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Baywa r.e. Renewable Energy GMBH and Baywa r.e. Asset Holding GMBH v. Kingdom of Spain - decision

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The dispute arose from regulatory changes in Spain’s renewable energy framework that affected the investments of German companies BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH (collectively, ""BayWa""). BayWa had acquired interests in two Spanish special purpose vehicles (SPVs), Parque Eólico La Carracha, S.L. and Parque Eólico Plana de Jarreta, S.L., which owned and managed wind farms in northern Spain.

Following Spain’s 2013/2014 regulatory reforms, which included a clawback provision impacting subsidies, BayWa initiated arbitration under the Energy Charter Treaty (ECT). The tribunal dismissed most of BayWa’s primary claims but found that Spain had violated Article 10(1) of the ECT due to the instability caused by the clawback measure.

During the proceedings, the tribunal rejected three attempts by the European Commission (EC) to intervene, concluding that its submissions did not add distinct legal arguments beyond Spain’s position. The tribunal also dismissed most of Spain’s jurisdictional objections, including an intra-EU objection, but upheld the tax carve-out exception.

On January 25, 2021, the tribunal awarded BayWa approximately $22 million USD plus interest. Spain later applied for annulment of the award.


Jurisdiction:
The Tribunal rejected Spain’s intra-EU objection, affirming that the Energy Charter Treaty (ECT) applied among EU Member States before and after the Treaty on the Functioning of the European Union (TFEU). It found no exclusion clause in the ECT and ruled that EU law did not override it under the Vienna Convention on the Law of Treaties (VCLT). Distinguishing Achmea, which addressed a bilateral treaty, the Tribunal held that its jurisdiction remained valid since the ECT is a multilateral treaty to which the EU itself is a party.

The Tribunal ruled that the TVPEE (Tax on the Value of the Production of Electrical Energy) is a taxation measure and falls outside its jurisdiction under Article 21.1 of the Energy Charter Treaty (ECT), aligning with previous tribunal decisions. Introduced under Law 15/2012, the TVPEE imposes a 7% tax on total revenue from electricity production, aiming to raise funds for the state and promote energy efficiency and environmental sustainability. The Tribunal found that the TVPEE meets the definition of a tax as a compulsory exaction for public purposes, a classification upheld by Spanish courts, including the High Court and Constitutional Court. It rejected the Claimants’ argument that a tax must be enacted in good faith to qualify under Article 21.1, noting no evidence of bad faith in Spain’s adoption of the TVPEE. The Tribunal also dismissed the Claimants’ attempt to invoke investment protections via Article 21.3, ruling that the TVPEE qualifies as a tax on income under Article 21.7.b, thereby excluding the application of the Most-Favored Nation (MFN) clause. Consequently, the claim was dismissed for lack of jurisdiction.

Merits:  
The Tribunal concluded, by majority, that Spain did not generally breach the Fair and Equitable Treatment (FET) standard under Article 10.1 of the ECT, though it found a limited breach concerning the clawback of subsidies. It noted that investment was made amid economic difficulties, that Spain had made no specific binding commitments to investors, and that non-discriminatory regulatory changes were expected risks. While some Disputed Measures (2013-14) were criticized, a substantial support system remained, including priority access and a 7.98% IRR for wind power. The Tribunal acknowledged that Special Regime subsidies were unnotified state aid under EU law, making them legally vulnerable. However, the European Commission never declared them unlawful or required recovery. Ultimately, the Tribunal ruled that Spain's clawback of previously paid subsidies breached the ECT’s obligation of stability, but other regulatory changes did not constitute unfair treatment. Arbitrator Grigera Naón dissented, and the Tribunal proceeded to assess quantum.

Conclusion:
Conclusively, on January 25, 2021, the Tribunal awarded BayWa approximately 22 million USD, plus interest. This decision was further challenged by Spain before an ICSID Annulment Committee. 

Post Award Proceedings:
The ICSID ad hoc committee dismissed Spain’s application to annul the tribunal’s award in BayWa v. Spain, rejecting claims of manifest excess of powers and procedural violations. The committee emphasized that annulment is not an appeal and found no egregious error in the tribunal’s decision to uphold jurisdiction over the intra-EU dispute, nor in its rejection of the Achmea ruling as inapplicable to the Energy Charter Treaty (ECT). It also upheld the tribunal’s discretion in refusing the European Commission’s amicus curiae request, as the Commission’s arguments mirrored Spain’s position and had been well covered in prior case law. Spain was ordered to bear all annulment costs and 85% of the claimants’ legal fees, with interest accruing at 4.5% annually after a 60-day grace period.

Baywa r.e. Renewable Energy GMBH and Baywa r.e. Asset Holding GMBH v. Kingdom of Spain

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An aim to achieve a quantifiable outcome within a given time-frame, set by an institution such as a national government.

Policy instruments are techniques or tools used by governing authorities to promote certain policies in order to achieve predetermined goals. Put simply, instruments are how a government tries to achieve its goals, with this taxonomy being focused on national policy instruments.

Risk is the potential for adverse consequences resulting from the dynamic interplay between (climate-related) hazards, exposure, and vulnerability of affected human or ecological systems.

Groups  of people who are adversely affected by climate change or the response to it

A set of principles, processes, and practices that build economic and political power to shift from an extractive economy to a regenerative economy.

Renewable energy means all forms of energy produced from renewable sources in a sustainable manner.

Fossil fuel is a generic term for non-renewable energy sources such as coal, fossil gas, and oil (including crude oil, and petroleum products), that can be used for electricity and heat generation. Fossil fuels are hydrocarbons formed from pressurised and heated organic material buried over millions of years.

Molecules in the atmosphere that play a key role in the greenhouse effect by trapping heat radiating from Earth’s surface.

Area of the economy in which actors engage in identical or related activities.

In human systems, the process of adjustment to actual or expected climate change and its effects, in order to moderate harm, increase resilience or exploit beneficial opportunities. In natural systems, the process of adjustment to actual climate change and its effects; human intervention may facilitate adjustment to expected climate change and its effects.

The management and allocation of funds, assets and investments to meet various objectives

The activities of industries involved in the production, distribution, and sale of energy, including electricity, gas, and renewables.

This sector involves the wholesale and retail selling of goods.

Any compulsory, unrequited payment to the government levied on corporations or individuals. This can be for environmental reasons, such as introducing a Carbon tax to set a price that emitters must pay for the greenhouse gases they emit.

A subsidy is a direct or indirect payment to individuals or businesses, typically provided as a government cash payment or a specific tax reduction.

This sector creates and distributes information and entertainment through television, radio, print, and digital platforms.

Either money or something of monetary value is transferred between two or more organisations, people or countries.

This sector includes firms and individuals offering specialised expertise in fields such as law, accounting, consulting, science and engineering.

Direct investments by the governments using public funds. This can be to support climate initiatives or integrate climate into other projects.

A company that is owned wholly or partially by the state, typically operating in key sectors.

Baywa r.e. Renewable Energy GMBH and Baywa r.e. Asset Holding GMBH v. Kingdom of Spain - decision

Policy instrument

Renewable energy

Economic sector

Finance