Blusun S.A. and others v Italy: Legal (in)stability and renewable energy investments

AuthorFernando Dias Simões
Published date01 November 2017
Date01 November 2017
RECIEL. 2017;26:298–304.
DOI: 10.1111/reel.12218
Blusun S.A. and others v Italy: Legal (in)stability and renewable
energy investments
Fernando Dias Simões
© 2017 John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
Email: Blusun S.A. and others v Italy is one of the latest arbitral awards in a torrent of disputes
concerning the modification of incentives in the renewable energy market. The tribu-
nal ruled in favour of Italy, reaffirming the power of host States to change regulations
to adapt to new needs and elucidating the connection between the concept of ‘legal
stability’ and investors’ ‘legitimate expectations’. However, a few months later, in Eiser
v Spain, another tribunal ruled in favour of investors, emphasizing that States’ regula-
tory powers are not absolute, and drastic legislative changes might breach investment
protection obligations. The existence of contrasting outcomes in these cases under-
lines the importance of monitoring the gradual evolution of this sprouting segment of
jurisprudence. While each award is closely connected to its specific legal and factual
context, this stream of rulings is slowly contributing to clarify the limits to host States’
regulatory freedom in the renewable energy sector.
Over the last years, a sizeable number of investors have impugned
governmental measures reducing or abolishing economic incentives in
the renewable energy market.1 The Energy Charter Secretariat defines
the subject matter of most of these disputes as ‘legal reforms affecting
the renewable energy sector’.2 Indeed, measures adopted by host
States in the exercise of their regulatory powers may diminish or ex-
haust the commercial viability of investments, frustrating the expect-
ations of investors and potentially negatively impacting the renewable
energy market.
Arguably, regulatory stability is of paramount importance for
every investor in every sector, and the energy sector is no exception.
What is exceptional is ‘the level and pace of investments required by
the ongoing transition toward low- carbon energy systems’.3 Investors
are increasingly concerned with the stability of the regulatory frame-
work, and in particular with the steady flow of economic support
mechanisms throughout the lifespan of their investments.4
International investment law has long attempted to strike the deli-
cate balance between foreign investors’ confidence in the regula-
tions that underpin their long- term investments and the host State’s
right to adapt regulations to new circumstances.5 In all of these
cases, the gist of the question is whether investors can seek compen-
sation under international investment treaties when governments
encourage investments via economic support schemes, but decide to
reduce or eliminate them after the investment has been effected.6 In
other words, what kind of legal stability should exist in the renewable
energy market?
The answer to this question is gradually emerging from the
decisions of arbitral panels. As of August 2017, four cases had been
decided: Charanne and Construction Investments v Spain;7 Isolux
1See F Dias Simões, ‘Charanne and Construction Investments v Spain: Legitimate Expectations
and Investments in Renewable Energy’ (2017) 26 Review of European, Comparative and
International Environmental Law 174.
2See Energy Charter Secretariat, ‘List of all Investment Dispute Settlement Cases’>.
3G Bellantuono, ‘The Misguided Quest for Regulatory Stability in the Renewable Energy
Sector’ (2017) 10 Journal of World Energy Law and Business 274.
4C Patrizia et al, ‘Investment Disputes Involving the Renewable Energy Industry Under the
Energy Charter Treaty’ (2017) Global Arbitration Review
5See R Dolzer and C Schreuer, Principles of International Investment Law (Oxford University
Press 2008) 145–149.
6See generally F Dias Simões, ‘When Green Incentives go Pale: Investment Arbitration and
Renewable Energy Policymaking’ (2017) 45 Denver Journal of International Law and Policy
7Charanne and Construction Investments v Spain (Stockholm Chamber of Commerce, Case No
62/2012), award of 21 January 2016.
Infrastructure Netherlands B.V. v Spain;8 Blusun S.A., Jean-Pierre Lecorcier
and Michael Stein v Italy (the investors have applied for annulment of
the award);9 and Eiser Infrastructure Limited and Energía Solar
Luxembourg S.à r.l. v Spain (Spain’s application for annulment is pending
at the time of writing).10 A large number of other cases are yet to be
This case note analyses the most important aspects of the Blusun
award and discusses its relevance for pending cases. While there is no
doctrine of binding jurisprudence in international investment arbitra-
tion, a strong, persuasive system of precedent has developed over the
last decades.11 Other tribunals may find the reasoning of this case rele -
vant, namely the guidance it offers on the concept of legal stability.
