Energy Charter Treaty in Spain: From solar dream to legal nightmare
How financial investors, law firms and arbitrators are profiting from the investment arbitration boom in Spain
In the last 10 years, Spain has been subject to more investment arbitration lawsuits than any other country. It has received a total of 51 claims, of which 27 have already been resolved, 21 of them in favor of the investor. This means that in eight out of ten claims the investors won. According to the Spanish government, the total amount claimed by foreign investors amounts to almost €8 billion. So far, Spain has been ordered to pay more than €1.2 billion in compensation for the cases it has lost, which is equal to the country’s entire spending commitment to fight the climate crisis - or five times what it spent to alleviate energy poverty in 2021. As the cases continue, more and more money from the State coffers will be at stake; not only to pay investors the amounts resulting from the awards, but the lawyers’ and experts’ fees, the administration costs of the arbitration center and the arbitrators’ fees.
All the lawsuits have been brought under the Energy Charter Treaty (ECT), an international trade and investment agreement with more than 53 member states in Europe and Asia. A wide range of stakeholders consider the ECT outdated (including the European Commission and EU member states).
The ECT provides strong protections for foreign investments in the energy sector, including oil, gas, and coal, against government interference that reduces an investor’s profits. Spain is noteworthy because all the lawsuits involved are initiated by foreign investors in the renewable energy sector. Generous incentives approved by the Spanish government in 2007 attracted many foreign and domestic investors. The incentives were revised downwards in the following years. These changes in policy were contested by foreign investors under the ECT. But a close examination of the cases against Spain shows that the ECT is benefiting only transnational investors and specialized law firms at the expense of Spain’s solar dream.