judgment

Voltaic Network GMBH v. The Czech Republic - judgment

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Litigation

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Background: 
The dispute arose from the Czech Republic's efforts to promote Renewable Energy Sources (RES), specifically solar energy, through an "Incentive Regime." This regime included guaranteed Feed-in Tariffs (FiTs) for electricity produced from RES, an Income Tax Exemption, and a Shortened Depreciation Period for solar investments. The Claimant invested in photovoltaic installations relying on these incentives, which were part of a broader strategy, including the Act on Promotion, aimed at ensuring long-term and stable conditions for investors in the renewable energy sector and helping the Czech Republic meet its EU renewable energy targets. However, an unexpectedly rapid expansion of solar power, often termed a “solar boom,” led to concerns about the financial sustainability of this support system, prompting the government to introduce a “Solar Levy” and withdraw certain tax incentives. The Tribunal had to determine if these governmental measures breached the obligation to provide a stable and predictable legal framework for renewable energy investments and frustrated the Claimant's legitimate expectations concerning the stability of the incentive regime for its solar project. A preliminary jurisdictional issue also addressed whether the Solar Levy qualified as a “tax” under the ECT's tax carve-out provision, which the Tribunal ultimately decided it did not, allowing it to hear claims related to the Solar Levy.




Tribunals reasoning on the merits:
In its analysis, the Tribunal first determined it had jurisdiction over claims concerning the Solar Levy, finding the Respondent had not proven it was a "tax" under Czech law or ECT Article 21, as it was primarily structured to adjust FiT (Feed in tariffs) levels for solar producers rather than to raise general revenue. On the merits of the FET claim, the Tribunal acknowledged that the Act on Promotion for renewable energy did provide for a 15-year payback period and the maintenance of revenue per unit of RES electricity. However, it found no express or specific stabilization commitment (contractual, legislative, or otherwise) made by the Czech Republic to the Claimant that would prevent any changes to the solar incentive framework. While acknowledging language in documents like the Explanatory Report referring to "stable" conditions, the Tribunal deemed this insufficient to constitute a guarantee against legislative changes, especially in light of the "radically changed circumstances" of the solar boom which threatened the financial soundness of the support scheme. The Tribunal viewed the government's actions as an exercise of its sovereign right to regulate tariffs and its energy sector, particularly when faced with significant adverse economic consequences from the unexpectedly high uptake of solar incentives. It also noted that amendments to the tax regime were foreshadowed and public discussions about curbing excessive FiTs and introducing a levy occurred before the Claimant's plant was fully operational or, in some aspects, even licensed.




Decision of the Tribunal: 
The Tribunal concluded that the Czech Republic did not violate the Claimant’s right to Fair and Equitable Treatment by introducing the Solar Levy or by withdrawing the Tax Incentives. It found that the changes to the renewable energy incentive regime did not breach the obligation to provide a stable and predictable legal framework, as there was no specific undertaking of absolute stability, and the measures were a response to unforeseen market developments (the solar boom). The Tribunal also highlighted that even after the amendments, solar investors, including the Claimant, still secured a reasonable return on their investments, with payback periods remaining well within the initially projected 15 years, suggesting the measures were not disproportionate or a radical departure from the scheme's fundamental features. Consequently, all of the Claimant's claims were dismissed. Given the complexity of the case and the reasonableness of the Claimant's arguments despite their lack of success, the Tribunal decided that each party should bear its own legal fees and costs.

Voltaic Network GMBH v. The Czech 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.

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.

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

A ban is a legal action that prevents the sale or supply of a product or service, or that recalls a product from the market. Examples are bans on SF6, greenwashing, fossil fuel advertisement or single-use plastics.

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 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.

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

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.

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

People who are less able to respond to the effects of climate change due to having limited financial or physical assets

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.

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

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.

woman and genders outside of the gender binary

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.

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.

Voltaic Network GMBH v. The Czech Republic - judgment

Target

Policy instrument

Impacted group

Renewable energy

Fossil fuel

Economic sector

Adaptation/resilience

Finance