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Cube Infrastructure Fund SICAV and others v. Kingdom of Spain - decision

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Cube Infrastructure Fund SICAV and others v. Kingdom of Spain - judgment

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Background: 
The case concerns Claimants, Cube Infrastructure and others, who made investments in Spain's renewable energy sector, specifically in photovoltaic (PV) plants and hydroelectric (hydro) facilities. These investments were made under a "Special Regime" established by regulations like Royal Decree (RD) 661/2007, which was designed to incentivize new investment in renewable energy technologies by offering fixed tariffs and premiums for an extended operational life. The Claimants acquired rights to PV plants and later to hydro facilities, relying on the stability of this regulatory framework. However, Spain subsequently introduced a series of regulatory changes, including RD 1565/2010, RDL 14/2010, and culminating in a new regulatory regime in 2013-2014 (RDL 9/2013, RD 413/2014), which significantly altered the remuneration system for these renewable energy investments, moving away from the guaranteed tariffs towards a system based on a "reasonable rate of return". The Claimants argued that these measures were not bona fide taxation measures but rather a reduction of guaranteed remuneration, and that they discriminated against renewables.


Tribunals reasoning on the merits: 
The Tribunal's analysis focused on the legitimate expectations of the investors at the time they made their PV and hydro investments. For the PV plants, the Tribunal found that RD 661/2007 created expectations that the tariffs and premiums would be maintained throughout the reasonable planned operating life of the plants. The Tribunal reasoned that while a sovereign legislature can amend laws, RD 661/2007 indicated a commitment not to exercise this power in certain respects for a limited time, and investors were entitled to rely on this assurance of stability. The regulatory changes of 2013-2014, which shifted to a "reasonable rate of return" model, were deemed a "radical and decisive break" and a "mid-stream switch in the regulatory paradigm" that fundamentally changed the economic basis of the investments, thus breaching FET. For the hydro investments, made later when some regulatory changes had already occurred, the Tribunal found a similar, though slightly nuanced, legitimate expectation that the core features of the Special Regime (fixed tariffs based on output) would remain and not be capped based on a "reasonable rate of profitability". The Tribunal acknowledged that Cube, one of the claimants, recognized a regulatory risk but still based its investment on the understanding that the Special Regime would not be significantly amended retroactively for existing plants. The Tribunal rejected arguments that the measures were discriminatory merely because they applied to renewables, as the Special Regime itself was designed to discriminate in favor of renewables. It also found no evidence of bad faith on Spain's part, noting efforts to resolve the tariff deficit, albeit in a manner that defeated legitimate expectations.



Decision of the Tribunal: 
The Tribunal decided unanimously that Spain breached the Claimants’ right under Article 10 ECT to fair and equitable treatment in respect of their investments in PV plants. By a majority, the Tribunal also found that Spain breached the Claimants' right to FET for their investments in hydro plants. The Tribunal dismissed all other claims regarding both PV and hydro plants. Consequently, the Tribunal awarded damages: €2.89 million unanimously for losses to the PV investments. For the hydro investments, the majority awarded damages calculated by taking the Claimants' computed damages for post-June 2013 measures (€41.8 million) and reducing this amount by 40% to account for regulatory risk. The Tribunal directed the parties' experts to jointly compute this reduced loss for the hydro investments. Claims related to certain taxation measures (Act 15/2012) were rejected on jurisdictional grounds.



Follow on Proceedings:
Following an adverse award, Spain initiated ICSID annulment proceedings in the case of Cube Infrastructure Fund SICAV and others v. Kingdom of Spain. On 28 March 2022, the Committee issued its decision, rejecting Spain’s application and upholding the original award, thereby confirming Spain’s liability under the Energy Charter Treaty for its reforms to the renewable energy sector.

Cube Infrastructure Fund SICAV and others v. Kingdom of Spain

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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.

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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 that transforms raw materials into finished goods through industrial processes.

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.

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.

Coal is a combustible sedimentary rock formed from carbonised plant matter, rich in carbon and hydrocarbons, and occurring in several main types including hard coal and brown coal.

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

Electrical energy generated from mechanical devices driven by flowing fresh water.

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.

Conditions that enhance the feasibility of adaptation options. Enabling conditions include finance, technological innovation, strengthening policy instruments, institutional capacity, multi-level governance and changes in human behaviour and lifestyles.

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

This sector provides communication services, software development, and IT solutions.

woman and genders outside of the gender binary

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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.

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.

Cube Infrastructure Fund SICAV and others v. Kingdom of Spain - decision

Target

Policy instrument

Risk

Impacted group

Renewable energy

Fossil fuel

Economic sector

Adaptation/resilience

Finance