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Council on Energy, Environment and Water Integrated | International | Independent
Paper

Trends in Investor Claims over Feed-in Tariffs for Renewable Energy

Vyoma Jha
July 2012 | Renewables

Suggested Citation: Jha, Vyoma. 2012. "Trends in investor claims over feed-in tariffs for renewable energy." Investment Treaty News, July.

Overview

This paper highlights two ways in which renewable energy investments have featured in investment disputes. The first type of dispute relates to domestic content performance requirements imposed on investors. The second and the more common issue is related to the withdrawal or modification of Feed-in-Tariffs (FiTs). FiTs for renewable energy have been involved in a series of claims by foreign investors under investment treaties. Spain, Italy and the Czech Republic are among the countries known to be facing claims challenging these types of measures.

Key Highlights

  • FiT policies are an important tool to promote renewable energy investments. Yet different aspects of these policies are now the subject of investment disputes bought under ilateral investment treaties (BITs) or the Energy Charter Treaty (ECT).
  • The government should be aware that making long-term commitments with respect to tariffs and other benefits to stimulate investments in renewable energy can lead to expensive international arbitration, as seen in claims brought against the European countries.
  • The government should take care to build in flexibilities at the outset so as to eliminate the risk of legitimate policy decisions triggering legal battles while providing adequate assurance to the investors.
  • Incentives should not be set too high to be unreasonable or too difficult for the treasury to bear.
  • Domestic Content Requirements (DCR) within a FiT for renewable energy are particularly vulnerable to an investor challenge if the country’s investment treaties contain an express prohibition on performance requirements.
  • Canada’s measures relating to DCR in Ontario’s FiT program are subject of two ongoing WTO disputes brought by Japan and the European Union, which were being heard together.
  • Italy is in a dispute with foreign investors over its efforts to roll back FiTs in the country’s booming solar energy market.
  • The Czech Republic, where investors were enticed by attractive FiT policies for solar power, also faced a heavy bill for the solar boom. In order to curb costs, the government in December 2010 introduced a new 26 per cent retroactive ‘solar tax’ on all producers of solar energy.
  • Now, the Czech Republic is threatened with a series of legal disputes and potential arbitration claims by foreign-based solar investors.
  • Since FiTs are incapable of independent economic exploitation and investors will likely not lose control of their installations, any interface with such schemes may not be considered expropriation.

The government should take care to build in flexibilities at the outset so as to eliminate the risk of legitimate policy decisions triggering legal battles while providing adequate assurance to the investors.

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