RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain
ICSID · Investment (ICSID and treaty) · Spain · 11 Dec 2019
Why it matters
This award is one of many ICSID cases against Spain for retroactive changes to renewable energy incentives. It clarifies the calculation of damages for breach of legitimate expectations, particularly the use of a WACC discount rate and the rejection of a tax gross-up. The decision also addresses the allocation of costs in complex investment treaty arbitrations where neither party fully prevails.
Summary
RREEF, part of Deutsche Bank's asset management division, invested in concentrated solar power (CSP) and wind energy plants in Spain between 2007 and 2011, relying on a regulatory framework (Royal Decree 661/2007) that offered attractive feed-in tariffs and other incentives. In 2010 and 2013, Spain introduced reforms that reduced these subsidies, including a cap on operating hours and a new tax on electricity production. RREEF claimed these changes violated the ECT's fair and equitable treatment (FET) standard and amounted to expropriation. In a prior Decision on Responsibility (30 November 2018), the Tribunal found Spain liable for breaching FET by frustrating RREEF's legitimate expectations, but rejected expropriation claims. The present Award (11 December 2019) determines the quantum of damages. The Tribunal adopted a discounted cash flow (DCF) method to calculate the compensation needed to achieve a 6.86% after-tax lifetime return on the CSP plants. It used a weighted average cost of capital (WACC) of 6.86% as the discount rate, based on the experts' joint model but preferring the claimants' expert's WACC calculation for the APV model. For wind plants, damages were limited to the retroactive application of the 2013 reform. The Tribunal awarded EUR 59.6 million, plus interest at Spain's 10-year bond rate (2.07%) compounded monthly from the valuation date (30 June 2014). It declined to order a tax gross-up, finding insufficient evidence of actual tax liability. Each party bore its own legal costs and half of ICSID costs, as neither fully prevailed and the legal issues were novel.
The detail
Parties: RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain
Case number: ICSID Case No. ARB/13/30
Outcome: Spain ordered to pay EUR 59.6 million plus interest at 2.07% compounded monthly from 30 June 2014; each party bears its own costs and half of ICSID costs.
Quantum: EUR 59.6 million
Applicable law: Energy Charter Treaty (ECT); ICSID Convention; Spanish renewable energy regulations (Royal Decree 661/2007 and subsequent reforms).
Issues in play: The dispute involved the clash between Spain's sovereign right to modify its renewable energy subsidy regime and the investors' legitimate expectations of stability under the ECT's fair and equitable treatment standard.
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