Charanne and Construction Investments v. Spain: Legitimate Expectations and Investments in Renewable Energy

Published date01 July 2017
AuthorFernando Dias Simões
Date01 July 2017
Case Note
Charanne and Construction Investments v. Spain:
Legitimate Expectations and Investments in
Renewable Energy
Fernando Dias Sim~
The award in Charanne and Construction Investments
v. Spain is the first decision in a growing cluster of
investment arbitrations relating to the enactment of
legislative measures reducing or withdrawing eco-
nomic support mechanisms previously introduced in
support of renewable sources of energy. These disputes
raise the question of whether investors can seek com-
pensation under investment treaties when govern-
ments encourage investment via economic support
schemes, but decide to reduce or eliminate them after
the investment has been made. This case note focuses
on the most noteworthy aspects of the Charanne deci-
sion: the requirements for breach of the standards of
investment protection (namely, the prohibition of
expropriation and the fair and equitable treatment
standard); and the conditions for the protection of the
investorslegitimate expectations. The conclusions
reflect on the tribunals finding that in the absence of
specific commitments, international investment law
does not require States to freeze regulatory frame-
Over the last decade, arbitration proceedings arising
from disputes in the energy sector have become com-
monplace. A particularly noteworthy event was the
emergence, over the last four years, of a wave of invest-
ment arbitrations impugning the legality of host States
legislative measures reducing or withdrawing economic
mechanisms previously introduced to support of renew-
able sources of energy. As of 31 December 2016, at least
43 such cases had been registered.
This number, how-
ever, may not be entirely accurate. Arbitral proceedings
may be administered by institutions that do not disclose
the initiation of proceedings publicly or may be con-
ducted ad hoc, with no supervising institution. As a
result, the exact number of disputes already initiated is
unknown. In any case, it is safe to say that we are wit-
nessing a boom in renewable energy arbitration.
This new category of disputes comprises cases where
States are reducing or eliminating the economic incen-
tives they introduced in order to lure investments into
the renewable energy market. In a nutshell, on the one
hand, investors complain that such regulatory changes
diminish or exhaust the commercial viability of their
On the other hand, host States contend
that support mechanisms have proven too popular (and
therefore, too expensive); that they became too generous
because the production costs for the new technology
have decreased significantly; or that they simply cannot
afford these initiatives due to the financial crisis.
These disputes raise a classic problem in investment
arbitration: how to strike a balance between foreign
investorsreliance on the regulations that underpin their
long-term investments and the host States right to adapt
regulations to new contingencies.
The introduction of
changes to economic support mechanisms typically
involves governmental measures adopted for public pur-
poses, whether for financial or other reasons. The host
*Corresponding author.
For a full list, see F. Dias Sim~
oes, ‘When Green Incentives Go Pale:
Investment Arbitration and Renewable Energy Policymaking’, 45:2
Denver Journal of International Law and Policy (2017), 251, at 260.
A. De Luca, ‘Withdrawing Incentives to Attract FDI: Can Host Coun-
tries Put the Genie Back in the Bottle?’, found at: <http://ccsi.columb>, at 2; D. Behn and
O.K. Fauchald, ‘Governments under Cross-fire? Renewable Energy
and International Economic Tribunals’, 8:2 Manchester Journal of
International Economic Law (2015), 117, at 120.
N. Bankes, ‘Decarbonising the Economy and International Invest-
ment Law’, 30:4 Journal of Energy and Natural Resources Law
(2012), 497, at 502; E. Whitsitt and N. Bankes, ‘The Evolution of Inter-
national Investment Law and its Application to the Energy Sector’,
51:2 Alberta Law Review (2013), 207, at 213214; J. Prest, ‘The
Future of Feed-In Tariffs: Capacity Caps, Scheme Closures and
Looming Grid Parity’, 3:1 Renewable Energy Law and Policy Review
(2012), 25, at 3436; P. Del Rio and P. Mir-Artigues, ‘A Cautionary
Tale: Spain’s Solar PV Investment Bubble’ (2014), found at: <https://>,at1214; I.
Glinavos, ‘Solar Eclipse: Investment Treaty Arbitration and Spain’s
Photovoltaic Troubles’, in: C. Gurdgiev, L. Leonard and M. Gonzalez-
Perez (eds.), Lessons from the Great Recession: At the Crossroads of
Sustainability and Recovery (Emerald, 2016), 251, at 254.
See R. Dolzer and C. Schreuer, Principles of International Invest-
ment Law (Oxford University Press, 2008), at 145149.
ª2017 John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
RECIEL 26 (2) 2017. ISSN 2050-0386 DOI: 10.1111/reel.12198
Review of European Community & International Environmental Law

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