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Cavalum SPGS v. Spain - decision

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Background: 
Cavalum SGPS, S.A., a Portuguese investor, initiated ICSID arbitration against Spain after Spain modified its regulatory framework for renewable energy, which had initially guaranteed fixed feed-in tariffs under RD 661/2007 and RD 1578/2008. Cavalum, a Portuguese-incorporated company, had developed solar power projects in reliance on Spain’s then-existing legal regime for renewables, particularly the incentives set out under the referred regulatory framework. Claims arose out of a series of energy reforms undertaken by the Government affecting the renewables sector, including a 7 per cent tax on power generators’ revenues and a reduction in subsidies for renewable energy producers. The investor claimed breaches the protection provisions under the ECT due to the adverse impact of these regulatory changes on its investment.



Jurisdiction: 
Spain initially objected to the Tribunal’s jurisdiction, basing its argument on the inapplicability of the provisions on investment protection and dispute settlement of the ECT to relationships between EU Member States, following the CJEU in Slowakische Republik (Slovak Republic) v. Achmea BV (Achmea Judgment), in which the CJEU asserted the incompatibility of investor-State arbitration clauses in bilateral investment treaties (BITs) between EU Member States with EU law, as they adversely affect the autonomy and primacy of EU law.

The Tribunal held that it had jurisdiction primarily based on the straightforward provisions of the Energy Charter Treaty (ECT) and the ICSID Convention. It determined that because the dispute involved an investor from one Contracting Party (Portugal) and an investment in another Contracting Party (Spain), and both states were signatories to the ICSID Convention, the Tribunal noted that the fundamental criteria for jurisdiction under these international agreements were “plainly fulfilled”. This encompassed disputes over investments in the renewable energy sector, which are made to advance environmental goals.
Furthermore, the Tribunal highlighted its authority to rule on its own competence by referencing Article 41(1) of the ICSID Convention. Regarding the applicable law for the dispute, the Tribunal pointed to Article 26.6 of the ECT, stressing that it “shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law.” This framework provided the legal justification for the Tribunal to adjudicate the merits of a case concerning the regulatory treatment of investments in environmentally significant renewable energy projects.



Merits and Directions on Quantum:
On the merits, the tribunal's reasoning focused on the Claimant's assertions that Spain's modifications to the renewable energy regulatory and incentive framework breached the fair and equitable treatment (FET) standard and related commitments under Article 10(1) of the Energy Charter Treaty (ECT) and also constituted an unlawful expropriation of investments under Article 13(1) ECT. The tribunal acknowledged that Article 10(1) ECT requires contracting parties to create stable, equitable, and transparent conditions for investments. However, a majority of the tribunal found that investors, through due diligence, should have been aware that the regulatory regime was not immune from change under Spanish law, especially considering previous Supreme Court decisions and the overarching framework of Law 54/199. It was determined that neither RD 661/2007 nor RD 1578/2008 contained specific commitments or stabilization clauses that would give rise to legitimate expectations of no adverse changes, as states retain their regulatory powers. Similarly, registration in the Register of Electricity Production Installations under the Special Regime (RAIPRE) was deemed an administrative act not creating vested rights. Despite these points, the tribunal ultimately concluded that Spain had breached the Claimant’s legitimate expectations regarding the remuneration regime and, importantly, violated the stability obligation embedded in Article 10(1) ECT with the introduction of the New Regulatory Regime.

The tribunal directed the parties to calculate damages by comparing the actual post-tax rate of return of the Claimant's plants with a "reasonable post-tax rate of return," and to agree on compensation for any shortfall. Additionally, parties were invited to make submissions on whether the breach of the stability obligation should result in damages, with experts to later submit a Joint Memorandum on areas of agreement and disagreement



Follow up Annulment proceedings: 
On 14 July 2023, Cavalum SGPS, S.A. and the Kingdom of Spain each filed separate applications to annul the same ICSID award, triggering two parallel annulment proceedings. Both were administered by the same ad hoc Committee—composed of Dominique Hascher (President), Fernando Cantuarias Salaverry, and Yannick Radi—constituted on 16 October 2023. Following initial sessions and procedural orders in December 2023, the parties exchanged written submissions throughout 2024, raising issues including the admissibility and exclusion of evidence. A joint hearing was held in Paris on 18–19 September 2024. A non-disputing party sought to intervene, prompting further procedural steps and rulings. Both parties filed statements of costs on 4 November 2024.

The annulment proceedings are still pending.

Cavalum SPGS v. 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

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

Activities of businesses and institutions that provide financial services and products to individuals and organisations.

A tax advantage is an economic benefit applied to certain accounts or investments that are, by law, tax-reduced, tax-deferred, or tax-free. This can apply to investments in areas such as green energy projects or the agricultural sector, where tax advantages can help manage financial risks.

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

Activities that provide lodging, food, and entertainment services to guests, including hotels, restaurants, and resorts.

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

Financial support to help individuals manage the effects of unexpected events, securing their livelihoods and increasing the resilience of people and businesses to the changing climate. It’s especially vital in developing regions where everyday risks, climate-related weather extremes, or crop failures can push people into poverty. Without insurance, people may have to resort to selling assets or cutting consumption to cope with losses.

Activities of industries that extract natural resources, such as mining, oil, and gas, for commercial use.

Oil is a combustible liquid fossil fuel composed mainly of hydrocarbons, occurring as crude oil and refined into petroleum products such as petrol, diesel and kerosene.

The release of heat-trapping gases, primarily from human activities such as burning fossil fuels, agriculture and industry.

This sector involves managing waste treatment, sanitation, pollution control and environmental cleanup.

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

Production of electricity and heat from solar irradiation.

Activities that involve planning, designing and building infrastructure, residential, and commercial structures.

Kinetic energy of airflow transformed into useful energy, mostly electrical energy.

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

A policy instrument designed to support the development and acceleration of renewable energy sources by providing a guaranteed, above-market price for producers.

A loan is a policy instrument where funds are provided to a borrower with the expectation of repaying the principal plus interest.

Jobs that contribute to preserving or restoring the environment. We include jobs which require a high amount of green skills or which spend much of their time on green activities, as well as jobs transforming polluting industries.

Activities of government agencies and institutions that provide public services, enforce laws and manage public resources.

The processes through which enterprises can identify, prevent, mitigate and account for how they address their actual and potential adverse impacts. Due diligence is the idea that reasonable precautions should be taken to avoid causing harm to people, the environment, or society. It also involves identifying and mitigating risks before they occur.

Extreme weather refers to events where a weather variable exceeds (or falls below) a threshold. Meaning it is significantly different from the average or usual weather pattern.

This sector involves activities to move goods and people, alongside the storage of products.

Fossil gas, commonly known as natural gas, is a fossil fuel consisting chiefly of methane with smaller amounts of other hydrocarbons and trace gases, found in underground deposits.

Cavalum SPGS v. Spain - decision

Target

Policy instrument

Risk

Just transition

Renewable energy

Fossil fuel

Greenhouse gas

Economic sector

Adaptation/resilience

Finance