quarter in which Spain finalised the terms of the New Regulatory Regime, and at which point the full impact of the measures was known to the market.
286.
On that basis the Claimant claims172 the difference between the value of its investments in the Counterfactual Position (EUR 53.2 million) and the value of its investments in the Actual Position ((EUR 4.2 million)), namely EUR 57.4 million. It also claims EUR 1.8 million for the sunk investment costs it undertook to develop and apply for registration into RD 1578/2008 with respect to the Abandoned Projects, comprised of EUR 1.2 million which the Claimant spent and EUR 0.6 million worth of debt obligations owed to Valsolar.
287.
In response to Spain’s Counter-Memorial, the Claimant says173 that Spain has simply re-stated its case on the merits by assuming that the Claimant was entitled only to a reasonable rate of return, and not the tariff rates guaranteed in RD 661/2007 and RD 1578/2008 which were the core of Claimant’s case, and then by putting forward an Asset Based Valuation ("ABV") to measure the difference between a reasonable rate of return with what Spain says that the Claimant actually receives now, to reach the conclusion that the Claimant suffered almost no damages.
288.
Accuracy’s alternative DCF valuation assumes that if Spain had not enacted the Disputed Measures, it would have had to implement measures to solve the tariff deficit in any event. This fails to value damages based on the claims asserted, which allege that Spain’s tariff deficit did not excuse its illegal measures because it was a problem of Spain’s own making, and the illegal measures were not a reasonable much less necessary means of redressing it.
289.
Spain and Accuracy argue that FTI’s valuation is unreliable because the enterprise value which FTI calculates is disproportionate to the amount originally invested in the plants, and the losses that FTI computes are disproportionate to the Claimant’s original equity investment, and speculative. Accuracy calculates an implicit internal rate of return ("IRR") on equity of 35.4%, which it argues is extraordinarily high in a regulated and protectionist market.174 But the increase in the value of the assets results almost entirely from the fact that the Claimant (with its partner on some of the plants) was very efficient in building the plants; from the significant impact of falling interest rates since 2008; and from the effect of leverage, since the Claimant financed a significant portion of the investment cost of the seven PV plants with debt financing, which magnifies the effect of gains (or losses) in the value of the equity interest..from the substantial decline in interest rates since they were built. When corrected for these errors, the project IRRs in the Counterfactual Position are 8.4%, which is realistic and consistent with Spain’s view of what was reasonable.

(2) Spain’s Position

290.
Spain’s overall position is that there has been no loss, but alternatively, if the approach of the Claimant’s expert to calculation by the DCF method is right (which Spain disputes) the loss would be EUR 4 million.175
291.
The alleged damages estimated in the FTI’s First Quantum Report were not compensable, as they were totally speculative. The Claimant bears the burden of proving the loss founding the claims for compensation. If that loss is found to be too uncertain or speculative or otherwise unproven, the Tribunal must reject these claims, even if liability is established.176
292.
The New Regulatory Regime guaranteed that PV plants enjoyed reasonable profitability, protected from the uncertainties and fluctuations of the market. There was no basis for the Claimant’s contention that the Actual Position was going to be maintained in the coming decades. No evidence had been provided for the alleged damages arising from the Abandoned Projects.
293.
The DCF method has been rejected on numerous occasions in favour of methods based on the costs of the assets.177 ABV is much easier and less speculative. When the investment is very recent, or still in process of being made, there is an obvious and often easier alternative to using Net Present Value ("NPV") of future cash flow to determine Fair Market Value ("FMV"). If a project was expected to generate normal rates of return for the business, then the amount of investment itself provides a reasonable starting point for determining FMV. In most cases, the FMV of recently acquired assets is unlikely to be substantially different from the cost of those assets.178 ABV is particularly appropriate where the acquisition date is close to the appraisal date.179
294.
In DCF calculations, small adjustments in the estimation can yield significant divergences in the results, and valuations made through a DCF analysis must in any case be subjected to a "sanity check" against other valuation methodologies."180 This check using other valuation methods was not carried out by the Claimant.
295.
FTI’s calculation uses parameters outside economic logic. and highlights the speculative nature of the claim, especially with regard to: setting an 8% fixed rate of return from 2007; discounting the cost of capital of 5.5%, by implicitly including a 2.5% premium; increasing the FMV in the Counterfactual Position; and discounting the Actual Position with a 12% discount rate, artificially lowering the value of the plants after the implementation of the measures.
296.
FTI’s Counterfactual Position assumes that the tariffs set in RD 661/2007 and RD 1578/2008 were guaranteed for 35 years and that the rest of the profitability variables will remain constant throughout that assumed lifetime. These assumptions yield an IRR of 10.56% (post-tax), i.e. almost twice the Cost of Capital at the valuation date (5.5%, as determined by FTI).
297.
In the Counterfactual Position calculated by FTI there would be an average IRR for the Claimant of 35.4%. That rate of return is disproportionate, and in the Actual Position this supposes a revaluation of 62% over cost. Taking into consideration the amount actually paid by investors, the increase of value in the Counterfactual Position would total 349%.
298.
The standard laid down in Ministerial Order IET/1045/2014 broadly covers the investment costs which have been made. The guaranteed reasonable return is 7,398%, calculated over the standard investment, and the actual return of the project would be higher than 7,398%, since the cost of the investment has been lower than the remuneration base.181 The profitability enjoyed by the Claimant’s plants will be far in excess of that established in the legislation as a reference.
299.
Using FTI’s projections, Accuracy says that the plants will obtain a project IRR of 7% (post-tax). This return includes management fees as cost. No objective evidence has been provided regarding the actual services and costs behind these management fees; they should therefore be seen as dividends. The correct return in the Actual Position is 7.7% post-tax.182
300.
If the DCF method were applicable, a correct application of the DCF method would result in a negative impact of EUR 4 million.183

