Quantum matters – Loss for Italy in a solar power case

Daniel Turner Daniel Turner

On 23 December 2018, an SCC Arbitral Tribunal ordered the Italian Republic (Italy or the Respondent) to pay €11.9 million plus interest in compensation to Greentech Energy Systems and NovEnergia (the Claimants) for the loss in value of their investments in 134 photovoltaic (PV) plants in Italy.


Between 2008 and 2013, the Claimants, who are based in Denmark and Luxembourg, invested in PV plants across Italy. Under Italian Conto Energia decrees, these PV plants benefited from feed-in tariff premiums, paid in addition to the wholesale electricity prices, for a period of 20 years from each PV plant’s first connection to the grid. The tariff premium received by each PV was formalised in a letter from the Italian energy authority (GSE) and in a contract with the GSE, which both specified the amount of the tariff premium and its fixed duration of 20 years.

From 2012 onwards, Italy implemented a series of measures to reduce the level of incentives received by new both new and existing PV plants, mostly on a voluntary basis. On 24 June 2014, Italy adopted Law Decree No. 91/2014, known as the Spalma-incentivi Decree, to come into force from 1 January 2015, which modified the amount and duration of the inventive tariffs previously granted to existing PV plants (among other measures).

The Claimants claimed compensation from Italy for breach of the fair and equitable treatment clause under the Energy Charter Treaty (ECT).

Position of the parties

Given the express assurances made by Italy, a majority of the Tribunal concluded that the incentive tariff reduction under the Spalma-incentivi Decree undermined the Claimants’ legitimate expectations and thus breached the ECT. This article considers the quantum aspects of this claim.

The Claimants claimed €11.9 million (plus interest) for the diminution in fair market value of their investments caused by the inventive tariff reduction.

The parties disagreed on the compensation standard to be followed, the appropriate method and the discount rate used to calculate the loss of fair market value.

Claimants’ approach

The Claimants claimed full compensation for their loss.

They used the discounted cash flow (DCF) method to calculate their future losses. As the PV plants had been operational for several years, they had relatively predictable production volumes, sales prices that were mostly known and costs that were generally predictable. 

The Claimants used a weighted average cost of capital (WACC) of 5% based on the German 10-year bond, a country risk premium and a market risk premium.

Respondent’s approach

The Respondent argued that the ECT should be interpreted as allowing the Tribunal to reduce the amount of compensation otherwise due to the Claimants to take into account all the circumstances of the case.

The Respondent considered that the DCF method was speculative and that it would grant the Claimants excessive remuneration given the reduced cost of energy and the changes in the PV market. The Respondents’ quantum experts suggested three alternative methods, namely a comparative method, a cost-based method and an asset-based method.

The Respondents’ quantum experts asserted that a discount rate between 6.30% and 7.63% was more appropriate, based on the Italian risk-free rate based and a market risk premium of between 5.4% and 8.6%.

Approach taken by the Tribunal

The Tribunal considered that the principle of full compensation applied in this case and that it did not have discretion to grant damages below the level of full compensation.

The Tribunal concluded that the DCF method was appropriate and should be applied in this case as the plants had relatively predictable revenues and costs.

Upon consideration of the opinions of both sides’ quantum experts, the Tribunal considered that the assumptions used by the Claimants’ expert and the application of a WACC of 5% were reasonable and appropriate.

The Tribunal awarded damages of €11.9 million as claimed, plus interest.


The Tribunal found that the DCF method is appropriate where businesses have an established operational record and where future variables (revenues, costs) were generally predictable.

Case information

Claimant: Greentech Energy Systems A/S, NovEnergia II Energy & Environment (SCA) SICAR, and NovEnergia II Italian Portfolio SA

Respondent: The Italian Republic

Case ref: SCC Arbitration V (2015/095)


Members of the Tribunal

Mr David R. Haigh, Q.C., Arbitrator

Prof. Giorgio Sacerdoti, Arbitrator

Prof. William W. Park, Presiding Arbitrator

Secretary of the Tribunal

Mr Jeremy M. Bloomenthal

For further information, please contact Daniel Turner.

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