decision

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

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Litigation

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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.

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

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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

This sector involves the wholesale and retail selling of goods.

A long-lived, colourless gas, chiefly emitted from fossil fuel combustion, deforestation and cement production.

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.

Tradable permits are market-based tools that grant permission for specific activities, frequently used to regulate emissions. These permits can be issued within a trading system to manage environmental impacts.

People with different national or cultural traditions from the dominant population

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

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.

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

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

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.

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.

A target to reduce the prevalence of a greenhouse gas over a specific time frame

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.

Social protection systems consist of policies that help people manage social risks in order to prevent poverty and maintain decent incomes and living standards

Production of electricity and heat from solar irradiation.

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

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.

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.

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.

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

Target

Policy instrument

Impacted group

Just transition

Renewable energy

Fossil fuel

Greenhouse gas

Economic sector

Adaptation/resilience

Finance