VIII. THE TRIBUNAL’S REASONING

A. Jurisdiction

(1)The Intra-EU Issue

a. Introduction

301.
Spain and the Commission contend (in summary) that the Tribunal has no jurisdiction because (1) the ECT does not apply to the relationship between EU Member States; (2) even if it did create inter se obligations between EU Member States, those obligations would not include the provisions on investment protection and dispute settlement; (3) EU law forbids the existence of any dispute mechanism other than that established by the EU Treaties; and (4) in the event of a conflict between EU law and the provisions of the ECT, EU law prevails.184
302.
Since the initial pleadings in this case the CJEU has given its ruling in the Achmea ruling. The operative part of the ruling was:

Articles 267 and 344 TFEU must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8 of the Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federative Republic, under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept.185

303.
The Achmea ruling will be analysed below, but at this stage it is important to notice that the ruling was given in proceedings relating to a BIT and that the operative part was expressed to apply to "an international agreement..., such as" the relevant provision of the BIT, and there is an important question as to whether it applies to a multilateral treaty to which the EU and its Member States, together with many other States, are parties.
304.
The Claimant says that: (1) the Achmea ruling has no effect on these proceedings because the Tribunal applies international law and not EU law; (2) in any event, its scope is limited to BITs (with an express reference to the law of the Contracting Parties) and it does not apply to multilateral agreements such as the ECT, to which the EU is a party; and (3) this Tribunal should follow the many other decisions of arbitral tribunals under BITs and the ECT which have refused (both before and after the Achmea ruling) to accept the intra-EU objection as depriving them of jurisdiction.186
305.
The Claimant is incorporated under the laws of Portugal. Spain and Portugal joined the EC in 1986. Portugal and Spain ratified the ECT in 1997, and the ECT entered into force on 16 April 1998.
306.
The relevant European treaty provisions at the time the ECT entered into force were those of the Treaty establishing the European Community ("TEC"). but there is no material difference between the versions of the relevant Articles since their inception in the EEC Treaty and their present iteration in the TFEU.
307.
The principal question is whether (as Spain and the Commission argue) Article 26 ECT generates obligations between the EU Member States, because the Member States of the then European Community were unable to contract obligations between them as regards the Internal Market (because it is an area in which they had transferred competence to the European Community) and for this reason the EU is a Contracting Party to the ECT.
308.
Within this main point, that intra-EU disputes are outside the competence of the Tribunal, are the arguments of Spain and the Commission that (1) the Achmea ruling applies to multilateral treaties such as the ECT (and the Masdar v. Spain award187 to the contrary is wrong); (2) EU law is international law; (3) EU law is paramount and displaces any other national or international provision; (4) EU law (relevant to issues in the arbitration) applies to claims in the arbitration; (5) the Achmea ruling is binding on the Tribunal because it has to apply EU law.

b. Does Achmea Apply to Multilateral Agreements such as ECT?

