Foreign investors in renewable energy rely on the predictability and stability of support schemes that enable the financial viability of such investments.

Regulatory changes to support schemes have resulted in investment arbitration treaty claims initiated by renewable energy investors under the Energy Charter Treaty (ECT), most notably against Spain, Italy and the Czech Republic. Investors essentially claim that host states, by reforming the law related to support schemes on which they relied in making the investment, failed to comply with the obligation to accord fair and equitable treatment (FET).

Narrowing the scope
This Master thesis analyses arbitral awards in the Spanish and Italian renewable energy cases in the context of trends that can be discerned from arbitral jurisprudence in relation to the assessment of legitimate expectations under the FET standard and investor diligence. Case law points to a narrowing of the scope of legitimate expectations under the FET standard, limiting the possibility for foreign investors to invoke the frustration of legitimate expectations.

More specifically, recent jurisprudence indicates that tribunals tend to take into account the specificity of the commitments made towards the investor, the host state's legitimate regulatory freedom and the investor's own conduct in evaluating the circumstances that allegedly generated the investor's legitimate expectations. The tribunals in the renewable energy cases largely build on this trend, meaning that renewable energy investors in Spain and Italy are in a difficult position to challenge regulatory changes that have affected their investment.

An increasingly high threshold for invoking the FET standard could be problematic considering the role of renewable energy investors in facilitating the transition to a low-carbon economy.

Written by Violette Wolters, image by Flickr