Still, the existence of contrasting verdicts in the cases decided thus far
(ruling in favour of respondent States in the first three awards, but in
favour of investors in the latter) underlines the importance of monitor-
ing the gradual evolution of this sprouting segment of jurisprudence
on a case- by- case basis. While each award is closely connected to its
specific legal and factual context, this stream of rulings contributes to
clarifying the limits to host States’ regulatory freedom in the renew-
able energy sector.
The claimants – Blusun S.A. (a Belgian company), Jean- Pierre Lecorcier
(a French national who owned 66 percent of Blusun) and Michael
Stein (a German national who owned 34 percent of Blusun)12 – made
investments in a failed 120- megawatt solar energy project in the
Puglia region of Italy.13 The dispute arose because of the so- called
spalmaincentivi reform’ implemented by the Italian government to re-
duce incentives previously granted to producers of renewable en-
ergy.14 The investors maintained that there was a causal link between
measures adopted by various public authorities and the project’s fail-
ure. Because of the legal insecurity created by the Italian State, inves-
tors were unable to attract construction project financing.15 Investors
argued that such measures breached the standards of investor
protection contained in the Energy Charter Treaty (ECT)16 – namely,
fair and equitable treatment17 and the prohibition of expropriation18
– causing damages of around €187.8 million.19 Italy contended that
there was no causal link between the challenged measures and the
project’s outcome and that, in any case, its behaviour did not consti-
tute a violation of the ECT rules.20
Investors frequently use the fair and equitable treatment standard as
the basis for their claims.21 However, the precise content of this
standard depends on the language used in investment treaties.22 Still,
arbitral tribunals and scholars generally agree that transparency, sta-
bility, non- discrimination, due process and investors’ legitimate ex-
pectations are all key ingredients in defining the fair and equitable
standard.23 The investors claimed that Italy breached the fair and
equitable treatment standard in two ways: first, by failing to create
stable, equitable, favourable and transparent conditions in the energy
sector; and second, by frustrating their legitimate expectations.24
According to the investors, Italy’s failure to ensure legal stability
was the immediate cause of the project’s demise.25 They presented
their case as follows:
[o]ur claim is not that Italy’s legislation had to remain im-
mutable, unchanged, written in stone. This case is not
about regulatory change; it’s about regulatory turbulence.
It concerns the fact that during the two years between
8Isolux Infrastructure Netherlands B.V. v Spain (Stockholm Chamber of Commerce, Case No
2013/153), award of 12 July 2016.
9Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v Italy (International Centre for Settlement
of Investment Disputes, Case No ARB/14/3), award of 27 December 2016.
10Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. v Spain (International Centre
for Settlement of Investment Disputes, Case No ARB/13/36), award of 4 May 2017.
11S Schill, ‘International Investment Law and Comparative Public Law – An Introduction’ in S
Schill (ed), International Investment Law and Comparative Public Law (Oxford University Press
2010) 3, 18.
12Blusun and others v Italy (n 9) paras 1–4.
13ibid para 6.
14See V Vadi, ‘Beyond Known Worlds: Climate Change Governance by Arbitral Tribunals?’
(2015) 48 Vanderbilt Journal of Transnational Law 1285, 1324; S Faccio, ‘The Italian Energy
Reform as a Source of International Investment Disputes’ (2016) 2 Rivista di Diritto
Internazionale Privato e Processuale 460, 463–467. See also D Behn and O Fauchald,
‘Governments under Cross- fire? Renewable Energy and International Economic Tribunals’
(2015) 12 Manchester Journal of International Economic Law 117, 124–126; J Tirado,
‘Renewable Energy Claims under the Energy Charter Treaty: An Overview’ (2015) 13 Oil, Gas
and Energy Law Intelligence 1, 8–11; Patrizia et al (n 4).
15Blusun and others v Italy (n 9) para 310.