309.
The starting point is the express wording of the jurisdiction and choice of law provisions in the ECT and the ICSID Convention.
310.
Energy Charter Treaty : The effect of Article 26.1-3 is that where there arise "Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former" which cannot be settled amicably, the Investor may submit it to a form of dispute resolution including ICSID arbitration "if the Contracting Party of the Investor and the Contracting Party to the dispute are both parties to the ICSID Convention" and in such a case "each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration... in accordance with the provisions of this Article" (Article 26.3.a), and the tribunal "shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law" (Article 26.6).
311.
ICSID Convention: By Article 25(1): "The jurisdiction of the Centre shall extend to any legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre. When the parties have given their consent, no party may withdraw its consent unilaterally."
312.
By Article 41.1: "The Tribunal shall be the judge of its own competence."
313.
By Article 42.1: "The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable."
314.
With regard to jurisdiction, the combined effect of these provisions on their face is that the Tribunal has jurisdiction where the investor is a national of a Contracting Party and the respondent State is a Contracting Party. Those conditions are plainly fulfilled since Portugal and Spain are ECT Contracting Parties, the Claimant is a Portuguese company, and both Spain and Portugal are parties to the ICSID Convention.
315.
So far as choice of law is concerned, the combined effect of Article 42(1) of the ICSID Convention and Article 26.6 ECT is that the Tribunal, which has jurisdiction under Article 26 ECT, applies, by virtue of Article 26.6 ECT, the ECT Treaty and "applicable rules and principles of international law."
316.
The Parties plainly accept that the Tribunal is the judge of its own competence, as is expressly recognised by Article 41(1) ICSID Convention.
317.
There is, of course, no suggestion that Spain or Portugal lacked capacity in the sense of Article 6 of the VCLT.
318.
There are, therefore, three ways in which the Spain and the Commission can argue that the Tribunal lacks jurisdiction to determine the dispute.
319.
The first is to say that, as a matter of construction, the ECT Treaty does not apply to the present dispute. This is the principal basis of the argument that, because of the provisions relating to REIOs, the Tribunal has no jurisdiction because an investment by an EU investor in another EU Member State is not an investment in the "Area" of another Member State for the purposes of Article 26.1 ECT.
320.
The second way of putting the argument is to say that EU law is to be applied because (a) it is applicable international law; (b) EU law has primacy; and (c) EU law precludes intra-EU investment disputes from being submitted to extra-EU dispute settlement.
321.
The third way (which is a variant on the second) is to say that the ECT dispute settlement provisions are inapplicable because they are inconsistent with EU Treaty obligations and therefore inapplicable by virtue of the VCLT or the ECT.

c. The Regional Economic Integration Organization (REIO) Point

322.
The argument of Spain and the Commission is that: (1) the ECT acknowledges the special nature of the EU as an international organisation constituted by States to which they have transferred competence over certain matters: Articles 1.3 and 36.7 ECT; and (2) the effect of the ECT is that in such circumstances relationships between EU Member States are governed by EU law: Articles 1.2 and 1.10 ECT.188
323.
The relevant provisions of the ECT are as follows.
324.
By Article 1:

(2) "Contracting Party" means a state or Regional Economic Integration Organization which has consented to be bound by this Treaty and for which the Treaty is in force.

(3) "Regional Economic Integration Organization" means 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.

(10) "Area" means with respect to a state that is a Contracting Party:

(a) the territory under its sovereignty, it being understood that territory includes land, internal waters and the territorial sea;...

With respect to a Regional Economic Integration Organization which is a Contracting Party, Area means the Areas of the member states of such Organization, under the provisions contained in the agreement establishing that Organization.

325.
By Article 25:

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

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

326.
The dispute settlement provisions of the ECT apply to "Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former": Article 26.1 ECT.
327.
By Article 36.7 ECT:

A Regional Economic Integration Organization shall, when voting, have a number of votes equal to the number of its member states which are Contracting Parties to this Treaty; provided that such an Organization shall not exercise its right to vote if its member states exercise theirs, and vice versa.

328.
The Tribunal considers189 that these provisions do not assist Spain in its objections to jurisdiction. Article 26.1 ECT plainly means that the "investment in the Area of the former," i.e., the Contracting Party, is an investment in the national territory of the respondent State. The fact that the EU is also a Contracting Party and a "Regional Economic International Organization" does not mean in the context of Article 26.1 that the Area is the territory of the EU as a whole, which would make no sense. Neither can it in itself bar the Tribunal’s jurisdiction; nor can the Tribunal’s jurisdiction be removed by the fact that the ECT recognises that competence may be transferred to such an REIO, or the fact that in certain circumstances the Organization may vote instead of the Member States. Article 25 ECT does not prevent REIO members from agreeing to other obligations under a different treaty regime, such as the ECT.

d. Disconnection Clause

329.
Nor is there anything express or implied in these provisions to support the EC’s argument190 that there is an implied "disconnection clause," i.e., a provision that disapplies certain provisions of a treaty in mutual relations between certain parties. As the tribunal in RREEF v Spain said: "The purpose of a disconnection clause is to make clear that EU Member States will apply EU law in their relations inter se rather than the convention in which it is inserted... given that there is no disharmony or conflict between the ECT and EU... there was simply no need for a disconnection clause, implicit or explicit..."191

e. EU Law, the Achmea Ruling Point, and the VCLT

330.
The principally relevant provisions of EU law are as follows:

(1)Article 267 TFEU (formerly, with immaterial differences, Article 177 EEC Treaty and Article 234 TEC)

The Court of Justice of the European Union shall have jurisdiction to give preliminary rulings concerning:

(a) the interpretation of the Treaties;

Where such a question is raised before any court or tribunal of a Member State, that court or tribunal may, if it considers that a decision on the question is necessary to enable it to give judgment, request the Court to give a ruling thereon.

