International Arbitration

Quantum matters – Solar energy claim against Spain

Sandy Cowan Sandy Cowan

On 4 May 2017, an ICSID arbitral Tribunal awarded €128 million in damages to two solar energy investors in a claim against Spain. This is a landmark case as it is the first time Spain was held accountable for breaching the Energy Charter Treaty after changing its renewables legislation in 2012.


This case involves a failed investment in Concentrated Solar Power (CSP) in Spain. CSP plants are large facilities that are expensive to build and require large initial capital investment. In 2007, Spain passed a Royal Decree RD661/2007 aimed at establishing a stable subsidy system that guaranteed attractive profitability for electricity produced using clean and efficient energy sources. The Claimants registered their three plants under the regime in November 2009, and following completion of the plants in May 2012 received certification that all three plants were registered for the regime under RD661/2007.

In December 2012, without notice to CSP producers, the Respondent adopted Law 15/2012 imposing a 7% tax on the value of energy fed into the national grid. This was followed by the adoption of Royal Decree Law 9/2013 which repealed RD661/2007, thereby eliminating the regime of fixed tariffs and premiums. It replacing RD661/2007 with a system based on a hypothetical efficient plant for production capacity and costs to which the Claimants’ three plants did not conform.

Damages calculation

The Parties took differing approaches to the calculation of damages:

Claimants’ Approach

The Claimants requested compensation for the loss in value of their investment. This was calculated as the difference between the cash flows that would have been generated by the solar power plants had the original 2007 legislation been maintained (the hypothetical scenario) and those that have been and will be generated under the new 2012 regime (the actual scenario). The Claimants used a Discounted Cash Flow (DCF) approach to calculate the past and future cash flows allegedly lost to them. The Claimants used a 40-year useful life in the DCF for the plant, claiming losses of €13 million up to June 2014, and €196 million for losses up to the end of the plants useful life, for a total loss of €209 million.

Respondent’s Approach

The Respondent argued that the Claimants’ plants did not qualify for the tariff and subsidies and thus had an original valuation of nil. In the second valuation, the Respondent used the Regulatory Asset Base (RAB) to determine the fair market value of €31.188 million with an estimated useful life for the plants of 25 years. The Respondent claimed that the DCF method was not appropriate due to the long time-period leading to a high level of uncertainty with assumptions used in the DCF.

Tribunal’s Approach

The Tribunal agreed with the Claimants that the DCF method was the most appropriate method to calculate the losses incurred by the Claimants. The Tribunal stated that the DCF method has been frequently used as an appropriate method for arriving at a valuation of a business operating as a going concern. It agreed with the Claimants’ assumption that power stations have a relatively simple business model, producing electricity whose demand and long-run value can be analysed and modelled in detail based on readily available data. The Tribunal agreed with the Respondent that a 40-year useful life for the plants was not supported by any evidence, whereas the 25-year useful life was supported by accountants’ projections for impairment of the plants, as well as a due diligence report produced by the consulting engineers on the design of the projects. The Tribunal therefore awarded the Claimant an award of €128 million using their DCF model, but used a 25-year useful life as proposed by the Respondent.


This case again shows the willingness of Tribunals to recognise the DCF method as a suitable tool for business valuations where there is sufficient justifiable evidence to support the inputs to produce valid valuations. In this case, a key difference between the Parties in the DCF calculation was the expected useful life of the plant and its effect on the valuation. The Claimants did not provide sufficient supporting evidence to use a 40-year useful life leading the Tribunal to use the Respondents 25-year useful life supported by empirical evidence.

Case information

Claimant: Eiser Infrastructure Limited and Energia Solar Luxembourg S.à.r.l 

Respondent: Kingdom of Spain

Case ref: ICSID Case No. ARB/13/36

Arbitrators: Professor John R. Crook (United States), President

Dr. Stanimir A. Alexandrov (United States), Arbitrator

Professor Campbell McLachlan QC (New Zealand), Arbitrator

Ms. Luisa Fernanda Torres, Secretary of the Tribunal


1. International centre for settlement of investment disputes, ICSID Case No. ARB/13/36, 2017

For further information, please contact Sandy Cowan or James Mackey