Renewable energy investors who lost subsidies promised by Spain are heading to a London court to try to claw back $125 million from the government — a decadelong dispute with ramifications for clean energy financing across the European Union.
The outcome will be closely watched by investors after the U.S. passed a new law offering incentives for homegrown green technology. Experts say the Inflation Reduction Act is already drawing clean energy investment away from EU countries like Spain, leaving the 27-nation bloc much less competitive globally.
The European Commission, the EU's executive arm, has proposed its own rules on allowing state aid and incentives for green investment. But those changes would not affect court cases already underway.
The lawsuit in London’s Commercial Court this week involves investors from the Netherlands and Luxembourg who poured millions into a solar plant in southern Spain in 2011. The Spanish government offered subsidies to encourage growth in renewable energy production, then controversially slashed the payments without notice as it cut costs after the 2008 financial crisis.
Spain has been sued internationally more than 50 times over the retroactive changes. It has not paid out despite losing more than 20 cases so far, according to U.N. data on international investment disputes. The EU backs Spain's position.
“Those renewable investors — multibillion-dollar companies — are very concerned about the attitude of Spain and Europe looking forward,” said Nick Cherryman, one of the lawyers leading the case against Spain. “Why should they take risks investing in Europe given the track record?”
Spain now ranks alongside Venezuela and Russia as countries with the most unpaid debts over commercial treaty violations, according to a recent ranking compiled by Nikos Lavranos, a Netherlands-based expert in investment arbitration and EU law.
Most of the cases allege that Spain broke agreements it agreed to honor under the international Energy Charter Treaty, a legally binding agreement between 50 countries to protect companies from unfair government interference in the energy sector.
Environmental campaigners have criticised the treaty for protecting fossil fuel investment because financiers can also sue over policy changes aimed at scaling back polluting projects. However, for Spain, almost all cases relate to renewable energy.
“If you take the bigger picture, the EU is shooting itself in the foot by supporting Spain in this,” Lavranos said. “You cannot trust that they can follow through with their agreements, so I think you do shake investors’ confidence."
He also questioned how leaving investors in the lurch over initiatives to ramp up renewable energy production aligned with recent EU initiatives like the Green New Deal, a goal for carbon neutrality by 2050 and relaxation of subsidy rules.
“It’s very contradictory,” Lavranos said.
In 2013, the investors in Spain brought a case before the World Bank-backed International Centre for Settlement of Investment Disputes, an arbitration body between governments and investors.
Spain in 2018 was ordered to compensate investors over its subsidy changes. Despite being told to pay out more than $1 billion by the international body, Spain has refused, citing EU rules.
Spain’s Ecological Transition Ministry said the payments “may be contrary to EU law and constitute illegal state aid.” When the government is told to make a payout, it says it notifies Brussels but that “Spain cannot pay before the commission’s decision, so it is faithfully complying with its legal obligations.”
The European Commission said the Energy Charter Treaty does not apply in disputes between member states like the Netherlands, Luxembourg and Spain, arguing EU law takes precedence. The commission says the decision to compensate investors over lost Spanish subsidies is still being studied and “the preliminary view is that the arbitration award would constitute state aid.”
Cherryman, the investors' lawyer, said the EU thinks it "should be superior to international treaty law." After waiting for payment for a decade and given the EU position, his team is trying to seize part of a $1 billion settlement awarded to Spain over a 2002 oil spill.
Starting Wednesday, the London court will hear Spain’s arguments that the investors should not be allowed to seize those assets in lieu of compensation they have yet to be paid.
José Ángel Rueda, a Spanish international arbitration lawyer who has represented several renewable energy investors against Spain, said the country's reputation is at stake. Other EU members like Germany and Hungary have paid out after international disputes, opting to maintain a positive image, he said.
“Spain is not like Russia or Venezuela. It was expected to be a serious country. But the awards remain unpaid,” Rueda said. “Investors can see that Spain might not be a reliable state in terms of the rule of law.”
Following years of legal wrangling, the EU is now considering a coordinated withdrawal from the energy treaty, though that would not affect pending disputes.
“It is not possible to modernize the treaty to make it compatible with the objectives of the Paris agreement and the European Green Deal,” Spain's Ecological Transition Ministry said.
The European Commission agreed, saying a withdrawal was “the most pragmatic way forward.”
That might simply nudge investors to look across the Atlantic, Cherryman said.
“America has been nimble, and it introduced very favorable legislation to encourage renewable investment,” he said. “They will respect my investment. Or I can take risk and go into Europe, go into Spain.”
The risk was the loss of more money for renewables, which are “a win for everybody,” Cherryman said. “We all want to see renewables being invested in and we all want a greener environment that is a safer future for our children."