Where any such question is raised in a case pending before a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law, that court or tribunal shall bring the matter before the Court.

(2) Article 344 TFEU (formerly, with immaterial differences, Article 219 EEC Treaty and Article 292 TEC)

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.

(3) Article 351 TFEU (formerly, with immaterial differences, Article 234 EEC Treaty and Article 307 TEC)

The rights and obligations arising from agreements concluded before 1 January 1958 or, for acceding States, before the date of their accession, between one or more Member States on the one hand, and one or more third countries on the other, shall not be affected by the provisions of the Treaties.

To the extent that such agreements are not compatible with the Treaties, the Member State or States concerned shall take all appropriate steps to eliminate the incompatibilities established. Member States shall, where necessary, assist each other to this end and shall, where appropriate, adopt a common attitude.

In applying the agreements referred to in the first paragraph, Member States shall take into account the fact that the advantages accorded under the Treaties by each Member State form an integral part of the establishment of the Union and are thereby inseparably linked with the creation of common institutions, the conferring of powers upon them and the granting of the same advantages by all the other Member States.

331.
Article 16 ECT provides:

Where two or more Contracting Parties have entered into a prior international agreement, or enter into a subsequent international agreement, whose terms in either case concern the subject matter of Part III ["Investment Promotion and Protection". which includes Articles 10 and 13] or V ["Dispute Settlement". which includes Article 26] of this Treaty,

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

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

332.

The effect of Article 26.1-3 ECT is that where there arise "Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former" which cannot be settled amicably, then the Investor party may submit it to a form of dispute resolution including ICSID arbitration "if the Contracting Party of the Investor and the Contracting Party to the dispute are both parties to the ICSID Convention" and in such a case "each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration... in accordance with the provisions of this Article" (Article 26.3.a), and the tribunal "shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law" (Article 26.6).

f. The Vienna Convention on the Law of Treaties (VCLT)

333.
Not all of the parties to the ECT are parties to the VCLT, but the International Court of Justice and other international tribunals have recognised that the provisions of the VCLT on the interpretation of treaties reflect customary international law,192 and it is therefore convenient to refer where relevant to the VCLT. The VCLT provides in Article 30 (which is headed "Application of successive treaties relating to the same subject matter"):

1. Subject to Article 103 of the Charter of the United Nations, the rights and obligations of States parties to successive treaties relating to the same subject matter shall be determined in accordance with the following paragraphs.

3. When all the parties to the earlier treaty are parties also to the later treaty but the earlier treaty is not terminated or suspended in operation ..., the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty.

4. When the parties to the later treaty do not include all the parties to the earlier one:

(a) as between States Parties to both treaties the same rule applies as in paragraph 3;

(b) as between a State party to both treaties and a State party to only one of the treaties, the treaty to which both States are parties governs their mutual rights and obligations.

334.
By Article 31 ("General rule of interpretation"):

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

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

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

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

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

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

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

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

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

335.
By Article 32:

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

(a) leaves the meaning ambiguous or obscure; or

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

336.
By Article 41.1 ("Agreements to modify multilateral treaties between certain of the parties only"):

Two or more of the parties to a multilateral treaty may conclude an agreement to modify the treaty as between themselves alone if:

(a) the possibility of such a modification is provided for by the treaty; or

(b) the modification in question is not prohibited by the treaty and:

(i) does not affect the enjoyment by the other parties of their rights under the treaty or the performance of their obligations;

(ii) does not relate to a provision, derogation from which is incompatible with the effective execution of the object and purpose of the treaty as a whole.

g. The Achmea Ruling

337.
In determining the scope and effect of the Achmea ruling, it is important to put its background in context, and to give a detailed account of the reasoning.
338.
The arbitration to which the ruling gave rise was an UNCITRAL arbitration (with the PCA as Registry) with a seat in Germany brought under the Netherlands-Czechoslovakia BIT by a Dutch investor against Slovakia. The tribunal awarded damages against Slovakia, which sought, in the German courts, to have the award set aside on the ground (inter alia) that the award was contrary to public policy because the tribunal was unable to make a reference to the CJEU on questions of EU law which it had failed to take into account.
339.
So far as material, the questions referred by the BGH were:

(1) Does Article 344 TFEU preclude the application of a provision in a bilateral investment protection agreement193 between Member States of the European Union (a so-called intra-EU BIT) under which an investor of a Contracting State, in the event of a dispute concerning investments in the other Contracting State, may bring proceedings against the latter state before an arbitral tribunal where the investment protection agreement was concluded before one of the Contracting States acceded to the European Union but the arbitral proceedings are not to be brought until after that date?

