Spain’s Renewable Energy Saga: Lessons for international investment law and sustainable development

IIAs and the accompanying ISDS regime are often praised as key to promoting FDI in countries and therefore aiding sustainable development. IIAs provide foreign investors with broad and vague protections, which are then interpreted and applied by arbitrators through the ISDS regime. Investment arbitrators are therefore vital in defining the relationship between international investment law and sustainable development. Given that the regime provides little to no guidance and accountability for arbitrators, it creates opportunities for treaty protections to be applied inconsistently and arbitrarily. The result is a system tainted with uncertainty that is constraining the policy space of countries and consequently hindering sustainable development. The renewable energy cases against Spain are a prime example of problems that the ISDS regime can present for sustainable development in the energy sector specifically.

Renewable energy arbitrations against Spain: Background and published awards

In 2007 Spain implemented a number of regulatory measures with the purpose of incentivizing investment in renewable energy. However, because of the program’s great success, a tariff deficit and the consequences of the financial crisis, Spain implemented a number of measures from 2010 onward, which retracted some features of the original regulations. As a result, approximately 40 arbitrations have been initiated against Spain.[1] The key issue in the first four final awards publicly issued in these arbitrations involved the application of the FET standard and legitimate expectations.[2]

Charanne v. Spain,[3] the first award that was published (2016), concerned investors who owned photovoltaic installations in Spain.[4] They argued that the evolution of the special regulatory framework created instability and lack of clarity which violated their legitimate expectations, contrary to ECT Article 10(1). The tribunal dismissed both claims, ruling in favour of Spain.[5]

In 2017, the tribunal in Eiser v. Spain ruled in favour of the investors of three concentrated solar plants.[6] Unlike in Charanne, they argued that a set of later regulations from 2012 to 2014 had breached their rights under the ECT, significantly devaluing their investments and forcing their Spanish subsidiaries into debt restructuring negotiations. The tribunal found in favour of the investors.

Isolux v. Spain[7]—decided first, but only published after Charanne and Eiser became public—was in many respects a sort of companion case to Charanne, as it was brought by related investors, involved the same counsel, and each party named the same co-arbitrators. Like in Eiser, Isolux disputed the 2012–2014 regulations. The investor claimed that Spain attracted its investment with the promise of maintaining a long-term feed-in tariff for the production of photovoltaic energy under a special regime, and that by later abolishing it, it breached ECT Article 10. The tribunal found in favour of Spain.

In February 2018, the tribunal in Novenergia v. Spain ordered Spain to pay EUR 53 million to a Luxembourg fund that had invested in photovoltaic plants in Spain.[8] The claim in Novenergia related to the same 2012–2014 reforms as in Eiser and Isolux.

Although the same reforms sparked the abovementioned disputes, a closer look at the tribunals’ interpretation and application of the FET standard in each award reveals the inconsistencies to which the ISDS regime can give rise. The awards shine light on four specific issues, explored in the rest of this essay.

1. Lack of clarity regarding whether an investor has legitimate expectations and, if so, of what

There is no consistent interpretation as to what gives rise to an investor’s legitimate expectations that a regulatory framework will remain unchanged. It is true that none of the four awards can be understood to deny the state’s right (and duty) to regulate (and re-regulate). Nor do they suggest that a state’s right to regulate is limitless. Further, all awards recognize that Spain did have some form of obligation to respect the investor’s legitimate expectations. At this point, however, the tribunals differed in their way of proceeding.

In Charanne, the investors alleged that the regulatory framework established by Spain prior to the 2008 crisis induced them to invest in Spain and generated the expectation that the terms would not be altered. However, the tribunal found that this framework could not provide legitimate expectations, as the documents were not specific enough. From the Charanne award, it can be understood that anything short of a stabilization clause or specific commitment to the investors specifying that the regulatory framework will remain unchanged will fall short of creating such a legitimate expectation.[9]

In Novenergia, contrary to Charanne, the tribunal held that such expectations “arise naturally from undertakings and assurances” given by the state (para 650). These do not need to be specific undertakings such as contractual stabilization clauses—state conduct that objectively creates such expectations is sufficient.[10] Novenergia was entitled to form legitimate expectations as to the 2007 regime based on statements by officials of Spain’s Congress of Deputies, as well as Spain’s marketing documents which, the tribunal held, constituted “bait.”[11]

Unlike in Charanne, however, the Novenergia tribunal was referring to the legitimate expectation that the regulations that incentivized the investors would not be radically altered. However, it did not distinguish between this test and that articulated in Charanne. The Charanne decision implies that the legitimate expectation that a state will not act unreasonably or disproportionately when regulating is embedded in the FET standard despite any statements made by a state. The Novenergia award seems to apply the analysis in Charanne to determine if investors had the right to expect the legislation would not be radically altered.