16The Energy Charter Treaty (adopted 17 December 1994, entered into force 16 April 1998)
2080 UNTS 95 (ECT) is a multilateral treaty that establishes a legal framework to promote
long- term cooperation in the energy field. See ‘The International Energy Charter: Consolidated
Energy Charter Treaty with Related Documents’
DocumentsMedia/Legal/ECTC-en.pdf>. Italy formally denounced the ECT on 31 December
2014, with effect from 1 January 2016. The request for arbitration was registered much
earlier – see Blusun and others v Italy (n 9) para 6. Furthermore, under ECT art 47(3), the treaty
will continue to apply to investments made before the withdrawal date for a period of a fur-
ther 20 years. See A De Luca, ‘Renewable Energy in the EU, the Energy Charter Treaty, and
Italy’s Withdrawal Therefrom’ (2015) 12 Transnational Dispute Management; and T Voon and
A Mitchell, ‘Denunciation, Termination and Survival: The Interplay of Treaty Law and
International Investment Law’ (2016) 31 ICSID Review 413.
17ECT (n 16) art 10(1): ‘[e]ach Contracting Party shall, in accordance with the provisions of this
Treaty, encourage and create stable, equitable, favourable and transparent conditions for
Investors of other Contracting Parties to make Investments in its Area. Such conditions shall
include a commitment to accord at all times to Investments of Investors of other Contracting
Parties fair and equitable treatment.…’
18ibid art 13(1): ‘[i]nvestments of Investors of a Contracting Party in the Area of any other
Contracting Party shall not be nationalised, expropriated or subjected to a measure or meas-
ures having effect equivalent to nationalisation or expropriation … except where such
Expropriation is: (a) for a purpose which is in the public interest; (b) not discriminatory; (c)
carried out under due process of law; and (d) accompanied by the payment of prompt, ad-
equate and effective compensation.…’
19Blusun and others v Italy (n 9) paras 6, 48.
20ibid para 50(d).
21See Dolzer and Schreuer (n 5) 130ff.
22See C Schreuer, ‘Fair and Equitable Treatment (FET): Interactions with Other Standards’ in
G Coop and C Ribeiro (eds), Investment Arbitration and the Energy Charter Treaty (JurisNet
2008) 63, 65ff.
23See Dolzer and Schreuer (n 5) 119ff.
24Blusun and others v Italy (n 9) para 158.
25ibid para 310.
permissible and legally impossible, the legal framework for
the project constantly changed, leaving no period of stabil-
ity in which the requisite capital investment for a project of
this size could be realised.26
In the investors’ view, the measures adopted by the Italian State
breached the obligation to encourage and create stable, equitable, fa-
vourable and transparent conditions for investors.27 Italy contended
that because there was no causal link between its conduct and the
failure of the claimants’ project, any further analysis in terms of fair
and equitable treatment was ‘superfluous’. 28
The tribunal started by recalling that several tribunals have held
that the fair and equitable treatment standard also includes the obli-
gation to create stable conditions,29 and that the claim of legal in-
stability is covered by Article 10(1) of the ECT.30 The arbitral panel
devoted particular attention to the award in Charanne v Spain as the
first of many pending ‘green energy’ cases to be decided on the merits
under the ECT.31 It noted that Charanne was not really a ‘legal stabil-
ity’ claim, as later legislative developments were beyond the tribunal’s
jurisdiction.32 Still, the tribunal highlighted an important conclusion
of the Charanne award: that the laws are subject to reasonable change
consistently with the fair and equitable treatment standard and that
there can be no legitimate expectation to the contrary.33
The distinction between a ‘regulatory standard’ and ‘a specific
commitment of the State’ drawn in the Charanne award was also re-
asserted.34 The Blusun tribunal noted that the fair and equitable treat-
ment standard ‘preserves the regulatory authority of the host State to
make and change its laws and regulations to adapt to changing needs,
including fiscal needs, subject to respect for specific commitments
made’,35 and that ‘[i]n the absence of a specific commitment, the State
has no obligation to grant subsidies such as feed- in tariffs, or to main-
tain them unchanged once granted’.36
However, the tribunal added that, if subsidies are lawfully
granted and if it becomes necessary to modify them, this should be
done in a manner which is not ‘disproportionate to the aim of the
legislative amendment’ and with due regard to the ‘reasonable reli-
ance interests of recipients who may have committed substantial
resources on the basis of the earlier regime’.37 In the specific circum-
stances of the case, the tribunal concluded that none of the ele-
ments identified by investors as creating legal instability had
breached the fair and equitable treatment standard.
