Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain

Background: The dispute originated from Spain's efforts to develop its renewable energy sector in response to international climate change commitments. Following the 1992 United Nations Framework Convention on Climate Change and the 1997 Kyoto Protocol, Spain, along with other EU nations, committed to reducing greenhouse gas emissions. To achieve these ambitious targets, the EU and Spain sought to encourage the development of renewable energy technologies, viewing such investment as beneficial for both the environment and the economy. Recognizing that pioneering technologies required significant upfront capital, Spain established a special regulatory framework under Law 54/1997, known as the "Special Regime," to attract private investment. This regime offered financial incentives, such as a premium price for electricity generated from renewable sources, to make these projects economically viable. This policy created a highly favorable environment that successfully positioned Spain as a world leader in renewable energy. The claimant argued that Spain's initial regulatory framework, which was specifically designed to promote long-term investment in the energy sector to meet climate goals, created legitimate expectations of stability and regulatory certainty. The core of the conflict was whether the later legislative changes, which curtailed and eventually repealed the very incentives that attracted the investment, violated these expectations and the protections afforded by the treaty. Tribunals reasoning on the merits: The tribunal's reasoning was rooted in the context of Spain's initial commitments to fostering a stable investment climate for renewable energy as part of its climate change strategy. It acknowledged that Spain's policy, embodied in regulations like RD436/2004 and RD661/2007, was explicitly intended to incentivize investment by offering "stable and predictable" economic conditions throughout the life of the facilities. The tribunal considered the ECT's objective of creating a "level playing field" to reduce non-commercial risks for energy investors to be particularly relevant. While the tribunal accepted that a state is not required to "freeze" its regulatory framework indefinitely, it found that Spain's actions went far beyond reasonable adjustments. The series of measures, described by the claimant as a "regulatory rollercoaster," fundamentally dismantled the favorable economic regime that had been the basis for the investment, thereby breaching the claimant's legitimate expectations of regulatory stability that Spain itself had cultivated to meet its environmental goals. Decision of the Tribunal: The tribunal concluded that Spain had failed to accord Fair and Equitable Treatment to the claimant's investment as required by Article 10(1) of the ECT. As a result of this breach, which stemmed from the drastic alteration of the legal framework originally designed to promote renewable energy, the tribunal ordered Spain to pay the claimant damages of €64.5 million. It also ordered Spain to pay interest on this amount from June 20, 2014, until the date of payment. However, the tribunal decided that each party should bear its own legal costs and equally share the expenses of the arbitration proceedings. This decision holds Spain accountable for revoking the stable, incentive-based system it had created to attract investment for its climate change and renewable energy initiatives. Follow on Proceedings: Following the original award, the respondent, the Kingdom of Spain, initiated an annulment proceeding that was registered on April 4, 2019. An ad hoc Committee reviewed the case but ultimately, the proceeding did not result in a decision on the merits of the annulment application; instead, it was formally concluded on November 27, 2020, when the committee issued an order taking note of the discontinuance of the proceeding under ICSID Arbitration Rule 44.