The Energy Charter Treaty, investment arbitration and the Spanish solar crisis: A recipe for disaster?

Abstract

Spain is a world leader in solar energy production and until 2009 operated a feed-in tariff policy that provided solar energy producers with a preferential price for the electricity they fed back into the grid. This policy was scaled back in 2009 when Spain found itself facing severe economic downturn. It has now been repealed entirely. While domestic investors in solar energy had to absorb the resulting loss in profits, foreign investors sought compensation under the Energy Charter Treaty. They alleged that Spain had breached its obligations as a signatory state and commenced arbitral proceedings accordingly.

These arbitral proceedings signal the first time that the Energy Charter Treaty has been used to resolve a dispute over renewable energy investment as well as the first time that the treaty has been used by multiple investors to claim against a host state. The novelty of this situation has tested the efficiency of the established rules and procedures of investment treaty arbitration and has put a spotlight on the issues that arise when multiple investor claims are arbitrated separately. This paper examines the precise nature of those issues, reflects on the evolution of arbitration into the investor-state arena and proposes a number of ways in which the system might be better streamlined to handle multiple-investor claims.