First, the investors claimed that a decision of the Italian Constitutional
Court was not sufficiently clear and had created uncertainty in the mar-
ket.38 The tribunal held that, while this decision may have contributed to
some initial market uncertainty, it had never created doubts about the
applicable legal regime.39 By continuing with their investments despite
the pending constitutional challenge, the investors took the risk that it
might be upheld and cause delay to their project.40
Second, the investors complained that two legislative decrees had
introduced a substantial reduction in feed- in tariffs, which in their view
constituted ‘a sudden and important change in approach for solar proj-
ects in development’,41 ‘prolonged uncertainty’ and ‘disrupted its nego-
tiations with potential investors’. 42 The tribunal however found that
these changes responded to ‘genuine fiscal need’,43 maintained the
principle of guaranteed tariffs for a 20- year period44 and the criter ion
for qualification for feed- in tariffs,45 as well as a reasonable grace
period for grid connection to preserve the pre- existing tariff level.46 In
sum, the tribunal did not find the new legislation to be disproportion-
ate or in violation of specific commitments made to investors.47
Finally, the investors complained about a series of inspections that
led to a stop- work order,48 which they saw as ‘the final blow’ to the
project.49 The tribunal held that the stop- work order did not create
any legal instability because it was temporary, legally motivated, and
dealt with by due process of law and with reasonable promptness.50
The order was not arbitrary or discriminatory, but fell well ‘within the
range of legal risk of an industrial enterprise, in particular one based on
debatable regulatory grounds’.51
The investors posited that these events should be evaluated in an
aggregate rather than in an isolated manner.52 The tribunal admitted that
the fair and equitable treatment standard ‘could be breached by a single
transformative act aimed at an investment, or by a program of more
minor measures, or by a series of measures taken without plan or coord-
ination but having the prohibited effect’.53 However, relying on previous
decisions, the tribunal noted that the fair and equitable treatment stand-
ard, which includes the obligation of stability, has a ‘relatively high thresh-
old’, putting the emphasis on the ‘subversion of the legal regime’.54 In the
tribunal’s view, the various acts under analysis did not breach this stan-
dard in aggregate any more than they did individually.55
26ibid para 320.
27ibid paras 162, 313.
28ibid paras 174–182.
29ibid para 315(c).
30ibid para 316.
31ibid para 317.
35ibid para 319(4).
36ibid para 319(5).
38ibid paras 162(a), 322–328.
39ibid para 329(c).
40ibid para 329(e).
41ibid para 162(b). See also paras 102–105, 331–341.
42ibid para 162(c).
43ibid para 342(a).
44ibid para 342(c).
45ibid para 342(d).
46ibid para 342(e).
47ibid para 343.
48ibid para 162(d).
49ibid para 351. See also paras 352–359.
50ibid para 360. See also para 364.
51ibid para 360. See also para 268.
52ibid paras 162, 361.
53ibid para 362.
54ibid para 363.
55ibid para 364.
Since the investors claimed that the principal reason for the failure
of their project was legal instability, the tribunal also discussed at length
the issue of causation,56 concluding that the project was exposed to sig-
nificant risk of legal or administrative difficulties.57 The project had failed
to obtain substantial and timely financing, and, as investors ended up
admitting, this was the proximate cause of its demise.58 In sum, the in-
vestors failed to demonstrate that the Italian State’s measures were the
effective cause of the project’s failure.59 The absence of a solid causal
link, the tribunal concluded, would in any case have resulted in the rejec-
tion of the claim for breach of the fair and equitable treatment
The investors also claimed that Italy breached the fair and equitable
treatment standard by frustrating their legitimate expectations.61 In
their view, the Italian government made multiple representations that
gave rise to legitimate, reasonable expectations,62 but later adopted
measures that contradicted such representations, thus affecting their
investments.63 Italy contended that, since there was no causal link be-
tween its conduct and the failure of the claimants’ investments, it made
no sense to discuss their expectations;64 and that, in any case, the
invest ors’ expectations were not legitimate since its regulations were
