Spain loses long-running dispute over solar support: But does it mean anything?

Two companies, Infrastructure Services Luxembourg and Energía Termosolar, sued Spain in investment arbitration after the state significantly cut support for renewable energy. The investors argued that this breached its obligations under the Energy Charter Treaty.

According to Reuters, the UK Supreme Court on Wednesday rejected the Spanish state's argument based on sovereign immunity. The investors can therefore continue their efforts to enforce the compensation award in the UK jurisdiction.

What is the dispute about?

Legally, this is an interesting and complex clash between international, national and EU law.

In 2007, like many other countries, Spain offered investors in solar power plants a very generous support scheme based on guaranteed feed-in tariffs. But after the financial crisis, the government gradually scaled back the system and carried out a major reform in 2013, significantly reducing support and introducing new charges and taxes.

That same year, the investors launched arbitration proceedings, arguing that the changes violated the principle of “fair and equitable treatment” and undermined the legitimate expectations on which their investments were based. Spain, in turn, argued that the original system was fiscally unsustainable and that the state had the right to change its energy regulations.

In 2018, the International Centre for Settlement of Investment Disputes (ICSID, part of the World Bank) ruled in favour of the investors and awarded them compensation of 101 million euros. It was one of a series of similar disputes against Spain. Spain is the most-sued country under the treaty.

The situation became more complicated, however. Last year, the European Commission ruled that paying this compensation would constitute unlawful state aid under EU law. The reason is that the dispute is between an investor from the EU and an EU member state. According to the Commission's position, such “intra-EU” arbitrations are incompatible with EU law. A precedent in this area was the 2008 dispute between Slovakia and Dutch insurer Achmea, which concluded in 2024. The Commission therefore ordered Spain not to pay the compensation.

After Spain refused to pay, the investors are now seeking to enforce the arbitration award outside the EU's jurisdiction. The UK Supreme Court's ruling means that Spain cannot claim state immunity in the UK. In theory, the award could therefore be enforced, for example by seizing Spanish state assets in the UK, although Spain may still be able to invoke state immunity in such a case.

The Energy Charter Treaty

The Energy Charter Treaty is a 1994 agreement that establishes a multilateral framework for cooperation in the energy sector. It contains provisions on energy security, efficiency, the operation of energy markets and infrastructure.

The treaty's most controversial element, however, is its system for protecting investments and resolving disputes between investors and states (ISDS). It allows private investors to sue states in international arbitration if they believe their investment rights have been violated.

Among the best-known disputes are Yukos v. Russia, one of the largest arbitration cases in history, and Rockhopper Exploration v. Italy, which arose after offshore drilling was banned in Italian waters.

It is precisely such cases that have led a number of European countries to withdraw from the treaty in recent years. While it was previously used, for example, by solar energy investors—as in the Spanish case—more recent disputes have often involved the protection of fossil fuel investments from climate regulation.

Well-known examples include the arbitrations brought by RWE and Uniper against the Netherlands over a law to phase out coal. The companies sought compensation amounting to billions of euros.

The treaty also contains a so-called “sunset clause”, a provision that requires countries to continue complying with its rules for twenty years after withdrawing from the treaty (this applies to investments made before withdrawal). Spain, for example, announced its withdrawal from the treaty in 2024. Italy and a number of other European countries withdrew earlier. In 2024, the entire EU withdrew from the treaty under the so-called Belgian plan.