The discrepancy in the way in which both tribunals approached the analysis of an investor’s legitimate expectations makes it difficult for a state to anticipate the boundaries of how statements and advertisements will be scrutinized in the event of a dispute.

2. Different approaches and lack of reasoning on whether Spain’s regulatory changes were reasonable

The Eiser tribunal generally failed to provide analysis on what the investor’s legitimate expectations were or could have been based on the particularities of the case. Instead, the tribunal went straight to considering how Spain could have violated the FET standard regardless of any specific commitments, by virtue of it acting unreasonably when regulating, an issue that the tribunals in Charanne, Isolux and Novenergia also went on to consider.[12] This approach highlights the second issue prevalent in all awards: the lack of consistency when deciding whether Spain’s regulatory changes were reasonable.

Each tribunal differed in explaining what they meant by “reasonableness.” The Isolux tribunal simply stated that the reasonableness standard requires a state’s conduct to bear a reasonable relationship to some rational policy.[13] On the other hand, the Charanne tribunal considered the issue in more depth and provided a detailed and quite high threshold. It first stated that it would consider whether Spain’s measures were unreasonable, disproportionate or contrary to the public interest.[14] As for proportionality, the tribunal considered that this criterion would be satisfied as long as the changes were not capricious or unnecessary and did not suddenly and unpredictably eliminate the essential characteristics of the existing regulatory framework.[15] In Novenergia, however, the tribunal applied a seemingly narrower test, stating that the FET standard protects investors from a “radical or fundamental” change to legislation rather than simply an “unreasonable or disproportionate” change, as was stated in Charanne.[16] The tribunal in Novenergia failed to define the boundaries of the test it proposed, illustrating yet another source of uncertainty for states. Furthermore, although the tribunal in Eiser held that Spain had acted unreasonably and breached the FET, it failed to provide any information on how it was judging the reasonableness of Spain’s measures. This explains why Spain has recently applied for annulment of the decision, based on a failure to state reasons and a manifest excess of power.[17]

The tribunals also differed in their analysis of the disputed provisions. The Eiser tribunal paid disproportionate attention to the economic impact the regulations had on the investment. It began by distinguishing Charanne on the basis that the measures had less dramatic effects for the claimants in Charanne (losses of approximately 10 per cent) than in Eiser (losses of more than 60 per cent).[18] The Eiser tribunal described the negative impact the disputed measures had on the investment for several pages, highlighting that Spain’s new measures deprived the claimants of essentially all of the value of their investment.[19]

The economic impact of a measure should not be entirely ignored. However, it is an element that is usually considered in expropriation claims and rarely found as an element in the test to establish a breach of the FET standard. The Eiser tribunal’s decision to ignore the expropriation claim and focus on FET may have led to its overemphasis on the negative impact of the measures and lack of analysis of whether the new measures were reasonable.

3. Inconsistent conclusions of different tribunals considering the very same regulations

The third issue is that Eiser and Isolux differ in their conclusion as to whether the same provisions were reasonable, and both tribunals fail to provide satisfying reasoning for their conclusions.

In Isolux, the tribunal first held that “Spain’s conduct was a rational policy which, whether anybody liked it or not, had the aim of protecting the consumer,”[20] without providing any further explanation of why that was the case.

In turn, the tribunal in Eiser stated that the new system was based on quite different assumptions and used a new and untested regulatory approach, all intended to significantly reduce subsidies to existing plants,[21] but failed to explain how it was judging the “reasonableness” of the regulatory changes, why it held the new regime as unreasonable and on what its reasoning was based. Its further discussion on whether Spain gave an indication for changing the rate of reasonable return and whether the standard used (which depended on an “efficient” plant) was common or not, fails to provide guidance or clarity.