(2) If question (1) is to be answered in the negative: Does Article 267 TFEU preclude the application of such a provision?

340.
Wathelet A-G’s opinion was that Articles 267 TFEU and 344 TFEU were to be interpreted as not precluding the application of an investor/State dispute settlement mechanism established by means of a bilateral investment agreement concluded before the accession of one of the Contracting States to the European Union and providing that an investor from one Contracting State might, in the case of a dispute relating to investments in the other Contracting State, bring proceedings against the latter State before an arbitral tribunal.
341.
In the course of his opinion he said:

Furthermore, all the Member States and the Union have ratified the Energy Charter Treaty, signed at Lisbon on 19 December 1994. That multilateral treaty on investment in the field of energy operates even between Member States, since it was concluded not as an agreement between the Union and its Member States, of the one part, and third countries, of the other part, but as an ordinary multilateral treaty in which all the Contracting Parties participate on an equal footing. In that sense, the material provisions for the protection of investments provided for in that Treaty and the [investor-State dispute settlement] mechanism also operate between Member States. I note that if no EU institution and no Member State sought an opinion from the Court on the compatibility of that treaty with the EU and FEU Treaties, that is because none of them had the slightest suspicion that it might be incompatible.194

342.
The answer by the CJEU, however, was that Articles 267 and 344 TFEU were to be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8 of the BIT, under which an investor from one Member State might, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept.
343.
The crucial steps in the legal reasoning were:

(1) An international agreement cannot affect the allocation of powers fixed by the Treaties or, consequently, the autonomy of the EU legal system, observance of which is ensured by the court.195

(2) That principle is enshrined in particular in Article 344 TFEU, under which the 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 in the Treaties: CJEU Opinion 2/13 (European Convention on Human Rights).196

(3) 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.197

(4) 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 provisions which are applicable to their nationals and to the Member States themselves.198

(5) 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: Opinion 2/13, paras 165-167.199

(6) The Member States are obliged, by reason, inter alia, of the principle of sincere co-operation, to ensure the application of and respect for EU law, and to take for those purposes any appropriate measure 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, paras 168 and 173.200

(7) In order to ensure that the specific characteristics and the autonomy of the EU legal order, it is for the national courts and tribunals and the CJEU to ensure the full application of EU law in all Member States and to ensure judicial protection of the rights of individuals under that law.201

(8) The EU judicial system has as its keystone the preliminary ruling procedure provided for in Article 267 TFEU, which has the object of securing uniform interpretation of EU law, thereby serving to ensure its consistency, its full effect and its autonomy as well as the particular nature of the law established by the Treaties: Opinion 2/13, para. 176.202

344.
The application of those principles involved the following steps:

(1) Under the terms of BIT Article 8.6, the arbitral tribunal was called on to rule on possible infringements of the BIT, but in order to do so it was obliged to take account in particular of the law in force of the Contracting Party concerned and other relevant agreements between the Contracting Parties, and might therefore be called on to interpret or indeed to apply EU law, particularly the provisions concerning the fundamental freedoms, including freedom of establishment and free movement of capital.203

(2) The arbitral tribunal was not part of the judicial system of the Netherlands or Slovakia, and it was the exceptional nature of the tribunal's jurisdiction compared with that of the courts of the two Member States that was one of the principal reasons for the existence of Article 8 of the BIT.204

(3) Consequently, it could not be classified as a court or tribunal "of a Member state" within the meaning of Article 267 TFEU.205

(4) Under Article 8.7 of the BIT, the decision of the arbitral tribunal was final, and, pursuant to Article 8.5 of the BIT, the arbitral tribunal was to determine its own procedure applying the UNCITRAL arbitration rules and was itself to choose its seat and consequently the law applicable to the procedure governing judicial review of the validity of the award.206

(5) Because the arbitral tribunal chose to sit in Frankfurt am Main, German law was applicable to the procedure governing judicial review of the validity of the arbitral award, but the review was a limited review, concerning in particular the validity of the arbitration agreement under the applicable law and the consistency with public policy of the recognition or enforcement of the arbitral award.207