The tribunal held that the investors’ expectation that the legislative
framework would be maintained for the term envisaged would have ‘the
effect of treating the law as not a general command but an individual
commitment, at least where the law is enacted for the benefit of a deter-
minate class of persons’.66 The arbitral panel noted that several tribunals
have repeatedly ‘declined to sanctify laws as promises’,67 quoting directly
from the Charanne award when it stated that investors cannot legitim-
ately expect that regulatory frameworks will remain unchanged, unless
there is a specific commitment towards stability.68 The tribunal also drew
on the award in El Paso Energy International Company v Argentina when it
declared that it would be unreasonable for investors to believe that legis-
lation will remain frozen regardless of changing circumstances.69 Finally,
the tribunal quoted the recent award in Philip Morris v Uruguay, which
stated that legitimate expectations depend on specific commitments
made by the host State, and that general laws do not create such
The Blusun tribunal added the following considerations about the
formation of legitimate expectations in the renewable energy market:
International law does not make binding that which was
not binding in the first place, nor render perpetual what
was temporary only. In the present case, the expectations
are even less powerful because European law had already
lowered them: it was clear that the incentives offered were
subject to modification in light, inter alia, of changing costs
and improved technology.71
The tribunal held that, in the absence of a specific commitment,
States have no obligation to grant subsidies or to maintain them un-
changed.72 However, there is an exception to this rule: if subsidies are
granted, and it becomes necessary to modify them, States should do
so in a way that is ‘not disproportionate to the aim of the legislative
amendment’ and take into account ‘the reasonable reliance interests
of recipients who may have committed substantial resources on the
basis of the earlier regime’.73
The tribunal added that investors’ reasonable market expectation
as to some state of affairs ‘is not a basis for shifting risks to the public
sector’, as circumstances change and, in the absence of specific com-
mitments, ‘the risk of change is for entrepreneurs to assess and as-
sume’.74 Since Italy did not make any special commitment to investors
with respect to the extension and operation of feed- in tariffs, or spe-
cifically undertook that relevant laws would remain unchanged, the
tribunal concluded that it had not breached the investors’ legitimate
The investors also claimed that Italy’s measures had an effect
equiva lent to nationalization or expropriation, prohibited by Article
13 of the ECT.76 More specifically, they maintained that measures
enacted by the Italian authorities had resulted in the indirect expro-
priation of the investment, leading to a total loss of value:77 the land
56ibid paras 375–393.
57ibid para 386.
58ibid para 387. See also para 310.
59ibid para 394.
61ibid para 158. See also paras 163 and 164.
62ibid paras 165–168.
63ibid para 167.
64ibid paras 174, 175–182.
65ibid paras 183–187.
66ibid para 365. See also para 366.
67ibid para 367.
68ibid, quoting Charanne v Spain (n 7) para 510.
69Blusun and others v Italy (n 9) para 368, quoting El Paso Energy International Company v
Argentina (ICSID Case No ARB/03/15), award of 31 October 2011 para 372.
70Blusun and others v Italy (n 9) para 369, quoting Philip Morris Brands Sàrl, Philip Morris
Products S.A. and Abal Hermanos S.A. v Uruguay (ICSID Case No ARB/10/7), award of 8 July
2016 para 426. See also CE Foster, ‘Respecting Regulatory Measures: Arbitral Method and
Reasoning in the Philip Morris v Uruguay Tobacco Plain Packaging Case’ (2017) 26 Review of
European, Comparative and International Environmental Law 287.
71Blusun and others v Italy (n 9) para 371.
72ibid para 372.
74ibid para 373.
75ibid para 374.
76ibid para 169. See Energy Charter Secretariat, ‘Expropriation Regime under the Energy
Charter Treaty’ (Energy Charter Secretariat 2012). See also A Reinisch, ‘Expropriation’ in P
Muchlinski, F Ortino and C Schreuer (eds), The Oxford Handbook of International Investment
Law (Oxford University Press 2008) 407; United Nations Conference on Trade and
Development (UNCTAD), ‘Expropriation: UNCTAD Series on Issues on International
Investment Agreements’ (UNCTAD 2012) 5–12.
77Blusun and others v Italy (n 9) para 170.
