NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Kingdom of Spain
ICSID · Investment (ICSID and treaty) · Spain · 31 May 2019
Why it matters
This award is one of the many ICSID cases against Spain arising from its retroactive changes to renewable energy subsidies. It reinforces the principle that host states must respect investors' legitimate expectations when they rely on specific regulatory frameworks. The decision also clarifies the application of the fair and equitable treatment standard in the context of sovereign regulatory changes, and it contributes to the growing body of case law on the ECT's protection of investments in the renewable energy sector.
Summary
NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V., Dutch companies, invested in two solar thermal plants in Spain (Termosol I and II) under a regulatory regime that provided attractive feed-in tariffs and incentives for renewable energy. In 2013-2014, Spain enacted reforms that significantly reduced these incentives, allegedly violating the investors' legitimate expectations. The investors initiated arbitration under the Energy Charter Treaty (ECT) at ICSID. The Tribunal found that Spain had breached Article 10(1) of the ECT by failing to provide fair and equitable treatment, specifically by not protecting the investors' legitimate expectations that the regulatory framework would remain stable. The Tribunal rejected Spain's jurisdictional objections and held that the ECT's umbrella clause did not apply. On quantum, the Tribunal decided that damages should be based on the fair market value of the investment as of June 30, 2016, using a discounted cash flow method with a weighted average cost of capital (WACC) plus a 200 basis points premium. The exact amount was to be recalculated by the parties. The award also addressed costs, ordering each party to bear its own legal costs and half of the ICSID costs. This case is part of a wave of similar claims against Spain for its renewable energy policy changes.
The detail
Parties: NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Kingdom of Spain
Case number: ICSID Case No. ARB/14/11
Outcome: The Tribunal found that Spain breached the fair and equitable treatment obligation under Article 10(1) of the Energy Charter Treaty by failing to protect Claimants' legitimate expectations. Claimants were awarded damages based on a return on the capitalized value of their assets as of 30 June 2016, using a WACC plus a premium of 200 bps, with pre-judgment and post-judgment interest. The exact quantum was to be recalculated.
Quantum: EUR 398.4 million (to be recalculated with WACC plus 200 bps premium)
Applicable law: Energy Charter Treaty (ECT), ICSID Convention, ICSID Arbitration Rules
Issues in play: The dispute involved the collision between Spain's regulatory changes to the renewable energy incentive regime and the investors' legitimate expectations under the ECT's fair and equitable treatment standard. The key legal question was whether Spain's modifications to the remuneration framework for solar thermal plants violated the stability promised to investors.
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