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Quantum matters – Another loss for Spain

Daniel Turner Daniel Turner

On 2 August 2019, an ICSID Arbitral Tribunal ordered Spain to pay €28.2 million in compensation to Infrared Environmental Infrastructure GP Limited and others for the loss of value of its investments in two Concentrated Solar Power (CSP) plants.


In July 2011, InfraRed and others (the Claimants) invested a total of €31 million in two CSP plants in Spain (the Respondent).

Between 2012 and 2014, Spain enacted a series of changes to the remuneration regime for renewable energy production which reduced the total remuneration available to renewable energy producers, including CSP plants.

Under Spanish Royal Decree RD661/2007 in force at the time, the energy produced by registered plants could be sold to the network for a regulated feed-in tariff (FIT) for their operational lifetime.

InfraRed and others claimed compensation from Spain for unfair and inequitable treatment on the basis of the Energy Charter Treaty (ECT).

Position of the parties

The Claimants assert a total loss of profits of €75.7 million for the two plants over their useful life using the discounted cash flow (DCF) method. The Claimants submit that DCF is the most appropriate method because the revenues and expenses of the plants are easy to calculate and forecast.

The Respondent suggested using a valuation method based on the costs of construction i.e. an asset based valuation (ABV).

The Claimant also claimed pre-award and post-award interest.

The Parties disagreed on the many variables inputted into their DCF and ABV analyses to build the ’but-for‘ and ’actual‘ scenarios, and the discount rate, among others.

On liability the Tribunal found in favour of the Claimant. This article considers the quantum aspects.

Claimant’s approach

The Claimant calculated the loss of profit using the DCF method as the difference between what they would have earned, had they continued to receive the long-term tariff for the lifetime of the plants (but-for scenario) and what they earned after the change in regulatory regime (actual scenario).

The Claimant used the DCF method as the CSP plants had a history of five years of operation (by the time of the hearing) and had stable and predictable revenues for their lifetime.

The Claimant proposed that the plant’s operational lifetime was 35 years.

The Claimant considered the valuation date to be June 2014, when Spain enacted the new standards of remuneration.

Respondent’s approach

The Respondent considered that the DCF method was inappropriate because it generated an exaggerated book-to-market value, an excessive rate of return, CSP technology was immature and that there was insufficient empirical evidence on the historical performance and costs of CSP plants.

The Respondent suggested using a valuation method based on the costs of construction (i.e. an asset based valuation), and a valuation date of December 2012.

The Respondent argued that the Spanish regulation did not alter the underlying value of the assets, and that as the remuneration received by the plants covered the construction costs and provided the investors with a reasonable return, the Claimants’ investments did not suffer any claimable financial impact.

The Respondent proposed that the plant’s operational lifetime is 25 years, based on technical expert opinions.

Approach taken by the Tribunal

The Tribunal was of the view that DCF was the most appropriate method for calculating damages in this case, that the plants should assume a 25-year useful life for the plants, and that the lost cash flows for that period should be evaluated as at December 2014.

The Tribunal considered that the plants had a sufficiently long track record to both reasonably forecast future revenues and costs, and to identify with reasonable accuracy the uncertainties inherent in the approach and the discount factors to be applied to the calculation. It was also noted that the DCF model was all the more appropriate in this case, given that the plants derive the largest portion of their revenues from a regulated remuneration regime, the values of which were well-documented and easily accessible.

The Tribunal favoured a 25 year useful life for the plants, as beyond this the plants would likely require significant additional investment.

The Tribunal was satisfied that the breach of the ECT crystallised in June 2014, and that this was the appropriate date at which to value the Claimant’s losses.

The Tribunal awarded €28.2 million to the Claimant, plus a pre-award and post-award rate of interest at 2% compounded annually.

The Tribunal observed that this sum was commensurate with the €31m invested by the Claimants, and served as a form of reality check regarding the reasonableness of the compensation awarded to the Claimants in the circumstances of the case.


This case illustrates the relevance of the DCF method to assess damages in a regulated environment where income streams are stable and predictable. The Tribunal considered that the DCF method should be the default method of assessing the loss of value of an investment in the absence of persuasive arguments to the contrary.

Case information

Claimant: InfraRed Environmental Infrastructure GP Limited and others

Respondent: Kingdom of Spain

Case ref: ICSID Case No. ARB/14/12


Members of the Tribunal

Professor William W. Park

Professor Pierre-Marie Dupuy

Mr. Stephen L. Drymer, President

Secretary of the Tribunal

Ms. Natali Sequeira

Assistant to the Tribunal

Mr. Bogdan-Alexandru Dobrota

For further information, please contact Daniel Turner.

Written by Sandy Cowan and Nilesh Mehta.

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