could no longer be used for that purpose, the infrastructure built
served no purpose, the authorizations received were now invalid or
useless and there was no other possible economic use for these
assets.78 Furthermore, several companies associated with the pro-
ject were facing bankruptcy and liquidation.79 Italy contended that
there had been no expropriation since there was no causal link be-
tween its measures and the failure of the project.80 Furthermore,
even if such link existed, the measures adopted by Italy would fall in
the category of non- compensable ‘regulatory takings’, because they
were adopted in a non- discriminatory manner and aimed at regulat-
ing a matter of public interest.81
The tribunal found that Italy had significantly changed the
applic able legal framework through ‘non- discriminatory laws osten-
sibly passed in the public interest’.82 The situation was therefore not
analogous, still less tantamount, to expropriation.83 In the tribunal’s
view, the difficulty with the investors’ argument lay in the assump-
tion that the investors were entitled to fully benefit from feed- in
tariffs even without complying with the conditions set out in the
law.84 The tribunal noted that the original value of the land had been
retained after the project’s failure and that the investors’ argument
would have only been valid if there was a completed project already
entitled to the benefit of feed- in tariffs.85
In the tribunal’s view, the investors had failed to demonstrate
that any part of the investment was subject to expropriation or a
similar situation since they never lost title to the land and the pre-
mium paid for it was at the investors’ risk and not opposable to
Italy.86 In the tribunal’s words, ‘Blusun had no right or legitimate
expectation to the enhanced value of the land on the footing
that the Project would succeed’.87 The majority of the tribunal
therefore concluded that the expropriation claim should also be
rejected.88 Arbitrator Stanimir Alexandrov disagreed, arguing that
Blusun acquired agricultural land at a premium, but that its value
decreased because of the restrictions imposed by Italy. In
Alexandrov’s words,
[w]hile one might accept the proposition that Blusun could
have reasonably expected that the tariff regime would
change over time (and thus should have accelerated the
construction of the plants), it could not have reasonably
expected that the government would impose a restriction
on the use of the land. That restriction is therefore
Arbitration claims relating to renewable energy investments have
thus far focused on two standards of protection: the fair and equit-
able treatment standard and the prohibition of expropriation. This was
also the case in Blusun and others v Italy. The most noteworthy aspects
of the award have to do with the interpretation of the first standard,
namely as regards the concept of ‘legal stability’ and the definition of
investors’ ‘legitimate expectations’.
The Blusun tribunal reaffirmed that the idea of ‘legal stability’ is
part of the concept of fair and equitable treatment. The investors
claimed that Italy’s failure to ensure legal stability was the immediate
cause of the project’s failure. In Charanne, investors had also claimed
that, by altering the regulatory framework, Spain had subjected their
investments to ‘regulatory instability’.90 However, in that arbitration
the investors limited their claims to legislative measures enacted in
2010, thus excluding subsequent legislation from the scope of the
proceedings.91 Because it is not a proper legal stability claim, the
Charanne award has limited application to cases where the legislative
framework has evolved.92 While acknowledging this fundamental dif-
ference between the cases,93 the Blusun tribunal drew inspiration
from Charanne to determine whether each one of the different meas-
ures impugned by investors resulted in the lack of stability of the reg-
ulatory framework. This is particularly noticeable as regards the
distinction between ‘regulatory standards’ and ‘specific commit-
ments’.94 The Blusun tribunal was required to go farther than the
Charanne tribunal in drawing the line between the regulatory power
of host States to adapt to changing needs and situations where the
respect for specific commitments justifies the protection of reason-
able expectations. The tribunal also examined the issue of causation
in significant detail, concluding that the proximate cause for the pro-
ject’s demise was financial problems, not legislative changes. As re-
gards the assessment of investors’ legitimate expectations, the Blusun
tribunal underlined that in the absence of a specific commitment, in-
vestors cannot have a legitimate expectation that existing rules will
remain unchanged. Furthermore, the Blusun award offers some inter-
esting reflections on the process of formation of legitimate expect-
ations in the renewable energy market:95 unless the State makes
specific commitments to investors, they should assess and bear the
risk of change.96 The recent award in Isolux v Spain97 seems to consoli-
date this trend.98 The tribunal was asked to assess the legality of sev-
eral legislative developments that occurred in Spain. Despite the
severity of those changes, and the fact that investors’ investments
80ibid para 189.
81ibid para 190.
82ibid para 401.
84ibid para 402.
86ibid para 407.
87ibid. See also para 408.
88ibid para 409.
89ibid para 148, fn 659.
90Charanne v Spain (n 7) paras 479–480.
91ibid paras 452 and 481–483.
92A Keene, ‘International Investment Developments’ (2017) 28 Yearbook of International
Environmental Law 9.
93Blusun and others v Italy (n 9) para 317.
95ibid para 371.
96ibid para 373.
97Isolux v Spain (n 8).