From this analysis it did not seem that Spain’s measures were discriminatory or had been applied in an arbitrary and unreasonable way. At one point, the Eiser tribunal recognizes Spain’s economic difficulties and accepts it had to implement measures to address its tariff deficit.[22] However, it seems to suggest that a more reasonable policy would have been to allow inefficient plants to receive the same rate of return as efficient ones, despite the clear moral hazard this would create.

Whether one agrees with the outcome in either Eiser or Isolux, the lack of in-depth reasoning in both decisions is unsatisfying, and the resulting discrepancy is worrying.

4. Lack of an appellate mechanism to correct inconsistencies

Although Charanne and Isolux do provide some guidance on the legitimate expectations question, the dissenting opinion of arbitrator Tawil in both the Isolux and Charanne awards highlights the significant potential for inconsistency in the current ISDS regime. In Charanne, Tawil concurred with the majority on the issue of the tribunal’s jurisdiction and shared the view that Spain had not indirectly expropriated the Claimants’ investment. However, he opined that legitimate expectations could be created in other situations where there was no specific commitment.[23] He was of the view that the original scheme was designed to incentivize investors and was directed to a specific group of investors, and that this was sufficient to show legitimate expectations on the part of the claimants.[24] On that basis, he thought it did not seem legally acceptable to recognize the host state’s prerogative to modify or eliminate the benefit without providing compensation.[25] He dissented on the same grounds in Isolux.

Indeed, dissenting opinions in judicial decisions are very common and in most cases relate to some of the most complex and ambiguous aspects of the law. However, the worrying aspect of Tawil’s dissent is that, unlike most judicial disputes, awards in the ISDS regime are not confined by precedent or the accountability imposed by the ability to appeal a decision. Tawil’s opinion shows that, were the tribunal constituted by another arbitrator of similar views, the decisions in Charanne and Isolux would have swung in the opposite direction. There is no way a state can anticipate such possibility at the time of instituting regulatory changes.

Is ISDS compatible with sustainable development?

Although no conclusive lessons can be derived from these awards, they do highlight some of the main issues present in the current ISDS regime. Its ad hoc nature makes it extremely difficult for states to anticipate when trying to regulate and re-regulate on vital policy issues. As a result of the uncertainty and arbitrariness surrounding the interpretation of vital standards in the ISDS regime, there is a risk of so-called regulatory chill: states may shy away from regulatory changes when considering the risk of costly and embarrassing arbitration.[26] This is deadly for states pursuing sustainable development goals, which requires states to be able to regulate freely.

Several stakeholders have argued that the best way to counteract those issues is by instituting a single investment court or tribunal that could determine particular legal standards applicable to similar cases.[27] This would allow states to easily establish a benchmark for their regulatory changes, and investors would be able to anticipate in what cases their losses could be compensated. In its recent FTAs, the EU has moved away from ad hoc investment arbitration toward an ICS mechanism, composed of a first instance tribunal and an appeal tribunal.[28] The EU also has directives to negotiate a convention establishing a MIC,[29] which it has been advocating in the context of the UNCITRAL Working Group III on ISDS reform.[30]

Establishing a MIC may be an attractive solution to the flaws of the current ISDS regime, by resolving a number of procedural issues such as transparency and accountability as well as ensuring the development of clear legal standards that can be applied consistently in similar cases. However, any MIC proposal would have to address controversial issues such as how costs will be allocated, how judges will be appointed and how the interests of all relevant investment stakeholders will be represented. Developing countries are already dissatisfied with the ISDS regime due to its exorbitant costs, impartiality and legitimacy concerns. Therefore, a MIC that balances the flexibility needed to satisfy all stakeholders while still offering the predictability that the current ISDS regime is lacking will not come into being without significant difficulty.

International processes such as UNCITRAL Working Group III on ISDS reform should be seized as opportunities to foster the cooperation of all stakeholders—including governments, communities and individuals, and investors[31]—in developing solutions for the issues identified in the ISDS regime and ensuring that it does not hinder states’ right to regulate to achieve sustainable development objectives.


