In couple of previous AKT blog posts ( and, we covered some of the key features of the Regulation on incentive measures for the production of electricity from renewable sources and from high-efficiency electricity and thermal energy cogeneration (

As mentioned before, one of the very important issues for potential investors in this area is what happens when the Government decides to implement changes in law. These changes primarily concern the rights of privileged producers regarding incentive measures, after the date of coming into force of the power purchase agreement or changes to laws valid on the date on entry into a power purchase agreement, aimed at the reduction of rights or increase of obligations of the privileged producer, resulting in increase of their costs of doing business. Significance of potential problems that could arise from changes in law is that certain investors, protected under bilateral investment treaties (BITs) which Republic of Serbia has concluded with their home states, may be entitled to sue the State in front of investment arbitration tribunals, such as under auspices of ICSID ( or other arbitral institutions, in case they suffer damages due to these changes.

Republic of Serbia is not a signatory of the Energy Charter Treaty (ECT) yet, but the same standards granted by this charter, such as legitimate expectations and the right to fair and equitable treatment (FET) that would be applied by the arbitrators, are also found in the above-mentioned Serbian BITs.

Maybe the best way to illustrate the possible scenarios is to make a short overview of the recent events that happened in investment arbitration cases against some of the EU countries in the field of renewable energy sources and incentive measures for them.

First thing that a simple Google search would show is the so-called “Spanish energy arbitration saga”, that resulted in number of lawsuits against Spain, with different outcomes. Although there are many cases pending against Spain based on the regulatory changes that affected the Concentrated Solar Power (CSP) sector, maybe the most important ones so far are:

  • Charanne B.V., Construction Investments S.A.R.L. v Spain, SCC Arbitration No.: 062/2012 (“Charanne”) and
  • Eiser Infrastructure Limited and Energia Solar Luxembourg S.a.r.l. v Spain, ICSID Case No. ARB/13/36 (“Eiser”).

The reason why these cases caused so much interest in the arbitration world was that the Tribunals took different stances on whether there was a breach of investor’s legitimate expectations and FET by these regulatory changes. More information can be found for example in a number of arbitration-related blog-posts, such as and Basically, the cases revolve around the fact that Spain applied the measures to roll-back certain incentives and benefits offered to promote investment in the Concentrated Solar Power (CSP) sector. That gave the cause for many investors to sue Spain in front of ICSID.

In the very first against Spain in this area, Charanne v. Spain, the tribunal found that it cannot be expected that regulatory framework for incentive measures would always remain the same, as a state is entitled to sovereign policy in this sector. This however is subject to the investor holding legitimate expectations, which can be generated by specific commitments made towards an individual investor. In this specific case, there was no finding that such a commitment concerning non-alteration of incentives existed. Furthermore, the amendments that did occur did not, in Tribunal’s view, essentially affect the renewable energy framework.

On the other hand, in the case of Eiser v. Spain, investor argued that the measures Spain applied in 2013 and 2014 expropriated its investments, breached the FET, imposed exorbitant measures against the investment, and did not honor Spain’s commitments. However, although being an essentially similar claim to Charanne, in this case the Tribunal found that Spain breached Article 10(1) of the Energy Charter Treaty, awarding €128 million to the investor. The question here is: did this Tribunal take a different approach from the one in Charanne case to analyze the investor’s legitimate expectations under the FET standard? The short answer is no, and that illustrates how tribunals can see the same norms and facts differently, thus producing opposite outcomes.

In the case of Eiser, the Tribunal recognized that States preserve their right to modify their regulatory regimes to adapt to circumstances and changing public needs. In the absence of specific commitments towards the investor, the key issue is to what extent the FET standard protects investors from a fundamental, total and unreasonable regulatory change that does not take into account the reliance of the investor on the prior regime. The Tribunal recognized that the FET protects the right to legal stability. However, this right is not unlimited. But, unlike in the case of Charanne, the Tribunal did find that particular measures unexpectedly and drastically altered the regulatory regime, thereby breaching the FET standard contained in Article 10(1) of ECT.

As a conclusion, considering that the above-mentioned Regulation in Serbia is quite wide in its wording concerning the changes in law connected to incentive measures, the Government should carefully and diligently fulfill any specific commitments made to the investor in the renewable energy sector. If there were no specific commitments, the Government should still aim to communicate any planned changes well in advance and consult with the investor when possible. At the same time, the investors should also do proper due diligence before investing in order to be fully aware of the rights and protection they enjoy.