Encavis AG, Fano Solar 1 S.R.L., De Stern 10 S.R.L. and Others v. Italian Republic

Background: The dispute centers on Italy's support scheme for photovoltaic (PV) power plants, which was established as part of its efforts to meet EU renewable energy targets and reflects Italy's long-standing commitment to developing renewable energy sources (RES) as an alternative to fossil fuels. Since the 1980s, Italy has recognized the use of RES as a matter of public interest, aiming to achieve energy independence, safeguard the environment, and develop domestic resources. Claimants invested in numerous PV plants under this support scheme but contended that subsequent modifications to the scheme by Italy in 2013 and 2014 negatively impacted their investments. In this context, claims arose out of a series of governmental decrees to cut tariff incentives for some solar power projects. The Claimants argued that these changes violated the requirements for stable and transparent conditions, constituted unreasonable or discriminatory measures impairing their investments, and frustrated their legitimate expectations under the Fair and Equitable Treatment (FET) standard. The tribunal had to determine if these measures, designed to promote solar energy, were altered in a way that violated international law protections for foreign investors. Main Legal Issue: The primary legal issue was whether Italy’s modifications to its renewable energy support scheme, specifically through measures like the Spalma-incentivi Decree and changes to the MGP Regime, breached its obligations under the Energy Charter Treaty (ECT). Tribunals reasoning on the merits: The tribunal analyzed whether Italy's regulatory changes breached the ECT's requirements for stable conditions, non-impairment, and FET. It acknowledged the State's right to regulate in the public interest, provided changes are proportional and not radical. The tribunal found that Italy's modifications to the PV support scheme, including the Spalma-incentivi Decree, were adopted to pursue legitimate public interests, such as reducing the financial burden on end consumers and ensuring the long-term sustainability of the support schemes, which included environmental protection and energy efficiency improvements. The tribunal determined that the measures did not radically alter the core aspects of the Conto Program or the MGP Regime and were not disproportionate. It concluded that the Disputed Measures were neither unreasonable nor discriminatory, thus not breaching the non-impairment requirement. Regarding FET, the tribunal found that while investors had expectations of a stable regime, this did not equate to an immutable framework, and the tariff reductions were not a fundamental alteration, especially given the public interest justifications. Decision of the Tribunal: The tribunal ultimately dismissed the Claimants' claims that Italy had breached the stable conditions requirement, the non-impairment requirement, or the Fair and Equitable Treatment (FET) standard under the ECT. It found that the regulatory changes, including the Spalma-incentivi Decree and modifications to the MGP Regime, were enacted in the public interest to ensure the sustainability of the renewable energy support system and manage costs, and were proportionate responses that did not radically alter the essential characteristics of the established legal framework for renewable energy investments. The tribunal was unpersuaded that these measures were unreasonable, discriminatory, or violated the investors’ legitimate expectations.