(6) By contrast with commercial arbitration, where the requirements of efficient arbitration proceedings justify limited review of arbitral awards by the courts of the Member States, provided that the fundamental provisions of EU law can be examined in the course of that review and, if necessary, be the subject of a reference for a preliminary ruling,208 arbitration proceedings under Article 8 of the BIT derive from a treaty by which Member States agree to remove from the jurisdiction of their own courts, and hence from the system of judicial remedies in the fields covered by EU law,209 disputes which may concern the application or interpretation of EU law.210

(7) By concluding the BIT, the Member States established a mechanism for settling disputes between an investor and a Member State which could prevent those disputes from being resolved in a manner that ensured the full effectiveness of EU law, even though they might concern the interpretation or application of that law.211

(8) In a passage on multilateral treaties the CJEU said:

It is true that, according to settled case-law of the Court, an international agreement providing for the establishment of a court responsible for the interpretation of its provisions and whose decisions are binding on the institutions, including the Court of Justice, is not in principle incompatible with EU law. The competence of the EU in the field of international relations and its capacity to conclude international agreements necessarily entail the power to submit to the decisions of a court which is created or designated by such agreements as regards the interpretation and application of their provisions, provided that the autonomy of the EU and its legal order is respected (see, to that effect, Opinion 1/91 (EEA Agreement-I) of 14 December 1991, EU:C:1991:490, paragraphs 40 and 70; Opinion 1/09 (Agreement creating a unified patent litigation system) of 8 March 2011, EU:C:2011:123, paragraphs 74 and 76; and Opinion 2/13 (Accession of the EU to the ECHR) of 18 December 2014, EU:C:2014:2454, paragraphs 182 and 183).

In the present case, however, apart from the fact that the disputes falling within the jurisdiction of the arbitral tribunal referred to in Article 8 of the BIT may relate to the interpretation both of that agreement and of EU law, the possibility of submitting those disputes to a body which is not part of the judicial system of the EU is provided for by an agreement which was concluded not by the EU but by Member States. Article 8 of the BIT is such as to call into question not only the principle of mutual trust between the Member States but also the preservation of the particular nature of the law established by the Treaties, ensured by the preliminary ruling procedure provided for in Article 267 TFEU, and is not therefore compatible with the principle of sincere cooperation...212

345.
The dispositif has been set out above, but it is helpful to repeat it in context (emphasis added):

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

346.
On 15 and 16 January 2019, the 28 EU Member States issued declarations on the legal consequences of the Achmea ruling.
347.
Twenty-two of the Member States (including Portugal and Spain) expressed the view that the judgment applied also to international agreements concluded by the EU, including the ECT, which were an integral part of the EU legal order and must therefore be compatible with the Treaties. Accordingly, if Article 26.3 ECT were interpreted as containing an arbitration clause applicable between Member States. "that clause would be incompatible with the Treaties and thus would have to be disapplied."213
348.
Five other Member States issued a declaration, which did not express a view on the effect of the Achmea ruling on multilateral treaties such as the ECT. They said:

The Achmea case concerns the interpretation of EU law in relation to an investor-state arbitration clause in a bilateral investment treaty between Member States. The Member States note that the Achmea Ruling is silent on the investor-state arbitration clause in the Energy Charter Treaty. A number of international arbitration tribunals post the Achmea Ruling have concluded that the Energy Charter Treaty contains an investor-State arbitration clause applicable between EU Member States. This interpretation is currently contested before a national court in a Member State.214 Against this background, the Member States underline the importance of allowing for due process and consider that it would be inappropriate, in the absence of a specific judgment on this matter, to express views as regards the compatibility with Union law of the intra EU application of the Energy Charter Treaty.215

