In 2040, renewable energy sources will account for more than 50 percent of global power generation, and solar and wind power alone will produce 50 percent of the electricity generation in Australia, Germany, Mexico, and the United Kingdom. This growth is to be driven by remarkable spending: an estimated US$7.34 trillion over the next 23 years. One key driver is the reduced cost of producing solar power—this trend is forecast to continue, with large-scale solar power emerging over the next few years as a less expensive alternative to new coal plants in nearly all major economies.
The solar industry’s remarkable growth has led to new grounds for international disputes. We highlight below a recently filed “global safeguard” trade dispute in the United States and investment disputes in Europe. These ongoing disputes could be mere “growing pains,” or they could adversely impact the rise of the solar energy industry.
1. U.S. “safeguard” dispute threatens the growth of the U.S. solar industry
On April 26, 2017, Suniva Inc. petitioned the United States International Trade Commission (“ITC”) to impose a global safeguard (pursuant to Section 201 of the Trade Act of 1974) on all non-U.S.-produced solar cells and modules. SolarWorld Americas Inc. later joined Suniva as a petitioner. Suniva (a bankrupt solar panel manufacturer in Michigan controlled by a Chinese investor) and SolarWorld Americas Inc. (whose German parent is also bankrupt) claim that imports threaten the economic viability of U.S. solar manufacturing companies. They seek the imposition, by the ITC and, ultimately, President Trump, of a tariff of 40 cents per watt on non-U.S. manufactured solar cells and a price floor on imported panels of 78 cents per watt.
The United States has not imposed a global safeguard since 2002. Unlike far more common antidumping and countervailing duty petitions, a safeguard measure does not require the ITC to find an unfair trading practice. Instead, the ITC must determine whether petitioners have suffered “serious injury,” and if so, what the appropriate remedy should be. The ITC is scheduled to render both its injury and remedy decisions by November 13, 2017, at which point its recommendations will be sent to the President, who will decide no later than January 12, 2018 whether or not to impose remedies that could stay in place for up to four years.
Strong opposition to the petition has emerged from U.S. consumers of solar products. For example, the Solar Energy Industries Association (“SEIA”) has voiced its concern over higher project costs and power prices. On June 15, 2017, SEIA announced that one-third of U.S. solar jobs will be lost if the Trump Administration adopts the proposed tariffs—an estimated 88,000 of 260,000 workers. These concerns stem from the increased prices for solar panels that could result from the imposition of the relief sought by petitioners and demonstrate that a safeguard could have a significant impact on the U.S. solar industry.
2. Investment disputes over renewable energy support measures could establish new “legitimate expectations” standards
The solar industry has also become embroiled in investor-state arbitration disputes. Several cases have been filed in recent years by investors seeking protection against regulatory measures adopted by sovereign states in the solar energy sector.
Recent investment tribunal decisions involving solar energy disputes, rendered pursuant to a multilateral investment treaty ratified by 47 countries, the Energy Charter Treaty (“ECT”), have wrestled with the correct application of the treaty’s “Fair and Equitable Treatment” (FET) standard of protection. These disputes (approximately 20 in total), commenced against Spain, Russia, and Italy, among others, have focused on investors’ “legitimate expectations” and have raised an interesting question: Where is the line between an investor’s reasonable expectation of market change, and the upholding of the rights of a sovereign state to change their legal framework as the regulatory climate demands?
One example is Charanne B.V, & Construction Investments S.A.R.L vs The Kingdom of Spain, which produced the first investor-state award in a solar energy dispute against Spain. The reviewing tribunal declared that outside of a specific state commitment towards regulatory stability, investors bear the risk that regulatory changes could harm their investment. As a consequence, the state may modify its solar energy regulatory framework based on the needs of the market and public interest without violating its ECT commitments.
Renewable energy is an evolving industry sector impacted by economic, political, and social forces. We thus expect to see additional solar energy disputes as tribunals assess the existing claims and the parameters of FET in this innovative context. These decisions will help refine the balance between the protection of investors’ legitimate expectations and the sovereign power of the state to regulate.
In sum, the rise of the solar industry promises to precipitate cutting‑edge international investment and trade disputes to come. These disputes, at minimum, will pose new challenges for market participants.