Investors Still Waging War With Spain Over Retroactive Cuts

 

It appears likely developers will ignore the regulatory olive branch from lawmakers in Madrid and instead continue pushing for what could be a substantially larger amount of compensation. 

 

Energy transition attorney Piet Holtrop, among the most significant legal figures in the Spanish renewables sector, told GTM that a promise of a 12-year fixed return from the government amounted to “petty money” compared to the amounts investors stood to gain through litigation. 

 

The Spanish administration approved the offer of a 12-year fixed 7.39 percent annual return for plant owners as part of a regulatory overhaul last month.

 

The move, rushed through before the end of the current regulatory framework period on Dec. 31, aimed to head off an avalanche of international arbitrations that could see Spain liable for billions in compensation.

 

The compensation claims stem from a series of retroactive feed-in tariff cuts that started in 2010 and culminated in the complete eradication of the support scheme in 2014.

The cuts saw investments in Spanish renewables dropping from $8 billion to just $100 million over the same period, according to Bloomberg New Energy Finance.

If investors accept the new 12-year fixed return offer that the government has put on the table, they will be expected to renounce any new claims against the government. And if they win an existing arbitration then the amount will be taken out of their revenue under the new government scheme.

 

Alternatively, developers with plants built under Spain’s early-2000s feed-in tariff regime could continue to claim support through the current regulatory scheme, where the level of remuneration is reviewed every six years. 

 

The Spanish renewable energy association APPA welcomed the 12-year offer, saying it “helps eliminate the regulatory uncertainty for existing projects.” For Spanish developers, it is potentially the best offer on the table, since they were forced to fight the retroactive cuts in Spanish courts that found in favor of the government.

 

International investors, on the other hand, have sought compensation through bodies such as the International Centre for Settlement of Investment Disputes (ICSID) after Spain introduced regulatory changes that APPA estimates cut plant profitability by 30 percent. 

 

Two early cases, heard in the Stockholm Chamber of Commerce in 2016, found in favor of the Spanish government. But since then, every ruling has gone against Spain. 

 

In September, according to a Spanish press report, Spain had lost 11 cases and faced a bill of €800 million ($882 million), with 29 further cases yet to be decided. Legal action over retroactive cuts has made Spain the world’s top offender in ICSID proceedings in 2013, 2016 and 2019. 

 

Despite this, it remains unclear if the Spanish administration has actually repaid any of the money it owes to developers. And a European Commission communication in July 2018 cast doubt over whether investors from Europe will ever get paid. 

 

Possibly to establish EU legal authority in response to the Spanish cases and similar ones elsewhere in Europe, the communication effectively said that Europe’s commercial disputes should fall within the jurisdiction of member state courts rather than being settled internationally.

 

This is potentially a major blow to European investors, according to a November 2018 article by Clyde & Co. partner Richard Power and senior associate Paul Baker. “There are significant practical drawbacks to an investor falling back upon domestic courts,” they said. 

 

“One of the key attractions of arbitration, in general, is that a dispute is considered by independent and impartial arbitrators whom the investor has had some say in appointing. This is obviously not the case with domestic litigation.”

 

However, the European Commission’s view has yet to be tested in court. And even if it held legal water, investors could potentially circumvent it by fighting cases through a non-EU entity — perhaps even selling the asset to a buyer happy to take a bet on the litigation outcome. 

 

Given the amounts involved, Holtrop believes many investors may choose to take these odds. “I don’t think anybody would take [Spain's] deal,” he said.

 

In the meantime, the ongoing saga facing international investors is still having an impact on sentiment toward Spain almost a decade after the country started paring back its original feed-in tariff arrangements. 

 

Although the market is once again booming and the latest regulatory framework promises a stable environment for the first time in years, some investors are taking their chances on the merchant market rather than trusting the Spanish government. 

 

“Confidence has decreased,” said Pietro Radoia, senior analyst at Bloomberg New Energy Finance.

 

“There are a lot of established investors placing considerable amounts of money into new projects, and some are limiting their activity to subsidy-free [plants] because they don’t want the government to have any impact on revenue streams.”