349.
The first question is whether the Achmea ruling has any application to multilateral treaties such as the ECT. The majority of EU Member States (22 out of the then 28) issued a Declaration to say that it did so apply. But in the view of the Tribunal, that was a political act, without legal relevance or force and does not affect the jurisdiction of the Tribunal; and in particular, as a declaration by only some of the parties to the ECT it cannot, for the purposes of Article 31 VCLT, be regarded as a subsequent agreement between the parties regarding its interpretation or application, or as practice establishing agreement. Consequently, the Tribunal will address this question without giving any weight to the Declaration.
350.
The Achmea ruling concerned BITs, but, as indicated above, Wathelet A-G expressed the view in the course of his opinion that the investor-State provisions in the ECT operated as between Member States because it was concluded not as an agreement between the EU and its Member States, of the one part, and third countries, of the other part, but as an ordinary multilateral treaty in which all the Contracting Parties participate on an equal footing.216 But his overall view that there was no incompatibility between dispute resolution provisions in BITs and EU law was not accepted by the CJEU, and therefore only limited weight can be given to his view on the ECT.
351.
It is therefore necessary to turn to the ruling of the CJEU. The relevant paragraphs have been quoted above.
352.
What is being said there is that the EU has competence in the field of international relations to enter into an international agreement providing for the establishment of a court created or designated by such agreements as regards the interpretation and application of their provisions and whose decisions are binding on the institutions, including the CJEU, are not in principle incompatible with EU law, provided that the autonomy of the EU and its legal order is respected.
353.
There are two reasons for supposing that the CJEU did not express the view that investor-State dispute resolution procedures in a multilateral agreement such as the ECT were outside the scope of its intra-EU ruling. The first is that the following paragraph suggests, by its reference to the BIT being concluded "not by the EU but by member states," that it was mainly directing itself to agreements with third States. The second reason is the citation of previous rulings, two of which concerned treaties concluded by the European Community or the European Union with third states: Opinion 1/91 (EEA Agreement - I) EU:C:1991:490, paras 40 and 70; and Opinion 2/13 (Accession of the EU to the ECHR), EU:C:2014:2454, paras 182 and 183). The third ruling, Opinion 1/09 EU:C:2011:123, concerned the draft Agreement creating a unified patent litigation system, to which the Member States were parties, and concerned the draft agreement on the European and Community Patents Court.
354.
In Opinion 1/09, the CJEU ruled that although the CJEU had no jurisdiction to rule on direct actions between individuals in the field of patents (since that jurisdiction was held by the courts of the Member States), the Member States could not confer the jurisdiction to resolve such disputes on a court created by an international agreement which would deprive courts of their task, as courts within the EU legal order, to implement EU law and, thereby, of the power or obligation in Article 267 TFEU to refer questions for a preliminary ruling in the field concerned.
355.
The essence of these decisions is contained in Opinion 2/13:

The Court of Justice has admittedly already stated in that regard that an international agreement providing for the creation of a court responsible for the interpretation of its provisions and whose decisions are binding on the institutions, including the Court of Justice, is not, in principle, incompatible with EU law; that is particularly the case where, as in this instance, the conclusion of such an agreement is provided for by the Treaties themselves. The competence of the EU in the field of international relations and its capacity to conclude international agreements necessarily entail the power to submit to the decisions of a court which is created or designated by such agreements as regards the interpretation and application of their provisions (see Opinions 1/91, EU:C:1991:490, paragraphs 40 and 70, and 1/09, EU:C:2011:123, paragraph 74).

Nevertheless, the Court of Justice has also declared that an international agreement may affect its own powers only if the indispensable conditions for safeguarding the essential character of those powers are satisfied and, consequently, there is no adverse effect on the autonomy of the EU legal order (see Opinions 1/00, EU:C:2002:231, paragraphs 21, 23 and 26, and 1/09, EU:C:2011:123, paragraph 76; see also, to that effect, judgment in Kadi and Al Barakaat International Foundation v Council and Commission, EU:C:2008:461, paragraph 282).

In particular, any action by the bodies given decision-making powers by the ECHR, as provided for in the agreement envisaged, must not have the effect of binding the EU and its institutions, in the exercise of their internal powers, to a particular interpretation of the rules of EU law (see Opinions 1/91, EU:C:1991:490, paragraphs 30 to 35, and 1/00, EU:C:2002:231, paragraph 13).217

356.
The Tribunal will therefore assume, contrary to the contention of the Claimant,218 that there is at least the possibility, and perhaps the probability, particularly as a result of the citation of Ruling 1/09 on the European and Community Patents Court, and the use of the term "international agreement" in the dispositif (by contrast with the term "bilateral investment protection agreement" in the reference by the BGH) that if the compatibility of the ECT with the TFEU arose before the CJEU, it would apply the Achmea ruling to the dispute resolution mechanism under the ECT.

