The Spanish Government has recently proposed reforms that will impact the solar energy sector. These come on top of measures already enacted by Spain in 2010 that retrospectively reduced tariffs in the solar energy sector. The government’s latest proposed reforms threaten to jeopardize the situation further, and international investors who may be affected should consider their options and the possibility of bringing a claim under the Energy Charter Treaty (ECT) or bilateral investment treaties (BITs), as explained further below. Similar discriminatory measures have also recently been introduced in the Czech Republic.

Possible Claims Against Spain

A number of international solar power investors have brought claims against Spain under the ECT. The cases concern Spain’s reduction of tariffs that had allowed investors to recover the cost of installing solar power infrastructure by charging above-market prices for electricity. The government also imposed a limit on the tariff of 25 years, and imposed an annual cap on the number of hours of electricity the investors could sell at the above-market rates.

In view of the government’s latest proposed reforms affecting the thermo-solar power sector, other international investors and foreign investment funds with solar thermal interests in Spain are now considering launching the relevant procedures to bring Spain to international arbitration under the ECT. The latest energy bill, recently submitted to the Spanish parliament and part of a series of measures intended to plug Spain’s €24 billion electricity tariff deficit, would impose a six per cent tax on power generation companies and slash subsidies for renewable energy providers that consume gas. The measures arguably discriminate against renewable energy providers and could substantially reduce their plants’ income.

Possible Claims Against Czech Republic

A number of international solar investors have also recently filed claims against the Czech Republic over a retroactive tax on solar power profits, similar to the claims already under way against Spain. The changes by the Czech government included an amendment to the Act on Promotion of Electricity Production from Renewable Sources, introducing a new levy on electricity generated from solar power plants put into operation in 2009 and 2010. The levy imposed is 26 per cent of the feed-in tariff and took effect in early 2011. These claims are brought under the ECT and also BITs between the investor states and the Czech Republic.

The ECT

The ECT is a multilateral investment treaty that establishes a legal framework for energy trade and investment. It allows investors to file arbitration claims directly against member states for violations of their rights under the ECT.

BITs

BITs also allow investors of different nationalities to bring claims directly against the state for breach of various guarantees, including fair and equitable treatment, full protection and security, and freedom from discriminatory treatment.

Companies and investors that might be affected by these reforms in Spain or the Czech Republic should consider the possibility of bringing a claim under the ECT or a relevant BIT.