Brussels loses bid to join legal fight over Spanish green subsidies

A UK court has thrown out a bid by the European Commission to join a legal battle in which Spain is seeking to avoid paying millions of dollars in compensation to renewable energy investors.

Two private equity investors, Infrastructure Services Luxembourg and Energia Termosolar, are fighting the Spanish government to enforce a $101mn arbitration award won in a 2018 case against Madrid over its withdrawal of an incentive scheme for renewable energy investments.

The action is part of worldwide litigation and claims totalling an estimated $9.5bn brought by investors that say they have lost out financially after the termination of the Spanish subsidy scheme.

The battle comes as the EU attempts to boost investment in clean energy industries in response to the US Inflation Reduction Act, a huge package of subsidies for green technology that Washington announced last year.

The case is due to be heard by the UK’s High Court in March, but Spain has applied to set aside the award.

The commission attempted to intervene on Friday on the basis that allowing the award would be against EU treaties and could constitute illegal state aid.

However, the High Court ruled that the commission should not be allowed to join the March hearing. Mrs Justice Sara Cockerill said permitting it to do so would “increase complication and costs” and that it was “demonstrably not neutral”.

Energy investors say Madrid’s decision to end the subsidy scheme, which rendered some projects financially unviable, has damaged Spain’s reputation as a reliable place to fund big projects. Taking advantage of its climate and expanses of unpopulated countryside, Spain wants to become one of Europe’s leaders in renewable power.

The incentives to build solar and wind farms were introduced in 2007 by the Socialist government of prime minister José Luis Rodríguez Zapatero and guaranteed investors in renewable energy sites a reasonable return. But between 2012 and 2014 the conservative government of Mariano Rajoy diluted and withdrew the incentives as Spain sought to shore up public finances in the midst of an economic crisis.

Infrastructure Services Luxembourg and Energia Termosolar claim they are owed compensation after investing in a solar facility in the Granada region of Spain. In 2018 they won an arbitration case in the World Bank’s arbitration tribunal, the ICSID, and were awarded $101mn.

Their case was brought under the Energy Charter Treaty, an international compact drawn up at the end of the cold war to protect investors backing energy projects in post-Soviet countries.

The commission says the treaty should not apply between stakeholders within the EU. That argument is part of a wider push by Brussels to modernise the 30-year-old pact that has so far failed to win backing from the ECT’s 53 signatories.

Several EU countries, including Spain, have in the past year said they would withdraw from the treaty, although this would leave them bound by a 20-year sunset clause.

Spain has filed similar legal actions in Luxembourg and the Netherlands against renewables investors that have won arbitration awards and are seeking to enforce the rulings. Investors argue that Madrid’s behaviour risks deterring support for green energy projects as the world is urgently seeking to move away from fossil fuels.

Antonio Morales, head of energy and public law at Baker McKenzie in Madrid, said the commission was “pushing hard” in several jurisdictions on the grounds that “no court should rule in these cases until [the commission] has made its own decision on whether compensation would count as illegal state aid”.

“By doing that it is at the very least buying time for the government of Spain,” he said.

Nick Cherryman, the lawyer leading in the enforcement case for Infrastructure Services Luxembourg and Energia Termosolar, said Friday’s ruling was “a positive step towards ensuring Spain complies with its international debt obligations, in particular towards renewable investors”.

The European Commission did not respond to a request for comment.