Cleantech Investor

First published on the Cleantech Investor website, November 2011. Copyright Cleantech Investor Ltd.

Legal action on solar feed-in tariffs (FiTs) has reached international proportions, with a group of fourteen institutional investors and energy companies serving a formal demand for international arbitration against the Spanish Government for damages as a result of the retroactive changes to PV tariffs in December 2010.

The claims, understood to reach into hundreds of millions of euros,come under the Energy Charter Treaty (ECT), a multilateral investment treaty. Historically, the ECT has only been invoked against a Western European country on one occasion (most claims were brought against former communist bloc states). The claim against the Spanish Government comes just as it faces an election - not to mention soaring interest rates. 

The investors, who are represented by law firm Allen & Overy, include AES Solar, Ampere Equity Fund, HgCapital, Element Power, Impax Asset Management, KGAL GmbH & Co KG, NIBC European Infrastructure Fund, Whiteowl Capital, Eoxis, MPC Capital and MEIF Luxembourg Renewables. Collectively, they manage over $30 billion on behalf of pension funds and other institutional and individual investors. Their case is based on the fact that they invested in Spain’s PV sector “in reliance on the stable long-term revenues promised by the Spanish Government through Spain's renewable energy feed-in tariff laws.”  The group, which holds combined investments of over 270MW of PV projects in Spain, had collectively committed some €2 billion to build or acquire PV projects in the country when the FiT was cut by Spain.

Mr Stephen Jagusch, the head of Allen & Overy's international arbitration practice, commented that:

"In 2007, Spain put in place a tariff regime that was specifically designed to encourage investment in the PV sector. Thanks to this tariff regime and investors like our clients, Spain now possesses a state-of-the-art PV generation infrastructure. However, now that Spain has the benefit of our clients' investments, it has decided to pull the plug on the tariff regime".

Jagusch says that it is critical for countries to ensure the “long-term stability and certainty of their investment incentive regimes” if they are to attract the funding needed for investment in renewable energy.

The UK Government must be taking note: its Department of Energy & Climate Change (DECC) is the subject of legal proceedings by companies including Solarcentury and HomeSun. Solarcentury is seeking an interim injunction to stop DECC using 12 December as the cut-off date for the current FiTs – and aims to stop any cuts to tariff levels until a proper, legal review has been completed.

The UK has seen a host of funds set up to invest in the solar industry, encouraged by the introduction of FiTs. Could legal action by investors follow in the UK?