98D Behn, OK Fauchald and L Létourneau- Tremblay, ‘Promoting Renewable Energy in the EU:
Shifting Trends in Member State Policy Space’ (2017) 28 European Business Law Review 217.
were rendered totally unprofitable, the tribunal dismissed their
However, the jurisprudence is in flux. In May 2017, the award in Eiser
v Spain100 broke this seemingly unidirectional stream of decisions, by
awarding investors compensation of €128 million plus interest. According
to the tribunal, while the fair and equitable treatment standard does not
give a right to regulatory stability per se,101 it does ‘protect investors from
a fundamental change to the regulatory regime in a manner that does not
take account of the circumstances of existing investments made in reli-
ance on the prior regime’.102 Spain had eliminated a favourable regulatory
regime previously extended to investors, replacing it with an unprece-
dented and wholly different regulatory approach, based on completely
different premises. The tribunal found this new system to be ‘profoundly
unfair and inequitable … stripping Claimants of virtually all of the value of
their investment’.103 The tribunal analysed legislative changes introduced
between 2013 and 2014, and thus not covered by the Charanne award,
emphasizing that the ‘factual and legal situation’ differed ‘fundamen-
tally’,104 as the measures challenged by investors ‘had far less dramatic
effects’105 in Charanne. In Eiser, the regulatory changes had a ‘devastating’
effect on the investments.106 The tribunal recalled that ‘the proportional-
ity requirement is fulfilled inasmuch as the modifications are not random
or unnecessary, provided that they do not suddenly and unexpectedly
remove the essential features of the regulatory framework in place’,107
concluding that Spain ‘faced a legitimate public policy problem with its
tariff deficit’.108 While the tribunal did not question the appropriateness
of measures adopted by the Spanish authorities to address the situation,
it noted that Spain had to act in a way that respected its obligations under
the ECT, including that to accord fair and equitable treatment to
The tribunal added that the fair and equitable treatment standard
necessarily embraces an obligation to provide fundamental
stability in the essential characteristics of the legal regime
relied upon by investors in making long- term investments.
This does not mean that regulatory regimes cannot evolve.
Surely they can. […] However, the … obligation to accord
fair and equitable treatment means that regulatory regimes
cannot be radically altered as applied to existing invest-
ments in ways that deprive investors who invested in reli-
ance on those regimes of their investment’s value.110
The tribunal’s meticulous discussion of the limits of the right to regu-
late in light of the particular facts of the case (carefully distinguishing it
from the factual and legal context of Charanne) may provide important
guidance for pending disputes.111
Over the last few years, investment arbitration has become the last
frontier of climate change- related disputes.112 Many of the pending
arbitral proceedings arise out of fairly similar measures adopted by
host States, namely the modification or extinction of economic sup-
port mechanisms. Host States intervene because the regulation of en-
ergy production, distribution and consumption is a key element of
national economic law and policy.113 Such measures are justified by
the protection of fundamental public interests and may become par-
ticularly frequent in times of budgetary hardship.114 Economic incen-
tive schemes such as feed- in tariffs promise a certain level of return to
investors in exchange for their heavy investments upfront, entailing a
certain degree of certainty and predictability.115 While regulatory
frameworks vary from country to country, the cases against Italy illus-
trate the tension between the stability of economic support mechan-
isms and the need to adapt to changing circumstances.116
In pending cases, respondent States will most likely invoke the
higher threshold for breaches of the fair and equitable treatment
standard, as set in the Charanne, Blusun and Isolux awards. Inversely,
investors will probably try to demonstrate that host States have
crossed the red line drawn in the Eiser award. All four decisions al-
ready available offer a sort of roadmap for arbitral panels faced with
regulatory changes in renewable energy markets. They all converge
in confirming that host States’ regulatory powers are not absolute
and that drastic legislative changes may breach investment protec-
tion standards. Albeit at a first glance these decisions seem to reach
to diametrically opposed conclusions, this is but a reminder that the
outcome of each dispute is deeply dependent on the specific regula-
tory framework under analysis and on how abruptly it evolves through
time. Furthermore, different tribunals may hold diverging views on the
100Eiser v Spain (n 10).
101ibid para 362.
102ibid para 363.
103ibid para 365, footnotes omitted. Besides a violation of the fair and equitable treatment
standard, the investors also invoked the prohibition of expropriation, impairment by unrea-
sonable measures (ECT art 10(1)) and failure to honour undertakings entered into with their
investments (ECT art 10(1)); see Eiser v Spain (n 10) para 352. Invoking reasons of judicial
economy, the tribunal restricted its analysis to the fair and equitable treatment claim (ibid
paras 353–356).
