The Reduction of the Incentives: What Possible Remedies are there for Investors?
(Room D201-D202, Elicium, Second Floor)
09 Jun 15
4:00 AM
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5:30 PM
Tracks:
Theme: Europe's Transitioning Power Sector
In the last few years, certain countries have passed a series of regulations retroactively affecting incentives for renewable energy sources, either reducing them or eliminating them completely.
Such measures have sometimes been motivated by political considerations (e.g. the aim to reduce the "energy bill" for industrial and retail consumers); however, they have always created considerable concern among renewable energy operators and foreign investors.
A retroactive and detrimental change to the incentive regimes not only spoils a country's attractiveness to potential investors, but also causes material harm to investors who are already operating in the country. Incentives have been one of the main drivers for investments in the renewable energy sector, and are one of the key elements on which the business plan and the IRR of the project company are calculated, and the basis on which financing is granted and financial covenants for the loan are set. Therefore, the effects of retroactive measures to decrease expected incentives may impair the successful completion and the future profitability, or even sustainability, of a renewable energy project.
In consideration of the above, in this paper we will first illustrate in practical terms the way in which operators may obtain remedies for the damages they suffer as a consequence of retroactive regulatory changes, focusing on the dispute resolution mechanisms available to investors (such as international investor-state arbitration under the Energy Charter Treaty and the ICSID Convention), and then briefly describe three case studies of retroactive changes in the incentives regulations in Spain, Romania and Italy.