Isabella Reynoso holds an LL.M. in International Legal Studies from NYU and an LLB from King’s College London. She will begin her Training Contract at White & Case London in September 2019.


[1] Cosbey, A. (2017, April). Can investor–state dispute settlement be good for the environment? Retrieved from

[2] Hendel, C. (2017, July 27). Squaring the circle: Reconciling the conflicting awards in the Eiser and Isolux Spanish renewable cases (Part I). Kluwer Arbitration Blog. Retrieved from

[3] Charanne and Construction Investments v. Spain, SCC Case No. V 062/2012, Award, January 21, 2016. Retrieved from

[4] Ibid., para 5.

[5] Ibid., paras. 280, 283–284.

[6] Eiser Infrastructure Ltd. and Energia Solar Luxembourg v. Spain, ICSID Case No. ARB/13/36, Award, May 4, 2017. Retrieved from See also Schacherer, S. (2018, October 18). Eiser v. Spain. In N. Bernasconi-Osterwalder & M. D. Brauch. (Eds.) International investment law and sustainable development: Key cases from the 2010s. Retrieved from; Issac, G. (2017, September 26). Investors triumph over Spain in a claim concerning Spain’s regulatory overhaul for clean energy. Investment Treaty News, 8(3), 17–18. Retrieved from

[7] Isolux Netherlands, BV v. Kingdom of Spain, SCC Case V2013/153, Final Award, July 17, 2016. Retrieved from See also Arietti Lopez, C. M. (2017, September 26). All claims by Isolux Infrastructure Netherlands against Spain are dismissed. Investment Treaty News, 8(3), 13–14. Retrieved from

[8] Novenergia II – Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. The Kingdom of Spain, SCC Case No. 2015/063, Final Arbitral Award, February 15, 2018. Retrieved from See also Issac, G. (2018, July 30). Luxembourg fund awarded EUR 53.3 million for FET breach arising out of Spain’s curtailment of renewable energy incentive schemes. Investment Treaty News, 9(2), 28–29. Retrieved from

[9] Charanne, supra note 3, para. 504.

[10] Novenergia, supra note 8, para. 650; Power, R. (2018, March 20). Novenergia v. Kingdom of Spain, the ECT and the ECJ: Where to now for intra-EU ECT claims? Kluwer Arbitration Blog. Retrieved from

[11] Novenergia, supra note 8, para. 674.

[12] Eiser, supra note 6, paras. 513–516.

[13] Isolux, supra note 7, para. 822.

[14] Charanne, supra note 3, para. 515.

[15] Ibid., para. 517.

[16] Novenergia, supra note 8, para. 681.

[17] Power (2018), supra note 10.

[18] Eiser, supra note 6, para. 368.

[19] Ibid., para. 418.

[20] Isolux, supra note 7, para. 823 (translated by the author).

[21] Eiser, supra note 6, para. 391.

[22] Ibid., para. 371.

[23] Charanne and Construction Investments v. Spain, SCC Case No. V 062/2012, Dissenting Opinion of Prof. Guido Santiago Tawil, January 21, 2016, p. 4–5. Retrieved from

[24] Ibid, p. 9.

[25] Ibid, p. 11.

[26] IISD. (2012). Investment treaties and why they matter to sustainable development: Questions and answers. Winnipeg: IISD. Retrieved from

[27] See, for example, Van Harten, G. (2008, September 1). Commentary: A case for an international investment court. Investment Treaty News. Retrieved from

[28] ITN. (2015, November 26). Investment Court System proposed by European Commission. Investment Treaty News, 6(4), 12. Retrieved from

[29] ITN. (2018, April 24). Council of the European Union adopts negotiating directives: EU Commission to negotiate a convention establishing a multilateral investment court. Investment Treaty News, 9(1), 13. Retrieved from

[30] Brauch, M. D. (2018, December 21). Multilateral ISDS reform is desirable: What happened at the UNCITRAL meeting in Vienna and how to prepare for April 2019 in New York. Investment Treaty News, 9(4), 4–7. Retrieved from

[31] IISD. (2017, March). Reply to the European Commission’s public consultation on a multilateral reform of investment dispute resolution. Winnipeg: IISD. Retrieved from