104ibid para 367.
105ibid para 368. For a brief account of the evolution in Spanish legislation, see C Hendel,
‘Before the Other Shoe Drops: The Current State of Renewable Energy Arbitration in Spain’
EFILA Blog (22 September 2015)
106Eiser v Spain (n 10) para 409.
107ibid para 370, quoting Charanne v Spain (n 7) para 517.
108Eiser v Spain (n 10) para 371.
110ibid para 382.
111C Hendel, ‘Before the Other Shoe Drops (II): The First ICSID Final Award in the Spanish
Renewable Energy Arbitration Saga Finds for the Investors – Crossing the Line?’ (19 May
112Vadi (n 14) 1315.
113M Krajewski, ‘The Impact of International Investment Agreements on Energy Regulation’ in
C Herrmann and J Terhechte (eds), European Yearbook of International Economic Law (Springer
2012) 343, 345.
114Vadi (n 14) 1318.
115A Kent, ‘Renewable Energy Disputes Before International Economic Tribunals: A Case for
Institutional “Greening”?’ (2015) 12 Transnational Dispute Management 1, 9.
116Bellantuono (n 3) 276.
parameters of ‘legal stability’ and on where exactly to draw the line be-
tween States’ right to regulate and adjust to evolving needs; and the
respect for regulatory stability and legitimate expectations. It remains
to be seen to what extent the Eiser decision will be a game changer
and influence other tribunals adjudicating similar claims. Because the
body of case law is still quite limited, arbitral panels are likely to pay
careful attention to the decisions already made public. More awards
can be expected in the coming months, hopefully contributing to de-
fine in a more consistent and clear manner the parameters that delimit
host States’ regulatory freedom in the renewable energy sector.
Arbitration claims arising from the reversal of incentives intended
to encourage investment in renewable energies have skyrocketed in
recent years. One commentator even suggests that they can become
‘the new Black Swan in the investment arbitration world’.117 While in
the past investors have challenged legislative measures because they
affected environmentally detrimental investments, now they are im-
pugning decisions that weaken or eliminate ‘green’ regulations and in-
centives.118 The standards of investor protection are being used as a
‘shield to protect climate change mitigation measures’.119 This novel
phenomenon can be seen from two different perspectives. From an
optimistic standpoint, those standards can help to protect and even
encourage investments in the renewable energy market.120 If that is
the case, the infamous ‘regulatory chill’ of the past would now be a
good thing, ‘freezing’ States’ intentions to revoke economic support
mechanisms and giving greater certainty and predictability to
investors.121 From a less positive viewpoint, it can be argued that
States may henceforth hesitate to devise and implement new eco-
nomic support mechanisms, for fear of investment disputes if they
later feel the need to reduce or eliminate them.122 One thing is certain:
the renewable energy market will never be the same. It is thus essen-
tial to monitor evolutions in the investment arbitration case law and
assess its impact on the sector.
How to cite this article: Dias Simões F. Blusun S.A. and others v
Italy: Legal (in)stability and renewable energy investments.
RECIEL. 2017;26:298–304.
117I Dimitrov, ‘Legitimate Expectations in the Absence of Specific Commitments According to
the Findings in Blusun v Italy: Is there Inconsistency Among the Tribunals in the Solar Energy
Cases?’ Kluwer Arbitration Blog (18 August 2017)
118Dias Simões (n 6) 261–262; Keene (n 92) 7.
119Vadi (n 14) 1318. See also Keene (n 92) 1.
120D Rivkin, S Lamb and N Leslie, ‘The Future of Investor–State Dispute Settlement in the
Energy Sector: Engaging with Climate Change, Human Rights and the Rule of Law’ (2015) 8
Journal of World Energy Law and Business 130, 152.
121Kent (n 115) 11.
122Keene (n 92) 7.
Fernando Dias Simões, LLB (University of Coimbra), LLM
(University of Glasgow), PhD (University of Santiago de
Compostela) is Associate Professor at the Faculty of Law of the
University of Macau (China). He is also Senior Research Fellow at
University Institute of European Studies – IUSE, Turin (Italy) and
Senior Research Associate at gLAWcal – Global Law Initiatives for
Sustainable Development (United Kingdom).

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