h. EU Law as International Law, and the Primacy of EU Law

357.
It is also necessary to mention three fundamental points about EU law. First, it has been established for more than 50 years that, from the viewpoint of EU law, the European Union "constitutes a new legal order of international law for the benefit of which the states have limited their sovereign rights, albeit within limited fields, and the subjects of which comprise not only Member States but also their nationals".219 In Electrabel v Hungary220 it was said that EU law is international law because it is rooted in international treaties as legal instruments under public international law; and EU law as a whole is part of the international legal order, without any material distinction between the EU Treaties and the "droit dérivé," with the result that all EU legal rules are part of a regional system of international law and therefore have an international legal character (citing Van Gend den Loos).
358.
Like the tribunal in Vattenfall AB v. Germany,221 this Tribunal considers that this formula can be accepted on the basis that "the corpus of EU law derives from treaties that are themselves a part of, and governed by, international law, and contains other rules that are applicable on the plane of international law, while also containing rules that operate only within the internal legal order of the EU and, at least arguably, are not a part of international law...". The tribunal in Vattenfall AB v. Germany went on to say that since the CJEU was empowered by the EU treaties to give preliminary rulings on the interpretation of EU law, including the treaties, the Achmea ruling’s "interpretation of the EU Treaties likewise constitute[d] a part of the relevant international law".222
359.
But in the view of this Tribunal, the point that EU law (or most of it) is international law, or that the rulings of the CJEU are part of international law is not in any sense conclusive. The question still remains as to whether EU law and the rulings of the CJEU are part of the applicable international law.
360.
The second point is that it has also been established for more than 50 years that it is a fundamental principle of EU law that the EU has created its own legal system, which is an integral part of the legal system of Member States and which their courts are bound to apply.223
361.
The third point is that the system of references under what is now Article 267 TFEU is designed to ensure the proper application and uniform interpretation of EU law in all the Member States between national courts, in their capacity as courts responsible for the application of EU law, and the CJEU.224
362.
But even if, as a matter of EU law, final determination of its content is reserved to the CJEU, it does not follow that non-EU courts and tribunals are precluded from deciding issues of EU law.225 Indeed, it would be absurd if a court in a non-Member State, which otherwise had jurisdiction over a dispute, but could not make a reference to the CJEU, would have to refrain from dealing with issues of EU law raised by a party. The same must be true for arbitral tribunals in non-Member States, and, a fortiori, for international tribunals.
363.
Although phrased in terms of interpretation of two provisions of the TFEU, it is hard to read the Achmea ruling as a normal case of treaty interpretation, since Article 267 is simply the latest iteration (originally in Article 177 of the EEC Treaty) of the power (and in some cases the duty) of national courts to make references to the CJEU, and Article 344 (originally Article 219 of the EEC Treaty) simply prevents Member States from submitting disputes concerning the interpretation or application of the Treaties to any method of settlement other than those provided for in the Treaties.
364.
The residual remedy for a national of an EU Member State who wishes to complain of a breach by an EU Member State of the relevant provisions of the ECT is to commence an ICSID arbitration against that State. The only time at which national courts will normally be engaged in this process is at the time of enforcement.
365.
It is impossible to see how, on the face of Articles 267 and 344 TFEU, and in accordance with normal rules of treaty interpretation, the effect of Article 26.3 ECT is to prevent national courts from making references to the CJEU or to allow Member States to submit disputes concerning the interpretation or application of the Treaties to any method of settlement other than those provided for in the EU Treaties.
366.
The Achmea ruling is a decision on the constitutional order of the EU in support of the policy of European integration rather than an orthodox application of the rules of treaty interpretation. As such the ruling of the CJEU is entitled to the greatest respect from an international arbitral tribunal. But such a tribunal is not in any sense bound by the ruling. Nor, consequently, can the Tribunal find that on any normal basis of interpretation under customary international law or the VCLT that the dispute resolution provisions of the ECT are incompatible with Articles 267 and 344 TFEU.
367.
It follows that, in the view of the Tribunal, there is no conflict between Article 26.1-3 ECT and Articles 267 and 344 TFEU such as to bring the principles reflected in Articles 30 or 41 VCLT into play. Nor does Article 16 ECT have the effect of invalidating the dispute resolution provisions in Part V of the ECT, since, even if (which is not the case) the EC and EU Treaties gave a right to dispute resolution in respect of the subject matter of Part III (investment protection) and Part V (dispute settlement) of the ECT, Part V would still be operative if it were more favourable to the investor.
368.
The Achmea ruling says that the agreement to arbitrate is precluded,226 not that it is void, or incompatible with the TEC/TFEU, and consequently the ruling leaves open the question of the effect of preclusion, and in particular whether its effect is that any such provision ceased to have effect, or whether Member States should modify or abrogate the BITs between them.
369.
The Commission says that the Tribunal should decline jurisdiction on the basis that an eventual award in the Claimant’s favour would be incompatible with EU law and unenforceable.227 This is not relevant to the Tribunal’s jurisdiction: "While the Tribunal is mindful of the duty to render an enforceable decision and ultimately an enforceable award, the Tribunal is equally conscious of its duty to perform its mandate granted under the ECT."228
370.
The Tribunal therefore concludes:229

(1) The Tribunal is "the judge of its own competence:" ICSID Convention, Article 41(1).

(2) The question of jurisdiction must be distinguished from the question of applicable law, or choice of law. As indicated above, Article 42.1 provides that the "Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties..."

(3) In the present case Article 26.6 ECT provides that the "tribunal established... shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law."

(4) The issues in dispute are those concerning alleged breaches of obligations relating to investments: Article 26.1 ECT. Accordingly,