Hydro Energy 1 S.à r.l. and Hydroxana Sweden AB v. Kingdom of Spain
ICSID · Investment (ICSID and treaty) · Spain · 5 Aug 2020
Why it matters
This award is one of many in the wave of Spanish renewable energy arbitrations. It clarifies the calculation of damages for breach of legitimate expectations, adopting a WACC-plus approach and addressing complex issues of debt restructuring and mitigation. The tribunal's detailed quantum analysis provides guidance on valuing small-hydro investments and applying a reasonable rate of return.
Summary
The dispute arose from Spain's regulatory reforms that reduced subsidies for renewable energy, affecting the Claimants' investments in 33 small-hydro plants. The Tribunal found Spain breached the fair and equitable treatment obligation under Article 10(1) of the ECT by failing to respect the Claimants' legitimate expectations that the regulatory regime would remain stable. The Tribunal dismissed expropriation and other claims. On quantum, the parties disagreed on the reasonable rate of return (PTRRR), plant valuation, and whether to cap returns at pre-reform levels. The Tribunal set the PTRRR at 7.97% based on WACC plus 1%, rejected the cap, and included the Alange plant. It also determined that compensation should be based on plant-level impact, not the Claimants' equity and debt positions. The final award was EUR 30,875,000 plus interest from June 2013 at one-year EURIBOR plus 1%, compounded annually. Each party bore its own costs.
The detail
Parties: Hydro Energy 1 S.à r.l. and Hydroxana Sweden AB v. Kingdom of Spain
Case number: ICSID Case No. ARB/15/42
Outcome: Spain ordered to pay EUR 30,875,000 plus interest to the Claimants for breach of fair and equitable treatment under the Energy Charter Treaty.
Quantum: EUR 30,875,000
Applicable law: Energy Charter Treaty (ECT), ICSID Convention
Issues in play: The case involved the collision between Spain's regulatory changes to renewable energy subsidies and the investors' legitimate expectations under the ECT's fair and equitable treatment standard.
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